Strategies for Challenging the Market Leader

After studying scores of successful attack plans used by small firms against big dogs, Michael Porter explains that while the strategies have differed widely, there are three avenues of attack:

Reconfiguration: A challenger innovates the way it performs activities in the value chain or in the configuration of the chain. For an explanation of the value chain concept, see the accompanying article entitled “The Value Chain.”

Redefinition: A challenger redefines its competitive scope compared to the leader. For an explanation of competitive scope, see the accompanying article entitled “Competitive Scope.”

Pure spending: A challenger buys market position through superior resources or greater willingness to invest, which increases the competitive advantage. We will not address this issue here because we assume this strategy is not feasible for you and me.

Each avenue changes the rules of competition to offset a leader’s advantages and allows the challenger to gain a cost or differentiation advantage. The avenues are not mutually exclusive, rather are often pursued in tandem. For example, redefining the scope usually requires reconfiguring the value chain. In fact, using more than one of these avenues of attack generally raises the odds of success.

As you can see, the avenues of attacking a leader differ along two important dimensions:

Configuration of the Challenger’s Value Chain compared to the leader

Competitive Scope of the Challenger compared to the leader (see accompanying article)

A challenger can use the same value chain or one that has reconfigured individual activities or reconfigured the entire chain. At the same time, a challenger may compete with the same scope of activities as the leader or compete with wider or narrower scope.

Pure reconfiguration involves reconfigured activities (within the value chain) or ultimately a significantly different value chain, though with the same scope as the leader. Pure redefinition involves a different scope but the same basic value chain for competing. Reconfiguration and redefinition combine a new chain with a different scope. Pure spending neither reconfigures the value chain nor redefines scope but relies on greater investment by the challenger, leading to a competitive advantage.

Reconfiguration

Reconfiguration allows a challenger to compete differently even though it is competing with the same scope of activities as the leader. The challenger performs individual value activities differently or reconfigures the entire chain to lower cost or enhance differentiation. This strategy creates a cost advantage or differentiation.

For example, Gallo Wines was able to achieve a significant cost advantage through reconfiguring value activities in procurement, blending, bottling, logistics and marketing compared to competitors. In frozen entrees, Stouffer’s reconfigured marketing, technology developments, procurements, and broker relations to achieve and sustain differentiation as a “gourmet” product.

The more value activities that can be reconfigured, the greater the possibility that the challenger’s competitive advantage over the leader is sustainable. Reconfiguring the entire chain is usually the best advantage against leaders who are highly committed to the traditional industry value chain.

Redefinition

This entails redefining the scope of competition. Broadening scope may provide synergies or advantages that yield a heightened ability to deliver value or lower cost. But narrowing scope can allow a tailoring of the value chain in a way that allows a firm to deliver greater value or lower cost to a narrower customer group.

Evaluate your choice of customer groups, as well as the parts that make up your value chain, in view of your need to compete effectively and deliver superior value to customers. Deliver superior value to customers by providing superior products at a competitive price or competitive products at lower overall cost.