Rival Business Approach: Evaluating Tactics and Their Successes and Failures
In the competitive world of business, market challengers are firms that strive to increase their market share and replace the market leader. These second-largest dominant companies in the market employ various strategies to undermine the established dominance of market leaders.
Flanking Attacks
A flank attack involves targeting the market leader's weakest segments or geographic areas where they are less strong. By doing so, challengers can avoid direct confrontation and exploit vulnerabilities, chipping away at the leader's market share. Pepsi, for instance, has long been a market challenger trying to steal Coca-Cola's market share in the soft drink business.
Bypass Attacks
Bypass attacks are indirect, with challengers building resources and capacity first, avoiding direct competition with market leaders, and then attacking head-on with new products or new markets. This strategy allows challengers to establish a foothold before taking on the market leader.
Direct Head-to-Head Attacks
In some cases, challengers compete aggressively on product features, pricing, packaging, or service innovation directly against the leader. They focus on innovations and redefining product scope to attract customers. This approach requires significant resources and a willingness to take risks, but it can pay off by capturing a substantial portion of the market.
Speed and Agility Advantage
Challenger brands often operate with leaner teams and faster decision-making. This agility allows them to experiment rapidly, pivot quickly, optimize campaigns in real time, and respond more immediately to customer needs, creating a competitive advantage over slower, legacy market leaders.
New Market Development and Differentiation
Challengers broaden the market or redefine the category, inviting consumers into a unique brand identity that legacy leaders may struggle to replicate. This emotional or identity connection builds loyalty and market traction.
Pricing Strategies
Some challengers price slightly below market leaders to attract price-sensitive customers, using psychological pricing effects and price anchoring to appear more attractive without eroding perceived value significantly.
While market leaders focus on reinforcing their position through tactics such as diversified product portfolios, pre-emptive strikes, blocking competitors via regulation, and leveraging their corporate image, challengers tend to emphasize offensive moves that capitalize on innovation, speed, niche targeting, and customer engagement to upset market dominance.
However, being a market challenger is not without its challenges. Customers may be reluctant to switch to their products, perceiving them as inferior to market leaders. Additionally, customers may want completely new products rather than improvements on existing ones, making it difficult for market challengers to appeal to them.
To succeed, a challenger must have a sustainable advantage, such as a low-cost structure or product differentiation. Moreover, the challenger must be at least as good as the market leader in terms of capability and resources. If a challenger fails to take the market leader's position, they may be replaced by market followers, companies that prefer an accommodative strategy over an offensive strategy, seeking to effectively imitate market leaders while finding profitable opportunities.
In summary, market challengers successfully attack leaders by focusing on weaker fronts (flanking), bypassing strongholds to create new markets, engaging in direct competition through innovation and pricing, and leveraging agility and identity-driven differentiation to disrupt established players. These strategies, when executed effectively, can lead to a challenger becoming the new market leader.
- In the sphere of finance and investing, market challengers in the business sector, such as Pepsi in the soft drink industry, often employ flanking attacks to undermine the dominance of market leaders, focusing on less robust segments or geographic areas to gradually chip away at their market share.
- Some challengers, while avoiding direct head-to-head competition due to the formidable resources and capabilities of market leaders, opt for bypass attacks, building their resources and capacity first, then launching a head-on attack with new products or markets, aiming to establish a foothold before challenging the market leader.
