Market Challenger Strategies: How They Beat Market Incumbents

This report analyzes the strategies employed by market challengers to overcome market incumbents, focusing on examples like Apple vs. Samsung, and Coca-Cola vs. PepsiCo. It highlights the significance of competitive pricing, targeted marketing, and continuous innovation. Challengers often capitalize on incumbents' weaknesses, such as pricing gaps or marketing loopholes, to increase their market share. Positioning also plays a key role, as challengers differentiate themselves through value propositions that resonate with consumers. Moreover, challengers prioritize innovation and market expansion to disrupt established market leaders, as seen in the case of Google overtaking Yahoo. The report concludes that incumbents must remain vigilant and adaptable to counter the threats posed by disruptive technologies and emerging competitors. Desklib provides this paper and other resources to aid students in their studies.

Running head: WHY CHALLENGERS BEAT INCUMBENTS
WHY CHALLENGERS BEAT INCUMBENTS
Student’s Name
Institutional Affiliation

WHY CHALLENGERS BEAT INCUMBENTS 2
In the month of March, 2019, Sky News reported that Jeff Bezos, the CEO and founder
of Amazon.inc, overtook Microsoft CEO and founder Bill Gates as the world’s richest person,
according to a list published by Forbes Magazine ("Amazon founder Jeff Bezos overtakes Bill
Gates to top billionaire list", 2019). Bezos had been in contention for the title for a long time,
posing challenges to the then incumbent in the race, Bill Gates. While neither of them belong
from the same industry or market, it would not make for a perfect example of a market
challenger taking over a market incumbent. However, it provides for a perfect example that
challengers, no matter how new or old in the market, have the potential of posing serious threats
to the ongoing run of an incumbent. A market incumbent is one which has a high market share
and has been the dominant force in the market in terms of popularity and quality (Hamada &
Kobashi 2018). A market challenger on the other hand, is the one which poses serious threats to
overthrow the market incumbent from its position by providing competitive prices and quality,
and has been increasingly capturing the market share (Tokalic, Dahlberg, M & Melber 2016).
Examples include Apple as the incumbent and Samsung as the Challenger, Coca-Cola as the
incumbent and PepsiCo as the challenger. Apple and Coca-Cola have had the majority of the
market share in their respective fields, while Samsung and PepsiCo have been increasing their
market share enormously with competitive prices and quality. This report will be particularly
focusing on Apple and Samsung, to understand why and how market challengers beat market
incumbents.
The first factor is price. Market challengers beat the incumbents by providing
homogenous products, at very competitive prices (Kuncoro & Sutomo 2018). It is basic
economics which challengers apply; that lowering the prices increases market demand, and
subsequently market share as well. Market challengers often force the incumbents to bring their

WHY CHALLENGERS BEAT INCUMBENTS 3
prices down, or continuously upgrade their products in order to provide that extra value for
which they would be able to keep their market share. After a certain technological advancement,
the upgrade of the incumbent’s product might become stagnant, and as a result, people opt for
the challenger’s product who is offering a more or less homogenous product in the market, at a
cheaper price. This is one way in which market challengers beat market incumbents. Apple has
had 27% market share worldwide and Samsung lags behind at 18%. The iPhone X launched at
over a thousand dollars, the Galaxy S10, which is more or less a similar product to that of the
iPhone X, launched at $720. The result was Samsung selling more units towards the last quarter
of 2018, lagging behind Apple by 13 million units throughout the year. This indicated a 2.1%
rise in sales for Samsung, while it was only 1.6 for Apple (Căpătînă & Drăghescu 2015). In that
sense, Samsung clearly emerged as the victor of the battle in terms of sales growth.
The fact is that both the S9 and iPhone X had more or less similar features. The display
size, the storage, and the camera features are of the same properties, while Samsung even
providing a better performance than the incumbent with an octa core processor, and also a better
battery life, at $300 dollars lesser than iPhone. This means the utility which the challenger
provided to its consumers in this case, was higher than what the incumbents provided, in terms of
product properties. The only reason why the incumbent was able to beat the challenger in overall
sales, was because of two factors. Firstly, it was because of the existing market share which
Apple already had in the market worldwide. Secondly, it was because of positioning and
marketing. Apple provides an extra value to its product, with the class and status factors present
in its positioning. This is why Apple has to keep its prices high to maintain that status and
quality. Samsung capitalized on it and released a homogenous product at a cheaper price, thereby
beating Samsung in sales growth.

