DEFENSE STRATEGIES OF A MARKET LEADER-Article Excerpts

DEFENSE STRATEGIES OF A MARKET LEADER
Employed by market leaders, defensive marketing strategies are implemented any time a new
threat to market share appears. The type of industry doesn’t matter. For example:
 Google is the market leader in “cloud” technology services. To stay ahead of new
competitors, the company actually attacks itself by producing new products that force their
old ones into obsolescence. It thus presents a moving target for new competitors, who end up
competing primarily against the old Google products. (See also Cloud Marketing)
 Tesco was the market leader in general merchandising when Wal-Mart began to move
in, threatening to attract their customers with lower prices. Tesco responded with lowering
the price on many items, while simultaneously improving the personalization of coupons and
promotions. In so doing, and despite Wal-Mart’s ongoing success, Tesco kept hold of its
customer base in many cities.
 Tylenol was the market leader for non-aspirin pain relievers when Datril tried to
challenge them. Tylenol’s response was so massive and effective that it actually awoke a
“sleepy” market for aspirin alternatives. As a result, Tylenol is now the market leader for all
OTC pain relievers, including aspirin.
 Starbucks was not the first coffee shop or restaurant to offer free Wi-Fi, and to
promote that fact to customers; but it started doing so in order to protect its market share from
other businesses that were doing just that.
 Facebook, the market leader for social media, updated their options for friends’ lists
as a direct response to the “circles” offered on Google+. This allowed users to establish
different levels of involvement in their social media contacts.
In a free-market economy, industry leadership can quickly change, and even long-established
companies can be displaced. So any company with a dominant market share must constantly
be on its guard for new competition, and be quick to respond with the right strategy.
 market share—the percentage of customers who buy a business’s product
instead of the competitors’ products
 mind share—the awareness of a business among consumers (e.g. there may
be 10+ businesses in a given market, but only 2 of them might be
immediately identified by consumers)(I have covered this aspect in ABM
class of unit 2)
 product positioning—the consumer perception of a product’s virtues in
relation to other products on the market
HOW IS DEFENSIVE CAMPAIGN DEVELOPED BY STRATEGIC- MANAGERS?

In most cases, even the best defensive marketing strategy will not prevent a company from
having lower profits than it had before the new competitor showed up. An exception to this is
a “sleepy” market, where a market leader has not yet realized how much more demand exists
for its product (such as Tylenol in the early ‘80s).
If a market for a particular product is growing, the leader can maintain its profit level as long
as it gains new customers faster than its challengers. However, if that particular market has
been “fully mined,” any new competition is going to reduce profits for the established
business(es). Defensive responses hope to keep these losses to a minimum by promoting a
number of strategies, including:
 Pricing. The market leader may have to reduce its own prices (and profits) in order to
prevent customers from defecting to the competition. This is particularly important when the
threat comes from a lower-priced product. However, this strategy can also be used against a
similarly priced product advertising some other feature, as long as the savings in price are
perceived by customers to be of more value than that feature or quality.
In some cases the market leader may actually increase prices. For example, if a product sells
well based upon its quality, features, and/or reputation, many consumers who buy it may not
be attracted to a competitor’s lower-priced alternative. In this case, the market leader does not
try to keep its most price-sensitive customers from defecting to the competition, but instead
raises the price for the ones who were willing to pay more anyway. When this strategy is
used, it must be accompanied by advertising that focuses on the product’s increased value for
the money.
 Distribution. Sometimes it is possible to block the distribution of a competitor’s
product by creating incentives for distributors who refuse to carry it. However, this is only
possible when the market leader is well-off enough to provide these incentives—and when
doing so, will not be perceived as an illegal monopoly action. In most cases, companies can
do more to retain profits by investing less in distribution, focusing on keeping the most
defensible markets rather than trying to defend everywhere.
 Product improvement. Most products have more than one interesting quality for
customers. Dish soap, for example, has a combined quality of strong cleaning effectiveness
while staying gentle on hands. A competing product might be particularly strong against
some, but not all, of these qualities. Thus a defending company can choose to improve their
product either along their competitor’s strength, or along their own strength. Continuing the
dish soap example: If a competitor’s product advertises itself as particularly effective on
dishes, then the defending company can either try to make their product more, or it can
choose to improve its mildness (and then advertise that). A company’s choice of strategy will
depend upon market demand (i.e., do more customers buy their dish soap for its mildness, or
for its effectiveness?).
Defending companies must be careful when attempting to attack a robust competitor’s

strength, and should never change/abandon the product qualities that have driven their
success. For example, when Pepsi challenged Coca-Cola’s market dominance in the 1980s,
Coca-Cola tried to improve their product along their competitor’s strength by producing the
sweeter-tasting New Coke. The plan backfired, as it undermined its own brand and upset its
core customer base. Coca-Cola was forced to switch back to its former recipe, failing to
recapture Pepsi’s customers. (See also Marketing Soft Drinks)
 Advertising. Defensive companies will invariably respond to new competitors in
their ad campaigns. But the content of these campaigns is important. For example, promoting
their brand at this point is generally a bad investment. Product and brand awareness
campaigns yield a diminishing return on investment, and never address why the competitor’s
product is attracting customers. A better advertising strategy is to reposition the product,
stressing the features that the competitor is weak on (or doesn’t have). Such advertising can
work without changing the product. However, in other cases, the marketing strategy will also
involve some kind of product improvement.
 Defend profits without defending market share. In some cases, a company with
multiple products may choose to protect profits by divesting itself of a losing product. It then
takes the money it had previously invested in this product and moves it to other products that
are like to offer greater returns.
 change product pricing
 if possible, block competitor’s distribution channels
 improve the threatened product
 reposition the product through advertising

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DEFENSE STRATEGIES OF A MARKET LEADER

HOW IS DEFENSIVE CAMPAIGN DEVELOPED BY STRATEGIC- MANAGERS?

Defending companies must be careful when attempting to attack a robust competitor’s

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