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Market-Follower Strategies

Theodore Levitt argues that a strategy of product imitation might be as profitable as a strategy of product innovation.30 The innovator bears the expense of developing the new product, getting it into distribution, and informing and educating the market. The reward for all this work and risk is normally market leadership. However, another firm can come along and copy or improve on the new product. Although it may not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense.

Many companies prefer to follow rather than challenge the market leader, especially in capital-intensive, homogeneous-product industries such as steel, fertilizers, and chemicals. The opportunities for product differentiation and image differentiation are low, service quality is comparable, and price sensitivity runs high. Short-run grabs for market share only provoke retaliation in such situations, so most firms present similar offers to buyers, usually by copying the leader, which keeps market shares stable.

Some followers are cloners, emulating the leader’s products, name, and packaging with slight variations. Some are imitators, copying a few things from the leader but differentiating themselves on packaging, advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack aggressively. Some followers become adapters, taking the leader’s products and adapting or improving them, perhaps selling them to different markets. Note that these three follower strategies are very different from the illegal and unethical follower strategy of counterfeiting. Counterfeiters duplicate the leader’s product and packages and sell them on the black market or through disreputable dealers.

What does a follower earn? Normally, less than the leader. Some follower firms have found success, but in another industry.

TABLE 7.2 Niche Specialist Roles

• End-user specialist. The firm specializes in one type of end-use customer.

• Vertical-level specialist. The firm specializes at some vertical level of the production-distribution value chain

• Customer-size specialist. The firm concentrates on either small, medium-sized, or large customers.

• Specific-customer specialist. The firm limits its selling to one or a few customers.

• Geographic specialist. The firm sells only in a certain locality, region, or area of the world.

• Product or product line specialist. The firm carries or produces only one product line or product.

• Product-feature specialist. The firm specializes in a certain type of product or product feature.

• Job-shop specialist. The firm customizes its products for individual customers.

• Quality-price specialist. The firm operates at the low- or high-quality end of the market.

• Service specialist. The firm offers one or more services not available from other firms.

• Channel specialist. The firm specializes in serving only one channel of distribution.

Market-Nicher Strategies

An alternative to being a follower in a large market is to be a leader in a small market, or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. Over time, those markets can sometimes end up being sizable in their own right. The nicher achieves high margin, whereas the mass marketer achieves high volume. The risk is that the niche might dry up or be attacked, so nichers must seek to create new niches, expand existing niches, and protect their niches. Multiple niching can be preferable to single niching because strength in two or more niches increases the chances for survival. Table 7.2 shows the specialist roles open to nichers.

 
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