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Market Challenger What it is How it Works Example

Market Challenger What it is How it Works Example

Market Challenger: What it is, How it Works, Example

What Is a Market Challenger?

A market challenger is a firm with a market share below that of the leader, but enough presence to exert upward pressure in gaining more control. Market challengers can vie for industry leadership in several ways:

  1. Challenging the leader on price (direct approach).
  2. Increasing product differentiation.
  3. Improving customer service (indirect approach).
  4. Launching a new product or service to change the field (radical approach).

Key Takeaways

  • A market challenger has a market share below that of the leader but enough presence to exert upward pressure in gaining more control.
  • Market challengers can vie for industry leadership through direct and indirect ways: price competition, product differentiation, customer service, or new products.
  • Several high-profile technology companies, like Facebook, started as market challengers, challenging MySpace and Friendster to become the world’s largest social network.

Understanding Market Challengers

Companies with low market share are generally not in a position to influence prices and are susceptible to larger firms. Market challengers, aiming to become dominant players, may face high risk as they take potentially radical steps to draw consumers away from the leader. Each primary strategy carries a unique risk, with the direct and radical approach posing more risk due to high potential costs.

Several high-profile technology companies started as market challengers. Microsoft, for example, licensed 86-DOS to create MS-DOS after the success of Lotus 1-2-3. Windows also evolved alongside Mac OS. Facebook challenged MySpace and Friendster to become the world’s largest social network. Google also overcame Yahoo! and Altavista.

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Amazon continues to challenge market leaders in various industries. It emerged as an e-commerce leader and is now challenging grocers (with its Whole Foods acquisition) and healthcare companies like Walgreens (with its acquisition of online pharmacy Pillpack).

Market Leader and Market Challenger: Example

A leader is a company with the largest market share in an industry. Market leaders can use their dominance to affect the competitive landscape and industry direction. Examples of market leaders in oil and gas include ExxonMobil, Royal Dutch Shell, Chevron, PetroChina, and Total.

Market leaders must work hard to retain existing customers, grow brand loyalty, and attract others to their products and services. Being a market leader carries unique risks, including potential anti-trust lawsuits if a company becomes too dominant or appears to abuse its position. From an investor’s perspective, a market leader may not necessarily be the most profitable. Expenses like R&D and manufacturing costs might be high, but intangible assets such as brand recognition and goodwill enhance its value.

Market leaders must work hard to retain existing customers, grow brand loyalty, and attract others to their products and services. Being a market leader carries unique risks, including potential anti-trust lawsuits if a company becomes too dominant or appears to abuse its position. From an investor’s perspective, a market leader may not necessarily be the most profitable. Expenses like R&D and manufacturing costs might be high, but intangible assets such as brand recognition and goodwill enhance its value.

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