WHY CHALLENGERS BEAT INCUMBENTS 4
Marketing is another way in which the challengers tend to beat the incumbents. Market
challengers tend to find the loopholes which are provided to them by the marketing strategies of
the incumbent, and they attempt at expanding and filling them (Armstrong et al., 2015). While
Apple talked about their high quality camera features, to attract the market, Samsung took to
social media on a number of occasions to demonstrate that their camera was better (Xu et al.,
2017). This went to an extent that comparisons of picture quality started to surface on their social
media handle, to demonstrate why the Samsung camera was better than the Apple camera (Ilhan,
Kübler, & Pauwels, 2018). iPhone is a brand that is widely known for the camera features which
it provides to its customers. Samsung saw the perfect opportunity in this as Apple did little to
demonstrate their high quality picture resolution. This made the customers in the market view s9
as the better product in the market, compared to the iPhone X (Raja, Raghavendra & Busch,
2016). This was further cemented by the fact that Samsung provided this benefit at a cheaper
price than what Apple did. As a result, the sales figures of s9 drastically went up during the last
quarter of 2018, thereby beating the sales of Apple during that quarter.
Positioning has also been a key factor in the race. Much of the market sales of
competitors depend on how the brands position themselves (Chen & Lin 2017). The best
example of this can be found in the rivalry between PepsiCo and Coca-Cola. While the latter is
perceived as a product which focuses on social relationships (Allahi & Bass, 2018), PepsiCo has
adopted a vast number of CSR activities, like saving water in villages across the world, thereby
not only giving the society back with what it extracts from it, but by also building relationships
with people all over the world in the villages where it has lent its hands out (Mehta, 2016). Apple
and Samsung too have this rivalry in positioning strategies. iPhone is positioned as a classy
product which offers a different level of status to its customers, without being called overrated

WHY CHALLENGERS BEAT INCUMBENTS 5
due to the quality which it provides along with the high price. Samsung smartphones on the other
hand are synonymous with style as well as economy (Payne, 2017). The way they advertise their
products make their products look classy and stylish at the same time, and also displays the price
of the phones in most of the occasions, thereby indicating the economic nature of the product as
compared to iPhones. There are fewer people who actually run after class and status, although
the two are considered to be dominant psychological factors, the population that actual, the
population that actually cares about saving money to obtain the same kind of a product is much
more. This is because economics states that utility is the factor which urges customers to
purchase a unit of product, based on the value for money which they gain from the product. As a
result, Samsung has seen a much higher sales growth in the year 2018, compared to Apple. This
indicates the fact that Samsung has been able to capture some of the market share of Apple in the
last year.
The other factor is innovation. One of the main reasons why challengers have been able
to beat incumbents in the race to acquiring the major market share is because they have been
constantly able to innovate their products. Challengers are aware of the fact that if they have to
overthrow the incumbents in terms of sales, they have to provide something which the
incumbents lack in their product or service. This leads to the race for innovation. Market
research is thorough and companies have a well developed research and development team to
make sure that the innovation perfectly complies with the market demand for the innovation. A
perfect example for this would be the case of Google. The company has had one of the biggest
and most comprehensive research and development teams in the IT sector. They have a separate
product team and a research team for the purpose of coming up with appropriate innovation in its
products. The product team and the research team work in a loop of feedbacks, with the research

WHY CHALLENGERS BEAT INCUMBENTS 6
team conducting market research and IT innovation to suggest the product team about the
implementation of the innovation in the product, and the product team giving feedbacks about
the viability of incorporating the innovation in the product (Duhigg, 2016). This is why Google
has always been able to upgrade their products with respect to consumer needs, and
subsequently, has monopolized its products in the market. The first instance of this surfaced
when the company overtook Yahoo, which was the dominant incumbent in the browsing and
email services during the first decade of the 21st century. Larry Page, the founder of Google
stated in a conference that the company never aimed at coming up with out of the world
technology. In fact, the goal has always been to cater to the market needs and accordingly
innovate the basic products which are popular in the market, to make them unique. Using this
tactic, Google entered into a market which had an incumbent in Yahoo which was already
capturing more than 50% of the market share. Starting with homogenous products and
accordingly improving them to make them more user friendly and efficient is what made the
challenger Google ultimately overtake Yahoo as the new incumbent in the industry.
One of the other reasons why the incumbents have been able to beat the challengers is
because of market expansion. When a challenger brand finds it difficult to overthrow an
incumbent due to the latter’s stern and established position in the market, they find that the way
in which they can get the market share away from the incumbent brand is by making sure that
they extend their range of products and services, to get into a market where the incumbent has
not (Kotler et al., 2015). Apple and Samsung have been long time rivals indeed. However, it
must be noted that Samsung has been selling a range of products apart from mobiles, laptops and
computers, unlike Apple. This implies that the company has extended its services into areas and
established themselves already, which means that it would be tough for the incumbents Apple to

