When a new challenger enters the leader’s market, there exists the temptation to immediately react with a flurry of tactics or completely ignore the new player altogether. But, before either of these approaches should even be considered, a thoughtful assessment of the new entrant will provide a range of available options to strategically manage the situation. The following are the top 10 questions to catalyze your thought process and initiate a productive conversation around the topic of the new challenger:
- 1. Does the challenger’s offering provide different benefits from our offering?
- 2. Do the challenger’s unique benefits include functionality, quality, reliability, convenience, and/or cost?
- 3. Does the challenger enter the market with a different business model?
- 4. Does the challenger’s business model differ from ours in how they create, deliver, or capture value?
- 5. What is the challenger’s value proposition?
- 6. What is the challenger’s core competency?
- 7. What are the challenger’s top three capabilities?
- 8. Does the challenger’s offering target the same customer segments as our offering?
- 9. Is the challenger capable of taking away our current customers?
- 10. Should we respond to the challenger at this time or just monitor
If the analysis justifies responding to the challenger’s offering, there are typically four strategic approaches that can be taken. As a market leader, in addition to the offensive growth goal and strategies reviewed in the “Discipline #1: Coalesce” section, there are generally two additional goals: retain customers and slow the rate of customer defection. In determining their strategies, they will look to leverage their strengths and neutralize rivals. Figure 2.1 shows the options a leader has in developing strategies to protect their business, as first described by professor John Roberts.
Figure 2.1 Leader Strategies
McDonald’s is a good example of a leader able to retain its customers by leveraging the strengths of consistency and location, while continuing to expand into healthy menu items and beverages. Dunkin Donuts has also defended its market by blunting rivals’ (e.g., Starbucks) perceived advantages, showing how ordinary folks prefer the taste of Dunkin Donuts coffee. In the insurance industry, State Farm has worked to slow the rate of defection of younger customers to companies such as Progressive and Geico. In one advertising campaign, State Farm emphasizes the potential lost benefit of immediate, personalized service by switching to a less expensive, automated service provider. Finally, a leader can neutralize challengers and slow the rate of defection by attempting to minimize the importance of competitors’ benefits. Facebook used this approach as Google entered their social media space more directly with Google+. Facebook has downplayed the benefits of Google+ while continuing to update their presence with features and benefits to enhance their users’ experience.
If a new challenger enters your market, the Leader Strategies Matrix provides a means of generating insights on options to maintain and grow the business. As you review the resulting strategic options, be aware of the following turbulence that can jeopardize your status as the market leader:
- • Ceding the low end of the market, which potentially leads to ceding the middle of the market as well
- • Entering a new market created by the challenger without determining if your core competency and capabilities will translate into success in that market
- • Attempting to serve a new customer segment without understanding their unmet needs or jobs to be done
- • Not evolving to more profitable points in the value chain when your current point starts to become commoditized
- • Trying to add the challenger’s new business model onto your current business model
- • Ceding a market too quickly to a challenger without fighting when appropriate
- • Failure to make trade-offs and trying to be all things to all customers
- • Lack of focus, resulting in resources being spread too thin to provide superior value in any one area
- • Not leveraging your greater depth of customer insights into ways to help customers become more effective and/or efficient in the jobs they do
- • Failure to embed switching costs (e.g., the costs associated with changing brands) into your offerings to keep current customers close
- • Trying to launch a new business model using legacy perspectives and ROI metrics