Every firm claims to be “the leading this” or “the leading that” – and to be fair a few actually are. Most are trying hard to offer something a little bit different from the crowd. Egg heads call it “differentiation” – and if it works it means you really do have no direct competitors and in theory no one is able to copy what you do.
Market leadership when it is achieved delivers “sustained superior return on investment” or in lay terms – consistently more cash per week/month/year than anyone else. Differentiation is one way of achieving it – being a “cost leader” is the other. Do you see yourself as a Waitrose or a Tesco?
All sorts of nice things happen when you are a market leader. Good people want to work for you and apply speculatively (lower recruitment costs). Good staff stay switched on and don’t leave (lower HR and admin costs). Good staff lead and innovate pushing up operational efficiency ratios. Clients have you in mind as the best of breed and come to you (reduced marketing and sales costs). Suppliers want to be associated with you and negotiations are quicker and often cheaper. Clients are prepared to take your pitch on pricing and premiums (better profitability). Clients prefer to stay longer and don’t defect (lower renewal, maintenance costs and enhanced profitability).
The effect of any one of these can be worth as much as 10% on the bottom line and combinations of them can make achieving 50% profitability or better deceptively easy. It is a little tautologous – but one of the best indications of market leadership is the ability to repeat a 50% profit benchmark. This is where market norms of profit become a floor, not a ceiling.
The reality is, however, that processes, solutions, benefits, systems and prices do get copied – a lot. So you end up with, for example DAS claiming to be the UK market leader as well as Peninsula. In a sense both a right. For the record, the latest ARK Regulatory Consultancy Report 2007/8 shows that the following firms have genuinely achieved “leadership”:
Abbey Protection Group: leaders in the insurance led advice & assistance sector selling primarily through resellers;
RBS Mentor: leader in the micro company (less than 10 employees) sector selling primarily through the banks retail network.
Peninsula Business Services: leader in the SME sector (10-100 employees predominantly) through their national sales force;
Croner Consulting: leader in the SME/LME client sector (100-500 employees predominantly) through their sales force;
National Britannia are the market leader in specialist safety compliance services, through their sales presence but also a long focus on consultancy sales to property services clients;
Eversheds are still the leader in employee relations support for listed and larger clients, albeit primarily in bespoke dispute resolution services in predominantly employment law and only very rarely head to head with these compliance specialists.
No mention of DAS? Norwich Union? Capita? Northgate? Allianz? McAlpine? Reed Elsevier? Thomson Corporation/Reuters? Well no. All are or were present in some form, but – in all honesty – size isn’t everything.
But please – no more web pages claiming “market leader”, ”the leading...”, “biggest...”, “voted best...”, etc. Journalists (especially) typically can’t count, so the “XYZ top entrepreneur” listing also doesn’t fool anyone (and usually only clogs up your phone with a raft of naive VC sales pitches). It is worse still when its “the 2004 [regional] finalist...” – quite why you’d go through this pain to be the “first loser” is mystifying.
If you want to win in this market – the top six players above are the ones to beat. And if you are one of those you need to consider why your profitability is less than 35% currently. Even allowing for competitive intensity and the high growth investment, 25-35% should be the norm (50%+will come later - but that's another story).
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