Is it better to be first to market with a new product, or is it better to follow the market leader and mitigate costly mistakes? Well, it depends. In some cases, being first has huge rewards, while market followers have little to left to capitalize on. In other instances being first can be catastrophic as your competition capitalizes on your mistakes and captures market share. So, is it better to be a market leader, follower or challenger? Actually, it's far more important to be a market expert first, and then use that knowledge to decide whether to lead or follow.
First, we'll review what it means to be a market leader, challenger and follower. In this case, what are the pros and cons of each and what can you expect in each position?
Second, we'll review why having a market intelligence gathering strategy is so important to succeeding in today's marketplace: You need it in order to become a market expert, one who knows whether to lead, challenge or follow on a given product introduction.
Third, we'll review examples of how being first was successful, while also being an unmitigated disaster. Ultimately, it's not always ideal to be first. There are consequences to approaching the market at the wrong time.
Finally, we'll explain why concentrating on being a market expert is the ideal strategy in today's economy. In this case, it's not about leading, challenging or following but about knowing how and when to approach the market.
Defining Leaders, Challengers and Followers
The Market Leader:
Being a leader has a number of benefits and drawbacks. Ultimately, your company must constantly defend its position as the incumbent supplier. You must continually keep your pipeline full of new product introductions. This is extremely costly and time-consuming, with little room for error.
Maintaining a leadership position means constantly defending business, protecting market share and keeping your customers waiting for the next product offering. The benefits are that you've secured your market's top spot and are the first choice of customers. You have high market credibility and are seen as the ultimate resource within the market.
The drawbacks are that it's extremely difficult and costly to maintain that position for extended periods. In many instances, leaders have high overhead. They find it difficult to compete with smaller, more nimble competitors. Ultimately, you've got the top spot, but all your competitors are trying to usurp your position. As such, they may have an easier time adjusting to a changing marketplace.
The Market Challenger
Being a challenger means capitalizing on the mistakes of leaders. This allows your company to reduce its research and development costs, as you can easily offer an upgraded product or service based on the deficiencies of your competition's latest offering. Lower design costs mean you have faster product-to-market lead times on new introductions. You are hungry, constantly in pursuit of new business, and seen as an aggressive and proactive enterprise. In some cases, it's easier to win business due to your lower overhead and smaller overall cost structure. However, there are drawbacks.
Some of the biggest issues with being a challenger is the position it carries. First, your company is constantly being compared to leaders. This makes it difficult to change customer perceptions. Second, you aren't the primary choice of the market and likely aren't able to secure incumbent positions. Third, customers may not turn to you for new product designs and upgrades - instead preferring to deal with the market's leader. Fourth, it's not uncommon for customers to use your pricing to keep leaders competitive. Finally, any issues in product performance immediately reinforces the view that your company isn't as good as the competitor your chasing.
The Market Follower
Unlike the leaders and challengers in your market, your position as the follower allows you to capitalize on the mistakes of both. You can then use price skimming strategies that increase gross profit by focusing on customer segments ignored by your larger competition. Instead of waiting for individual leaders or challengers to falter, you merely wait to see how the market responds to their product offering - before making a move of your own.
- Will the market accept the new price increase?
- Will the market accept the new product innovations?
- Will the market accept the new product upgrades?
- Are customers ready for a new offering?
Answering these aforementioned questions means waiting for leaders and challengers before moving forward. There is a benefit to waiting, but there are also drawbacks.
While being a follower means you can capitalize on competitor errors, it also means you aren't willing to be innovative. It means you're simply waiting for others to make mistakes. It means you're happy to sit back, wait for problems to arise and then move forward with your own offering. While you enjoy lower costs, lower research and development expenses, and lower costs to serve customers, you are still seen as a company unwilling to take chances. Again, perception is 100% reality: Will customers turn to you in times of need?
Your Market Intelligence Gathering Strategy
Today's marketplace requires you become a market expert first, before deciding whether to lead, challenge or follow any new production introduction. Ultimately, this "expert" position requires a market intelligence gathering strategy.
The best enterprises use an intelligence gathering strategy in order to remain up-to-date with all things market-related. This means gathering information from their customers, their partners, their vendors and in some cases, their competitors - albeit through second-hand information.
One way to keep track of up-to-the-minute pricing and competitor offers is by using a back-end rebate program with customers. This compensation plan helps increase customer retention and loyalty.
Competitor Pricing Information Via the Back-End Rebate Program
One of the most important aspects of putting together your market intelligence strategy is to be able to understand emerging trends in terms of customer preferences and competitor pricing. Unfortunately, not all markets are as obvious as some consumer and retail markets, one where a new product introduction is announced and pricing is immediately known to all. Instead, a number of companies operate in markets where this information is more difficult to secure. In this case, it's a matter of timing - and the timing doesn't always work in your favor.
The first tool to becoming that expert on your market is to use a back-end customer retention plan like the one described in the video below. This plan incentivizes your customers to get back to you with pertinent market information the moment they receive a competitive bid. It's an inexpensive resource that increases customer retention, while feeding you with pertinent market data on competitor pricing, offers and introductions.
