In my previous blog post about competitive advantage, I talked about Michael Porter’s model outlining three basic advantage positions, here I want to briefly explain how this conception relates to market position. In the past, when I’ve written about positioning, I’ve focused on understanding how companies relate to each other with respect to product strategy. In this case, I’m more interested in overall marketing strategy.

Four Market Positions

There are four basic market positions which include:

• MARKET LEADER- Market leaders tends to have the greatest market share and produce mass market products and services at the lowest cost with the greatest distribution and the most promotion.
• MARKET CHALLENGER – Market challengers are focused on becoming market leaders by competing in the key areas that define the leader, such as price, efficiency, mass market distribution, etc. One advantage to being a challenger is that it’s possible to benefit from mistakes that the market leader makes as well as from the new markets that the market leader invests in creating.
• MARKET FOLLOWER – Not all companies want to challenge the market leaders, or get into the price wars that can leave challengers is bad shape. It takes a great deal of energy for challengers to fight their way to the top and for leaders to fend off challengers. Meanwhile, followers are happy to sit on the sidelines and conduct highly profitable businesses that learn from the leaders and challengers without any of the upfront research and development costs. They can copy what works at relatively low cost and thus focus more energy on customer service.
• MARKET NICHER – Market Nichers have no intention of serving the mass market like the other positions, they are interested in serving segments withing the overall market. Part of what makes nicher’s profitable is that they can serve customer needs much better through the development of segment specific products and services that offer more value than their mass market counterparts.

Positions & Competitive Advantage

Competitive advantages and market positions are tied together because each position is only compatible with one or two of the basic advantage positions (see my post on the three advantage positions “cost leadership”, “differentiation”, and “focus”). For example, leaders are well positioned to take a cost leadership role, as are challengers. Though challengers can also pursue differentiation effectively. Followers usually adopt differentiation, though they could pursue a focus approach. Finally, nichers seem most likely to choose a focus or differentiation strategy.

Things get a little more complicated when trying to adjust for the fact that companies occasionally change their market position, which means thay may have to transition from one advantage base to another. Using this framework can help make sense of how companies fit into a competitive landscape, and how to direct investments to support an overall marketing strategy.