Market Follower Strategies

This is not to say that market followers lack strategies. A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market >> location, services, financing. Because the follower is often a major target of attack by challengers, it must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. The follower has to define a growth path, but one that does not invite competitive retaliation. 

Four broad strategies can be distinguished.

1. Counterfeiter: The counterfeiter duplicates the leader's product and package and sells it on the black market or through disreputable dealers. Music record firms, Apple Computer, and Rolex have been plagued with the counterfeiter problem, especially in Asia.

2. Cloner: The cloner emulates the leader's products, name, and packaging, with slight variation. For example, Ralcorp Holding Inc. sells imitations of name-brand cereals in look-alike boxes. Its Tasteeos, Fruit rings, and corn Flakes sell for nearly $1 a box less than the leading name brands.

3. Imitator: The imitator copies some things from the leader but maintains differentiation in terms of packaging, advertising, pricing, or location. The leader does not mind the imitator as long as the imitator does not attack the leader aggressively. Fernandez Pujals grew up in Fort Lauderdale, Florida, and took Domino's home delivery idea to Spain, where he borrowed $80,000 to open his first store in Madrid. His Tele Pizza chain now operates almost 1,000 stores in Europe and Latin America.

4. Adapter: The adapter takes the leader's products and adapts or improves them. The adapter may choose to sell to different markets, but often the adapter grows into the future challenger, as many Japanese firms have done after adapting and improving products developed elsewhere.

What does a follower earn? 

The follower normally earns less than the leader. For example, a study of food-processing companies showed the largest firm averaging a 16% return on investment; the number two firm, 6%; the number-three firm,-1%, and the number-four firm,-6%. In this case, only the top two firms have profits. No wonder jack Welch, former CEO of GE, told his business units that each must reach the number-one or number-two position in its market. Following the leader is often not a rewarding path.

Source: citeman.com