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(originally published by Booz & Company)


Using Market Footholds to Confuse the Competition

In highly competitive industries like the computer business, where there is tremendous overlap in products and services sold, companies might be reluctant to attack from a foothold (because they fear retaliation in vital shared markets), but they are also reluctant to withdraw. “As market commonality increases,” the authors note, “firms must be increasingly able to defend their ‘turf’ against competitor aggression.” And in a maintenance strategy, footholds can serve as placeholders to ward off rivals, camouflage moves, and provide options, without forcing a company to make a full-scale investment in new enterprises or capabilities.

Indeed, some firms may establish footholds as “feints,” the authors conclude, with a view toward fooling their competitors into guessing where the next strike will occur. This ambiguity makes it harder for competitors to predict a company’s strategic direction once a foothold has been gained. And the authors note that this problem would be compounded if the company had multiple footholds, because it could then move in a wide variety of unpredictable directions. Multiple footholds also allow firms to retaliate against rivals more swiftly and effectively. “Footholds’ value as competitive weapons may far exceed their size,” the authors write.

The authors advise managers to consider intentionally sequencing a mix of foothold attacks and withdrawals. This would signal both aggression and restraint, murky behavior that could be used to a company’s advantage. For example, a firm that has a foothold could bait its rival by executing a reversible action that leads the rival to try to expand its own foothold. Once the rival has done so, the first firm could back off, potentially leaving its competitor to face an unprofitable market in which it has fruitlessly invested precious resources.

Bottom Line:
Establishing a small position in a new market can give firms the ability to affect the behavior of their rivals and gain a competitive advantage that isn’t always about aggressive expansion. Although costly to maintain, footholds can pay off by discouraging aggression from competitors and by keeping them guessing about a company’s next move.

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