If you’re No. 2 in a market, you could spend tons of time reinventing the wheel and trying to ‘discover’ something new or…

You could wait till No.1  aka the market leader has borne the costs of having a product development process, developing a new product or variation, educating the market about it, setting it into distribution and promoting it. So, No.1 is the market leader for now. Big deal! Assuming that the product is easy to replicate, you were just able to outsource the R&D for the newest addition to your product line for free. Now, unless you come up with an outstanding USP (Unique Selling Proposition), there a slim chance that you’ll overtake the market leader, but you’ll definitely get strong profits as you wont have the upfront costs of R&D and product awareness/advertising.

According to Philip Kotler, it quite common to find this kind of ‘conscious parallelism’ in capital-intensive, homogeneous industries like steel, fertilizers and chemicals. I’d add any other kind of generic products to that mix like electronics – tv, stereo systems, dvd players, computers, plastics and things of utility. It is quite sad – we’re moving from an age of innovation and creativity to an age of generic consumer misery. In any case, in industries like this the opportunities for product differentiation are low, service levels are usually the same (oh hey, would you like your steel gift wrapped? ) and the products are very price sensitive.  Typically, in such industries a short-run grab for market share is a no-no since that will only result in retaliation.

So, everyone co-exists peacefully for most of the time until one of the following strategies are implemented effectively…

1. The Counterfeiter : The most disreputable of all followers. This guy duplicates every aspect of the market leader’s product and packaging and sells the fakes on the black or open market. A good example is the counterfeiting that takes place in India, China or the Far East and those products land on the streets of New York where folks readily buy a Prada duplicate. Naturally, this kind of follower also has excellent reverse-engineering skills to take apart an intricate product.

2. The Cloner : This type of follower uses the leader’s products, brands and packaging with variations. The computer industry is plagued with tons of cloners worldwide. In developing markets, cloners attempt to build their own brands by using the leader’s product attributes, brand colors, similar messaging and of course, packaging.

3. The Imitator : The imitator may copy some basic features and functionality of the leader’s product but differentiates their products in terms of packaging, advertising and pricing. Market leaders don’t mind imitators as long as they don’t attack them aggressively.

4. The Adapter : The adapter adapts some of the features of the market leader’s products and improves them. Usually, the adapter plays in different markets but can morph into a future competitor in the market leader’s home market. A good example of this is the Japanese auto industry which currently rules the roost in the North American market.

It’s imporant to realize your limitations if you’re a follower. If you cant get to No.2 or at the most No. 3, then it’s better to exit the business (ex-GE Jack Welch style) and focus on your core competencies rather than play a losing game. It’s key to note that a No. 2 firm typically make a 6% ROI. No.3 operates  at a loss so if you’re at the No.3 position either you have a high-priced niche productwhich keeps you in the black or you have a vast portfolio of products that helpd you subsidize your loss-making No.3 market-share product. Either way, let common-sense and net profits lead your decision-mkaing rather than a sentimental reason to keep running a loss-making product.