STRATEGY TYPOLOGIES
While Porter’s typologies represent one important way of looking at how firms behave in the market place there are other ways of looking at what firms do. Various suggestions have been put forward to account for the strategies adopted by firms. A commonly adopted framework is to consider firms according to the role they play in a market. The suggestion is that firms act as:
1 market leader 3 market follower, or 2 market challenger 4 market nicher.
These roles are discussed below.
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Leader
The market leader is the enterprise that has the largest market share. Leadership is exercised with respect to price changes, new product introductions, distribution coverage and promotional intensity. Because of their large volume sales, market leaders enjoy the benefits of economies of scale and accumulated experience which helps reduce costs and bolster profits. Not surprisingly, dominant firms want to stay in the leading position and this requires them to:
(a) find ways of expanding total market demand (b) protect market share (c) even increase market share.
The market leader is conscious of economies of scale of operation and is happiest when making inroads into large and substantial markets. Small specialist markets (niches) are not the prime interest of market leaders.
For example, the Ford motor company produces a range of cars for high volume markets, e.g. the Fiesta for the small car market. Ferrari, on the other hand specializes in producing high-performance sports saloons, etc. for a very small market segment that is prepared to pay a very high price for such a car.
Challenger
Another group of competitors are referred to as market challengers. These companies aspire to become market leaders, recognizing the benefits of holding such an exalted position. Challengers attack the leader and other competitors in order to try and gain market share. It is uncommon for market challengers to attack the leader directly. They usually try to gain market share by attacking markets in which the smaller and less efficient firms operate. Such markets, of course, do have to be of a substantial size and not be too small or specialized to deter the larger firms.
There are a variety of strategies that challengers can adopt. One strategy is to produce an enormous variety of types, styles and sizes of products including both cheaper and more expensive models. This was a strategy adopted by the Japanese Seiko company when it attacked the watch market. It accompanied this strategy with another which involved distributing its watches through every possible channel. The wide variety of models it had available (over 2000) meant that it could supply different types of channel with different models and thereby avoid the adverse effects of channel conflict.
Follower
A third role that firms can adopt is that termed market follower. Firms which undertake a good deal of innovation often have to recoup massive investment costs. Market followers are able to copy what the leading firms produce and
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save themselves the burden of massive investment costs. This means that they can operate very profitably at the going price in a market. Such firms will obviously have to forego the market share which comes from being first into the field.
Providing they can stay cost efficient and obtain a reasonable share of the market they can survive. Less efficient ones, however, are open to attack from the market challengers.