The competitive positions of industry leaders are either much stronger than those of others, or dominant. Leaders are well known in the industry and use tried and tested strategies (lead by cost or through differentiation). Prominent industry leaders include Anheuser-Busch (beer), IBM (computers), Microsoft (software), McDonald’s (fast food restaurants), Gillette (shaving accessories), Campbell’s Soup (concentrated soups), Gerber (baby food), Eastman Kodak (photographic film), Wal-Mart (discount retail), Amazon.com (e-commerce), eBay (e-auctions ) and Levi Strauss (jeans).
The main strategic task of the industry leader is the choice of methods for protecting and strengthening a competitive position or gaining a dominant position. Gaining an industry leader position and a large market share is in itself very important, as it provides a significant competitive advantage and a level of profitability corresponding to the status of the largest company in the industry. Typically, industry leaders and dominant leaders use one of the following strategies:
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1. Offensive strategy. The main goal of this strategy is to maintain the position of a pioneer in the industry. The offensive strategy is based on the principle that the best way to achieve wide popularity and market dominance is to constantly outpace competitors and put them in the position of a catching-up, forced to adapt to initiatives leader; in other words, the best defense is offense. The role of the trendsetter in the industry forces the company to continuously look for ways to improve and renew the business, to maintain technological and innovative leadership, leadership in the quality and consumer properties of the product, in the level of customer service; constantly reduce costs, make it as easy as possible for consumers to switch from competitors’ products to the leader’s products. Options for an offensive strategy also include actions aimed at expanding consumer demand in the industry – projects to create new product lines, adapting the product to the needs of buyers in developing countries, expanding the range of opportunities for using the product, attracting new consumers, stimulating repeat purchases.
The market share of an industry leader often reaches such a size that there is a threat of applying antitrust legislation to it (as a rule, in order to avoid this, the market share should not exceed 60%). Therefore, the offensive strategy is aimed at achieving growth rates above the industry average and capturing the market share of competitors. The growth rate of the leader below the industry average indicates a gradual loss of its positions and an improvement in the chances of competitors.
2. Active defense strategy. This strategy is to create obstacles for existing competitors and new companies in the market. The goal of the defensive strategy is to maintain the existing market share and competitive advantages and gain a foothold in the positions already occupied. Here are examples of defensive actions:
make it difficult for newcomers and competitors to achieve their goals by intensively conducting advertising campaigns, improving customer service, actively investing in R&D; expand the range of products or models offered in order to counter the goods of competitors with their own products with the same consumer properties, or to occupy free market niches so that competitors do not take advantage of them; Offer personalized service and other value-added services that increase consumer commitment and make it harder for them to transition to competitors’ products. keep prices and quality of goods at an attractive level; build spare production capacity in the event of a surge in demand and to prevent smaller competitors from trying to expand their production base; Invest in cost reduction and technology upgrades to ensure leadership in these positions. patent priority technologies; conclude exclusive contracts with the best suppliers and dealers.
The active defense strategy is suitable for companies that have already reached a dominant position in their industry and fear accusations of violating antitrust laws, as well as companies seeking to extract the maximum profit from their leading position in a situation where the growth rate of the industry is low or a further increase in market share does not promise acceptable profits. The strategy of active defense also implies maintaining the company’s growth rate at a level not lower than the industry average (in order to avoid reducing market share) and investing in maintaining competitiveness;
3. Strategy of demonstration of force. In this case, the dominant leader in the industry acts firmly and decisively (without going beyond legal and ethical standards), if competitors with smaller volumes try to shake the position of the leader with the help of price discounts and other offensive actions. The company can further reduce prices in response to price reductions by a competitor; deploy a powerful marketing campaign at the first attempts of a competitor to win market share; offer tempting terms of supply to key consumers. The dominant leader in the framework of the strategy of demonstrating strength severely pursues distributors for trying to conclude agreements with competitors, provides sales agents with written information about the shortcomings of competitors’ products, lures the best employees of competitors, offering them tempting working conditions and payments.
Leaders often pursue policies that force consumer companies to abandon competitors’ products. Actions here are very diverse, ranging from a vigorous expression of discontent and ending with an offer to consumers to sign exclusive contracts for the supply of goods to the company in exchange for lower prices, or vice versa, to raise prices for their products for those consumers who buy and competitors’ goods. As a last resort, special discounts and privileged deliveries are applied to those customers who do not work with competing companies.
The obvious risks of using the strategy of demonstrating force include the danger of falling under antitrust regulation (for example, which happened with Microsoft), the danger of turning consumers against them with excessively aggressive tactics and spoiling the company’s reputation. Such a company should show prudence and not slide into unacceptable methods of struggle [15 pp.274–277].