Market nicher, leader, challenger and follower

A market nicher is a company that avoids competing head-on with larger firms by specialising in a segment they ignore, and aims to lead that small segment instead. It is one of four competitive positions in Philip Kotler's framework, alongside the market leader, the market challenger and the market follower.

Each position comes with its own set of strategies. The framework is useful less as a label than as a check: are you acting in a way that fits your actual position?

Where the four positions come from

The framework appears in Philip Kotler and Kevin Lane Keller's textbook Marketing Management, in the chapter on competitive dynamics. They illustrate it with a hypothetical market:

The percentages are an illustration, not a rule. What matters is the posture.

Market leader

The leader has the largest share and, in Kotler and Keller's words, "usually leads in price changes, new-product introductions, distribution coverage, and promotional intensity."

Strategies. The leader has three jobs: grow total demand for the category (new users, new uses, more usage), protect its current share, and grow share where it pays to. For protection, Kotler and Keller list six kinds of defence: position, flank, pre-emptive, counteroffensive, mobile and contraction, the last meaning a planned retreat from markets that are no longer worth defending.

The catch. More share is not always worth buying. They note that firms trying to gain share by cutting prices more deeply than rivals typically do not achieve significant gains, because rivals match the cuts.

Market challenger

A challenger is a runner-up that attacks to win share, either from the leader, from firms its own size, or from smaller regional players.

Market challenger strategies. Kotler and Keller distinguish five general attacks:

• Frontal: match the opponent's product, price, advertising and distribution. Usually needs more resources than the defender.
• Flank: go where the leader is weak, such as an underserved region or segment.
• Encirclement: attack on several fronts at once.
• Bypass: avoid the opponent and take easier markets instead. Their example is Pepsi finding new markets to enter rather than fighting Coke directly.
• Guerrilla: small, repeated attacks such as local promotions and price cuts, to wear the opponent down.

Attacking the leader is high risk and high reward. It makes most sense when the leader is visibly not serving part of the market well.

Market follower

A follower is a runner-up that chooses not to "rock the boat". It copies rather than attacks, and saves the cost of innovating. Kotler and Keller describe four follower types: the counterfeiter (illegal), the cloner, the imitator, which copies some things and differentiates on packaging, price or location, and the adapter, which improves on the leader's product and often becomes a future challenger.

Following can be profitable, but the evidence they cite is sobering: in one study of food-processing companies, the largest firm averaged a 16% return on investment, the second 6%, the third minus 1% and the fourth minus 6%. Being third in a market with no particular advantage is a hard place to be.

Market nicher

A nicher leads a small market instead of following in a large one. Because it knows its customers better than firms that serve them casually, it can charge a premium and earn high margins on low volume.

Market nicher strategies. Kotler and Keller describe nicher work as three tasks: create niches, expand them and protect them. They list specialist roles to niche on, including end-user, customer size, geography, product feature, quality and price, service and channel.

The risk. The niche can dry up, or a bigger firm can decide it is worth taking. Their advice is to stick to niching but not necessarily to one niche: several niches are safer than one.

How to tell which one you are

Define the market first. Position is relative to a market. You might be a nicher in the national market and the leader in your region or segment. Pick the definition that matches where buyers choose.

Compare shares. Relative market share, your share divided by the largest rival's, tells you whether you lead (above 1.0) and by how much.

Watch who moves first. The leader is usually the one whose price changes, launches and campaigns everyone else responds to. If rivals tend to copy your pricing and campaigns, you are setting the pace, whatever the share figures say. If you keep reacting to one rival's moves, they are.

That last test is the practical one, and it only works if you are watching. A rival's ad library, pricing page and new landing pages, checked regularly, show who is setting the pace.

Common mistakes

Challenger ambitions on a follower's budget. A frontal attack without superior resources usually loses money and share.

Nichers drifting wide. Growth pressure pulls specialists into broad markets where their advantage disappears.

Leaders resting. A leader that stops expanding the category leaves room for a challenger to define what comes next.

Treating the position as identity. It is a choice per market. The same firm can lead one segment, follow in another and niche in a third.

For how these postures relate to cost and differentiation choices, see Porter's generic strategies. For a specific way to follow well, see the fast follower strategy.