Why this idea means business : We explore how to take on the market leader and win. Learn why smartness always beats size in the long run. Read this for ideas on challenging the big players in your market.
How much is this idea worth?
Idea : To grow your brand by challenging the weak spots of the market leader. Based on our standard business case assumptions, the value of this idea is :-
- Source of business – Innovation
- Skill area – Marketing
- Commercial hypothesis :-
- # customers = 1,000
- Spend/month = $100
- Est. monthly purchases from innovation adoption = +95
- Est. sales increase = +$9.5k (monthly) | +$114k (annual)
They say, size matters.
In the business world, this gives the biggest player, the market leader, some obvious advantages like :-
- bigger budgets.
- more influence with retailers.
- higher physical availability (in-store and online) and mental availability (in customers’ heads).
However, big doesn’t always mean better. In fact, these apparent advantages also create the market leader’s biggest weakness.
They want to protect their position of strength. This makes them resist change. It blinds them to new ways of thinking, and that’s where smaller challenger brands can compete. If you’re a challenger, the good news is that you don’t have to outspend the market leader. You just have to outthink them.
Thought leader vs market leader
This won’t be a big revelation for some. Many agencies use this line with smaller clients.
But saying it is much easier than doing it.
In many mature categories, well-established brands are happy to keep using the same old playbook, winning and losing a few percentage share points here and there.
And agencies are happy to take their money to help them do that.
But you never win against the market leader that way. That’s playing by their rules. Instead, you have to rethink how the category actually works. You have to surprise customers by meeting their needs in a way that the market leader would never even consider.
Market leader weakness #1 - predictable ideas
Here’s the thing. Market leaders follow the market leader playbook. So, you mostly know what they’re going to do. Look at what they’ve done before, and chances are that they’ll do more of the same, with only a slight twist at best. Why would they change something that they believe works?
Market leader brand activation is almost always about market penetration (from the Ansoff matrix). Their purpose and KPIs are about growing market share in their existing category.
So, they compete on price, especially when they feel threatened. They maintain their brand identity with regular and consistent advertising campaigns. They know that these help make them the default buying choice for most customers. They want that to continue.
New products will be minor tweaks to existing products. Change the pack size. Add a new flavour variant. Redesign the packaging. Something simple and safe, because those things worked for them before. So no need to change them now.
Yes, consistency has its advantages. But it also means that challenger brands can easily guess the market leader’s moves in advance. That gives them a competitive edge.
Challengers should be unpredictable
This predictability doesn’t work both ways. The market leader can’t predict what you’ll do because you don’t have the same track record in the market. So you can choose from a wider range of competitive strategies.
For example, you can play to the opposite of the market leader’s strengths. They try to appeal to everyone. So instead, you should focus on the needs of a particular segment. Find a specific need and work on being the best at delivering that to those customers. Style. Performance. Quality.
Whatever it is that the market leader can’t do by appealing to everyone.
This means you deliberately give up going after some segments (who want an all-round product). However, you’re far more likely to win customers in segments looking for your brand’s particular benefit.
You can also challenge category assumptions and look for breakthrough ideas. For example, though iPhones are now ubiquitous, they were once challengers to the market leader, Nokia. They won by challenging the assumption that mobile phones needed keypads.
Your aim is to find ideas that make your brand identity distinctive versus the market leader. You want to show that you think differently about what customers want. For example, the Guardian announced last year that it would no longer accept gambling adverts, a principled stance that appealed to its readers.
Market leader weakness #2 - slow ideas
Richard Branson, founder of challenger brand, Virgin, has a business theory that it’s hard for CEOs to run a business when they don’t know its people personally.
His view is that 150 people is about the ideal number of people in a business or business division.
This is about the most people a single person can have meaningful connections with (based on another theory called Dunbar’s number).
This means that the bigger the company, the more complex and time-consuming its decision-making. The biggest company in the category, the market leader, is usually also the slowest.
There’ll be layers of management to control decisions. Many stakeholders to manage. Complicated approval and budget systems to support the business’s operational efficiency. Often, the leadership team focuses more on hitting performance targets and maintaining their reputation than exploring the next big move in the market. They’re often out of touch with what’s happening with customers.
Market leaders often use traditional (waterfall) innovation processes to make sure they get everything right before they launch new products. But as per our innovation guide, this takes more time. And it means they can sometimes be too late bringing ideas to market.
