Market dominance strategies
Market dominance strategies are marketing strategies which classify businesses by reference to their market share or dominance of an industry.
What is market dominance?
Market dominance is a measure of the strength of a brand, product, service, or firm, relative to competitive offerings. There is often a geographic element to the competitive landscape. In defining market dominance, you must see to what extent a product, brand, or firm controls a product category in a given geographic area. There are several ways of calculating market dominance. The most direct is market share. This is the percentage of the total market serviced by a firm or brand. A declining scale of market shares is common in most industries: that is, if the industry leader has say 50% share, the next largest might have 25% share, the next 12% share, the next 6% share, and all remaining firms combined might have 6% share. Market share is not a perfect proxy of market dominance. We must take into account the influences of customers, suppliers, competitors in related industries, and government regulations. Although there are no hard and fast rules governing the relationship between market share and market dominance, the following are general criteria: • A company, brand, product, or service that has a combined market share exceeding 60% most probably has market power and market dominance. • A market share of over 35% but less than 60%, held by one brand, product or service, is an indicator of market strength but not necessarily dominance. • A market share of less than 35%, held by one brand, product or service, is not an indicator of strength or dominance and will not raise anti-combines concerns of government regulators. Market shares within an industry might not exhibit a declining scale. There could be only two firms in a duopolistic market, each with 50% share; or there could be three firms in the industry each with 33% share; or 100 firms each with 1% share. The concentration ratio of an industry is used as an indicator of the relative size of leading firms in relation to the industry as a whole. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the combined market share of the four largest firms, as a percentage, in the total industry. The higher the concentration ratio, the greater the market power of the leading firms. Alternatively, there is the Herfindahl index. It is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is defined as the sum of the squares of the market shares of each individual firm. As such, it can range from 0 to 10,000, moving from a very large amount of very small firms to a single polistic producer. Decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas increases imply the opposite.
Market dominance strategies
These calculations of market dominance yield quantitative metrics, but most business strategists categorize market dominance strategies in qualitative terms. Typically there are four types of market dominance strategies that a marketer will consider: There are market leader, market challenger, market follower, and market nicher.
The market leader is dominant in its industry. It has substantial market share and often extensive distribution arrangements with retailers. It typically is the industry leader in developing innovative new business models and new products (although not always). It tends to be on the cutting edge of new technologies and new production processes. It sometimes has some market power in determining either price or output. Of the four dominance strategies, it has the most flexibility in crafting strategy. There are few options not open to it. However it is in a very visible position and can be the target of competitive threats and government anti-combines...
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