© 2000 John Petroff
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© 2000 John Petroff |
This subject has already been raised several times. A distinction was made between leadership in technology and leadership in price. There are other types of leadership a firm can take pride in: leadership in customer services, leadership in employee training, leadership in lobbying for legislative change, leadership in relations with local authorities and non-governmental organizations, leadership in social activities and support of humane causes (such as making charitable donations for educational or medical purposes). All these can be used to build a stronger position in the socio-political context in which a company operates. In some instances, the action is part of a corporate goal of improving its operations (for instance in attracting new and better staff), and in other instances, it can just be a public relations tactic useful to attract new customers or fend off governmental action. But the first two forms of leadership are by far the most important.
Technological leadership gives a firm an immediate advantage in attracting innovation seeking customers. Because these individuals are those that form the opinions of others, the company that succeeds in being first, is blessed with an aura of superiority by reports of first buyers who enjoyed the advantages of a new product. It was already indicated (in Section B-3 of this chapter, for instance) that firms benefits from such aura by being able to charge higher prices than competitors, generate profits sooner, and build financial strength. But the advantage goes beyond that. Customers will have greater confidence in new products of the firm whose products they have enjoyed in the past. Obviously, this is a most desirable image to build. Each firm will try to convey such image, but an analyst must listen to consumer opinions to find out which firm is really judged as technology leader. Confirmation of consumers' opinion must be found in evidence of large research and development investment by the company judged as technology leader. Even more important that mere size of outlays, are research staff caliber and head office commitment to consumer preferences.
Price leadership is less desirable in early phases of the product life cycle (with the notable exception of the daring strategy of Henry Ford noted previously). It becomes important when a product is approaching or entering the standardization phase. Price reduction is not always initiated by the largest firm, and usually not by the technology leader. It is always used to retain or expand market share. In many industries (such as banking, soft drinks, beer, and many food items), it is indeed the smaller firms that must cut prices to stay in the market. Firms that do use price reductions to take away market share from competitors may find retaliation more harmful than the sought benefit was worth. To see how strategies have worked out in the past, it is necessary to look at market shares over time in conjunction with the various competitors stated marketing strategies.
Being the largest producer definitely has advantages. The ability to achieve ultimate automation, lower costs, build up reserves, fend off competition and have resources to invest in research have already been mentioned. It also gives the ability to carry large advertisement and promotional budgets that allow higher selling price and a more secure defensive market position. Generally, the most promising firm in an industry will be the technological leader, followed by the largest firm, with price leaders a distant third.
See review questions Q-14C2.1 through Q-14C2.10.
See research assignment R-14C2.1.
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