Page 330 - Marketing Management

COMPETITIVE DYNAMICS | CHAPTER 11 307

Market-Follower Strategies

Theodore Levitt argues that a strategy of product imitation might be
29
as profitable as a strategy of product innovation. In “innovative im-
itation,” as he calls it, the innovator bears the expense of developing
the new product, getting it into distribution, and informing and ed-
ucating the market. The reward for all this work and risk is normally
market leadership. However, another firm can come along and copy
or improve on the new product. Although it probably will not over-
take the leader, the follower can achieve high profits because it did
not bear any of the innovation expense.

S&S Cycle S&S Cycle S&S Cycle is the biggest supplier of
complete engines and major motor parts to more than
15 companies that build several thousand Harley-like cruiser
bikes each year. These cloners charge as much as $30,000 for their customized creations. Pepsi has used a bypass approach
to battle Coke by finding new mar-
S&S has built its name by improving on Harley-Davidson’s handiwork. Its customers are often kets to enter.
would-be Harley buyers frustrated by long waiting lines at the dealer. Others simply want S&S’s incredibly
powerful engines. S&S stays abreast of its evolving market by ordering a new Harley bike every year and
taking apart the engine to see what it can improve upon. 30

Many companies prefer to follow rather than challenge the market leader. Patterns of “con-
scious parallelism” are common in capital-intensive, homogeneous-product industries such as
steel, fertilizers, and chemicals. The opportunities for product differentiation and image differ-
entiation are low, service quality is comparable, and price sensitivity runs high. The mood in
these industries is against short-run grabs for market share, because that only provokes retalia-
tion. Instead, most firms present similar offers to buyers, usually by copying the leader. Market
shares show high stability.
That’s not to say market followers lack strategies. They must know how to hold current cus-
tomers and win a fair share of new ones. Each follower tries to bring distinctive advantages to its
target market—location, services, financing–while defensively keeping its manufacturing costs low
and its product quality and services high. It must also enter new markets as they open up. The fol-
lower must define a growth path, but one that doesn’t invite competitive retaliation. We distinguish
four broad strategies:
1. Counterfeiter—The counterfeiter duplicates the leader’s product and packages and sells it on
the black market or through disreputable dealers. Music firms, Apple, and Rolex have been
plagued by the counterfeiter problem, especially in Asia.
2. Cloner—The cloner emulates the leader’s products, name, and packaging, with slight varia-
tions. For example, Ralcorp Holdings 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; the company’s sales were up 28 percent in 2008.
3. Imitator—The imitator copies some things from the leader but differentiates on packaging,
advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack
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
Telepizza chain now operates almost 1,050 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 it grows into a future challenger, as many
Japanese firms have done after improving products developed elsewhere.

What does a follower earn? Normally, less than the leader. A study of food-processing companies
showed the largest averaging a 16 percent return on investment, the number two firm, 6 percent, the
number three firm, –1 percent, and the number four firm, –6 percent. No wonder Jack Welch,
former CEO of GE, told his business units that each must reach the number one or two position in
its market or else! Followership is often not a rewarding path.