Challengers should think and act fast
Challenger brands can capitalise on this slowness. They have fewer people and management layers, and their leadership teams are closer to customers.
So they can make quicker decisions, bring products to market sooner and be comfortable taking more calculated risks.
This is where challenger brands have the best chance to beat the market leader.
When a new market opportunity appears, they can go after it faster. Put resources behind it, use more agile innovation processes, and worry less about what might happen if it doesn’t work at 100% first time.
Challengers are more likely to run exploratory tests to learn what works. They’re more open to learning from their mistakes and changing their processes to make them better. They have a more creative culture than an operational-led one. Challenger brands focus on leading how the market thinks.
Market leader weakness #3 - risk-averse ideas
Finally, market leaders also have an underlying fear of creativity that challenger brands take advantage of. This fear can close their minds to changing anything around how the market works.
Clayton Christensen’s Innovator’s Dilemma demonstrates this in a series of long-term share charts across multiple categories.
These show that market leaders are the least likely to bring breakthrough ideas to market.
He argues that these market leaders face a dilemma. They’ve invested in R&D and marketing to get themselves to market leadership. Once they see the financial returns from this, they want to keep those going for as long as possible. They focus only on sure things that maintain the market status quo and keep the profits coming in. They reject anything that risks that.
This means that they don’t explore future developments, which might revolutionise the market and make their current offer redundant. For example, the iPhone and Nokia, as we mentioned earlier. Netflix and Blockbuster video rentals. Amazon and Borders book stores.
Probably the most famous example though is Kodak. Digital cameras were actually invented by a Kodak engineer. However, they chose not to pursue the technology as their profits from camera film were so high. But digital cameras took off with other competitors, and sales of their film slumped. This risk aversion eventually led to them going out of business.
Leaders of such businesses often come from a financial and / or operational background, which means they lack creative leadership experience. This is another opportunity for challenger brands.
Challengers reframe risk as opportunity and learning
Challenger brands can use creative thinking to get past the “playing it safe” options.
They have less baggage invested in getting the category to where it is now. So, it’s easier for them to be more open-minded about where the category can go in the future.
It’s about testing out new ideas and business models that change the way the category works.
For example, Virgin Atlantic made air travel seem more glamorous than customers were used to on British Airways. Uber took on taxi firms. Who Gives a Crap takes on complacent, bigger toilet paper businesses.
This approach requires a strong creative culture. It’s about seeing experimentation as a key part of your competitive strategy. If something doesn’t work, you cut your losses quickly and move on to the next thing. You see failures as how you keep learning until you find the ideas that will succeed. You keep going until you find the ideas that smash it out of the park.
This relentless pursuit of the next brilliant idea is the essence of how challenger brands can take on the market leader and win.
Conclusion - How to take on the market leader and win
A big challenge when writing an article like this is that if you spell out all the weaknesses of the market leader, you potentially hand them an advantage.
There are, in fact, many more ways to take on the market leader and win than we’ve shared here.
However, those we covered – that market leaders are predictable, slow and risk-averse – seem so obvious that they’re not going to surprise any market leader who reads this.
What’s more surprising however, is that many market leaders know their own weaknesses, but stick with the same strategy anyway.
This inability for the market leader to NOT be predictable, slow and risk-averse is where challenger brands win. Being unpredictable, fast, and pushing boundaries makes you a much more exciting proposition for customers. Of course, the challenge is that when you do eventually “win” and become the market leader yourself, you then run all the same challenges we just outlined. You want to keep your winning formula going and don’t want to change.
How you fix that is a story for another day, though.
Check out our challenger brands article for more on this. Or drop us a line if you’d like to pick our brains on this most challenging of topics.
Photo credits
Man looking at ceiling (adapted) : Photo by Anton Danilov on Unsplash
Bored in front of computer : Photo by Magnet.me on Unsplash
Surprised Monkey : Photo by Jamie Haughton on Unsplash
Business meeting : Photo by Campaign Creators on Unsplash
Sprint : Photo by Braden Collum on Unsplash
Hand / Stop (adapted) : Photo by Nadine Shaabana on Unsplash
Creative skills multicoloured parachute (adapted) : Photo by Chad Walton on Unsplash