The table and video above explains how to use a customer compensation plan to gather essential market data. It is taken from the post: Sample Back-End Rebate Excel Sheet for Customer Retention
A History of Success Being First to Market
When thinking of examples of companies who have come to market with new and innovative products, you need look no further than a company like Coca-Cola, a company that was the first to introduce a cola product in 1886. By being first with an innovative product never before seen, Coca-Cola continues to dominate their market more than 125 years after the introduction of their flagship product. Sure, there are other soft drinks out there, and they’ve made inroads into Coca-Cola’s market share, but for most consumers, a soft drink and coke are one-and-the-same. While being first to market worked in Coca-Cola’s favor, there are also plenty of examples of where being first can be disastrous.
A History of Failure Being First to Market
We need only look through history to see examples of companies who suffered tremendously be being first. For instance, take the well known battle between Betamax from Sony, and JVC’s own VHS tapes. This is a well documented case of how being first to market failed for Sony as it introduced a product that was vastly inferior to its competition's.
Sony first introduced Betamax in 1975, and while issues and performance became front and center in consumer’s minds, JVC waited patiently, developed their own product, and captured market share. JVC capitalized on Sony’s errors of a low recording speed, low recording capacity of only 1 hour, and came out with a product that had twice the recording speed and 4 hours of available recording time. In this case, being a market leader failed, while being a market follower served JVC well. The end result was that JVC captured more than 70% of their market within months of introducing a product that was everything consumers wanted.
Four Steps to Becoming a Market Expert
In today’s fast-paced business environment, market-based knowledge has never been more crucial. It’s no longer about being either a leader or follower, but about being a market expert, and approaching the market at the right time. Being an expert allows you to decide whether to be first and capitalize, or wait and pick up the pieces of your competition’s mistakes. In Sony’s situation, they failed because they missed key market information and ignored the needs of customers.
While marketing is not an exact science, and mistakes can be made, it should always be seen as a work in progress. To minimize as many errors as possible before introducing a new product, is not only essential, but also makes good business sense. In the case of Coca-Cola, they succeeded by being innovative, first and providing something never before seen. The fact that the company continues to dominate its market is a testimony to their shrewd initiatives.
Timing is Everything
Timing is everything today. Introducing a product when the market is not ready, or trying to force customers to accept your product when they aren’t interested, is simply a recipe for disaster. Faith-based business approaches don’t work often enough to trump the information that comes from doing your homework. Your company’s success depends upon mitigating mistakes as much as possible. Therefore, here are the steps to becoming that all-important expert.
1. Become Specialists in Product Life-Cycle Management
Regardless of how big or small your enterprise is, your product has a life within your market or industry. Most product life-cycle models (PLCM) focus on four cycles or stages of a product’s life. These typically involve the introduction stage, the growth stage, a peak stage, and an eventual decline and end of life stage. However, few models anticipate the fifth stage of life-cycle management.
It’s this fifth stage that companies must be aware of as it dictates when and how your company should approach the market with new product introductions. Should you continue to manufacture that product in the fourth stage in the hopes of capitalizing on the fifth? Or, should you have started to replace that product with a new one during the third, "peak" stage?
The above table and video are taken from the post: Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management
2. Become Market Share Projection Experts
It is one thing to know where your product is along its life-cycle, but it’s something else entirely to understand where your market is headed. What is your company’s current market share? What is the market’s future growth look like over the next 5, 10, or 15 years? More importantly, what steps are you taking to become a part of that growth?
Most companies rarely take the time to ask these questions. Even fewer take the time to define how they will become a part of that growth or what that market growth implies. For instance, many companies assume their market share remains stable when their revenue is unchanged. However, if that revenue is stagnant in a growing market, then the company has lost market share. It’s just that simple.
3. Use Sales & Market Gap Analysis to Close Opportunities
Your foot soldiers are the ones who need to feed your company with market data. Your sales representatives must know their entire territories, in and out. They must know their customers’ volumes, their future requirements and ultimately, what your company must do to close sales.
The simplest tool to use is that of a sales and market gap analysis. The gap analysis identifies the company’s current business holdings versus what remains to be pursued. The “gap” is then used to quantify the territory’s remaining opportunities. Perform the gap analysis across multiple territories, and you’ve essentially completed the market gap analysis.
The above table is taken from the post: Sample Sales Territory Gap Analysis Excel Sheet With Pie-Chart
4. Defend Business at all Times
Maintaining your position as the incumbent supplier is not only essential to defending your market share, but it is a critical aspect of maintaining a constant source of market information. Your biggest and most loyal customers are often the ones most willing to provide market data. Therefore, make sure your company continually defends its position as the incumbent supplier.
The above is from the post: Stop Losing Business to Overseas Competitors: Define Your Customer’s True Purchasing Costs
Regardless of whether your company sells in a commodity-based market, or services customers who need custom-made products, your company absolutely must know the customers you service. Knowing your market means you are well positioned to capitalize on opportunities and that you understand the appropriate time to introduce new and innovative products.
It’s no longer about being the first, second or last to market. Instead, its about maximizing your market knowledge, using an intelligence gathering strategy, and providing products and services your customers need - when they need them. It's about using market knowledge to secure and keep customers. Most importantly, it’s about becoming that market expert and using that knowledge to drive all your marketing and sales efforts.
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