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Market Leader

A company that holds the largest market share in the sector that it operates in

What is a Market Leader?

Market leader refers to a company that holds the largest market share in the sector that it operates in. A market leader will typically enjoy the largest fraction of total sales in a given market.

 

Market Leader

 

A market leader tends to outperform its competitors in metrics that measure business success. The metrics include brand loyalty, distribution coverage, image, price, perceived value, profitability, promotional spending, etc. They can influence aspects, such as distribution, positioning, etc.

 

Summary

  • Market leader refers to a company that holds the largest market share in the sector that it operates in.
  • Companies that end up being market leaders are those that were the first to develop a product or service, i.e., first movers in that industry.
  • Market leaders not only enjoy huge profitability and brand loyalty but are also able to minimize their input costs by negotiating with suppliers.

 

The First Mover’s Advantage

Usually, companies that end up being market leaders are those that were the first to develop a product or service. It allows a company to set the tone for the messaging of the benefits of their product, define its ideal characteristics, and eventually become a brand that is conflated with the offering.

It means that innovation plays a huge part in creating a market leader and for that leader to retain that position. A company must invest heavily in market research in order to facilitate product development such that its offering is novel enough to attract a substantial percentage of the consumer base.

The company must then remain on top of market trends and periodically collect consumer feedback to retain its position as a market leader. It means focusing on finessing its customer services and maintenance aspect of the product offering as well.

They can also use the information to enhance the product’s attributes such that it can offer improved variants on the market. Most companies thus launch multiple brands that offer variants of the same product. It enables the company to remain a market leader while catering to a diverse set of consumers.

 

Market Leaders – Examples

In India, the top seller of ramen noodles is a brand called Maggi, which has become a term used interchangeably with ramen noodles. Similarly, Sony introduced an MP3 player called the Walkman, which was more commonplace than the term MP3 player itself. Also, Apple sells MacBooks and iPhones, while other companies sell laptops and smartphones.

 

Advantages of Being a Market Leader

Market leaders are often able to leverage their position in order to increase cost efficiency. Not only are they able to employ large economies of scale to reduce the per-unit cost of the product, but they also use their first mover advantage to set price trends and essentially control the market.

Consumers tend to buy overpriced products from market leaders even when they are aware of overpricing because it enables them to minimize risk. Market leaders possess strong prestige and brand value. Strong brand loyalty also enables them to not only retain existing customers but also attract new ones.

A market leader also tends to be aware of the purchasing decisions made by its consumer base, owing to access to large datasets. It enables them to use aggressive marketing practices to strengthen the brand image of their offerings.

Market leaders are able to minimize their input costs by negotiating with suppliers. Usually, industrial suppliers offer heavy discounts as the volume of each order increases. They also attract the highest quality of development partners when they outsource the functions of their value chain. It offers them the best possible technical expertise. They also gain access to better distribution channels, etc.

 

Disadvantages of Being a Market Leader

When a company dominates a given industry, competitors might accuse it of monopolizing the market. It can invite antitrust legislature, the attention of market regulators, etc.

For example, Amazon‘s been accused of engaging in predatory pricing techniques time and again to outsell its competitors and gain market share. Market leaders also tend to aggressively pursue takeovers of potential competitors, which can affect their brand value.

 

Learn More

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Market Dynamics
  • Predatory Pricing
  • Global Industry Leaders
  • Industry Analysis

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