WHY CHALLENGERS BEAT INCUMBENTS 7
get into those markets and overthrow Samsung easily. This means that Samsung will be able to
gain more revenue annually than Apple, because of the fact that it operates in more number of
markets than Apple does. As a result of this CNN Business had successfully forecasted the
success of Samsung’s annual profit over the total profit which was to be made by Apple in that
same year (Pham, 2019).
The above discussion clearly lays out the ways in which market challengers pose a threat
to beat the market incumbents. Incumbents always stay under the threats of new innovation from
challengers, and therefore, have to constantly upgrade their products without getting complacent
with their position in the market (Evans, 2017). The threat of disruptive technologies are always
there in the market, which can create a new value in the market, thereby overthrowing the market
share of the incumbents completely. Disruptive technologies are those innovative technologies
which create a new value in the market, thus monopolizing in that value, thus disrupting the
market share of the existing market leaders (Amshoff et al., 2015). This has been already
explained in how Google made the disruptive technology of user friendly and AI software to
disrupt the market share of Yahoo completely as a result. Subsequently, businesses have to work
towards a new innovation which would create a new value in the market, more than that of the
challengers, thereby incurring major costs throughout that period. The incumbents begin to lose
out on market share rapidly as a result of it, and with each passing day, it becomes tougher for
them to regain their market share. This is exactly why Yahoo could not regain their market share
from Google again.

WHY CHALLENGERS BEAT INCUMBENTS 8
References
Amazon founder Jeff Bezos overtakes Bill Gates to top billionaire list. (2019). Retrieved from
https://news.sky.com/story/amazon-founder-jeff-bezos-overtakes-bill-gates-to-top-
billionaire-list-11278631
Hamada, T., & Kobashi, T. (2018). INCUMBENT BEHAVIOR AND COMPETITIVE
STRATEGY PARADIGM SHIFT. Behavioral Strategy for Competitive Advantage, 99.
Tokalic, A., Dahlberg, M., & Melber, T. (2016). The Challenger Brand vs. The Established
Brand: A case study on a challenger brand and an established brand within the Swedish
Dairy Industry.
Ilhan, B. E., Kübler, R. V., & Pauwels, K. H. (2018). Battle of the brand fans: impact of brand
attack and defense on social media. Journal of Interactive Marketing, 43, 33-51.
Chen, W. C., & Lin, B. W. (2017, June). Equity versus non-equity partnership strategies for
leaders, challengers, and niche players. In 2017 IEEE Technology & Engineering
Management Conference (TEMSCON) (pp. 252-259). IEEE.
Kuncoro, A., & Sutomo, Y. (2018). Pricing Strategies and Implementation Promotion Strategies
to Improve Customer Loyalty. Jurnal Dinamika Manajemen, 9(1), 89-99.
Armstrong, G., Kotler, P., Buchwitz, L. A., Trifts, V., & Gaudet, D. (2015). Marketing: an
introduction.

WHY CHALLENGERS BEAT INCUMBENTS 9
Kotler, P., Burton, S., Deans, K., Brown, L., & Armstrong, G. (2015). Marketing. Pearson
Higher Education AU.
Căpătînă, G., & Drăghescu, F. (2015). Success factors of new product launch: The case of the
iPhone launch. International Journal of Economics and Finance, 7(5), 61-70.
Raja, K. B., Raghavendra, R., & Busch, C. (2016, September). Collaborative representation of
deep sparse filtered features for robust verification of smartphone periocular images. In
2016 IEEE International Conference on Image Processing (ICIP) (pp. 330-334). IEEE.
Xu, A., Liu, H., Gou, L., Akkiraju, R., Mahmud, J., Sinha, V., ... & Qiao, M. (2016, March).
Predicting perceived brand personality with social media. In Tenth International AAAI
Conference on Web and Social Media.
Alahi, A., & Bass, E. (2018). COCA-COLA’S FUTURE GROWTH STRATEGY:
DIVERSIFICATION?.
Mehta, S. (2016). Does CSR Really Build Brands?. IBMRD's Journal of Management &
Research, 5(1), 7-12.
Payne, B. (2017). Brand Positioning and its Usefulness for Brand Management: the Case of
Apple Inc. Newcastle business school student journal, 1(1), 51-57.
Duhigg, C. (2016). What Google learned from its quest to build the perfect team. The New York
Times Magazine, 26, 2016.
Evans, D. S. (2017). Why the dynamics of competition for online platforms leads to sleepless
nights but not sleepy monopolies.

WHY CHALLENGERS BEAT INCUMBENTS 10
Pham, S. (2019). Samsung's profit on track to beat Apple. Retrieved from
https://money.cnn.com/2017/07/27/technology/samsung-profit-apple/index.html
Amshoff, B., Dülme, C., Echterfeld, J., & Gausemeier, J. (2015). Business model patterns for
disruptive technologies. International Journal of Innovation Management, 19(03),
1540002.