by Donald V. Potter

A market that is not hostile is something like a sandlot game in sports. In a sandlot game, competition is not that intense, the structure of the team is somewhat looser, and walk-ons have a good chance of getting into the game, even becoming lead players on one of the teams if they are pretty good. In the same way, a non-hostile market is relatively open to new entrants, and competitors who bring unique features or uniquely low prices stand a good chance of creating a significant market position from scratch.

Hostile markets though, more closely resemble teams getting ready for the Super Bowl. The stakes are high, and the starters will go to extraordinary lengths to play. New sign-ups are likely to be low on the depth chart, with no real chance unless one of the stars goes down. Similarly, in a hostile market, suppliers who hold the valuable roles of Primary supplier or even Secondary supplier, especially to larger customers, will fight fiercely to protect those roles. New entrants are likely to find themselves in the Tertiary supplier role, waiting for some failure on the part of the leading supplier, which is the only real chance to play a bigger role.

Two examples illustrate how supplier roles must be reconsidered in light of market hostility.

Triggering Trouble

A large consumer goods company – let’s call it PrimeTest – wanted to enter a market dominated by two brand players, both of which were earning attractive returns. PrimeTest, though, had a better product: market research indicated that customers preferred its taste. With a product advantage plus a strong brand name franchise, PrimeTest seemed well positioned to challenge the current suppliers. Its decision to enter the market appeared sound, and its chances to become a major player seemed good. Yet PrimeTest never broke out of its initial Tertiary supplier roles with the larger customers. After a few years it had gained only minimal market share and was earning low returns. PrimeTest pulled out.

What PrimeTest had not foreseen was that its own entry into the market would trigger market hostility, and that once the sandlot became the Super Bowl, established players could rise to the challenge. Jolted into action, the incumbents improved their product, then quickly matched every innovation that PrimeTest put forth. They also matched PrimeTest’s prices and went the extra mile to serve their large customers well.

PrimeTest took some share from regional suppliers, but could gain no advantage over the principal suppliers who were competing fiercely and had already proved themselves to their customers. By refusing to fail, the incumbents denied PrimeTest a chance to play.

Risky Strategy, Bad Timing

A manufacturer that we will call Turnwell was established in the higher-end, specialty segment of the market. Turnwell management reasoned that it could use its quality reputation to gain a profitable position in segments that were more commodity-like but offered large customers and long production run lengths. The company acquired a manufacturing facility suited to serving the more commoditized segment, and set out to penetrate the market, offering price discounts to break into customer relationships as a Tertiary supplier.

The strategy was inherently risky and also badly timed. Shortly after Tunrwell’s entry, the market became hostile. With the existing suppliers fighting hard to protect their large customer relationships, customers used Turnwell only for price leverage. Forced to sell at a significant discount relative to market leaders, Turnwell lost millions in the venture and ultimately had to withdraw.

Why had Turnwell’s strategy failed? First, the company had not considered the impact of market hostility on its plans. Although the industry went through regular cycles and was due for a downturn, Turnwell had not considered how renewed competitive intensity would affect its effort to join the market’s mainstream.

Second, Turnwell failed to clarify for its customers the basis on which it was willing to fill a Tertiary role. Tertiary suppliers are always at a disadvantage – but that does not mean a company should never fill the Tertiary role. In fact, Tertiary suppliers fall into three categories.

  • Price shavers, who offer lower-quality products or services at rock bottom prices, operate on thin margins, engender little loyalty in their customers, and are highly vulnerable when market hostility forces all players to drop their prices.
  • Specialty suppliers, who offer unusual, typically high end, products or services that warrant top dollar but account for little volume. In a hostile market, these suppliers are often bought out, or forced out, by mainstream suppliers searching for additional share.
  • Team tryouts. Occasionally, a supplier with the capability to fill the Primary or Secondary role will accept a Tertiary role just to become known to the customer and positioned to move up should the top suppliers fail the customer. This is a risky strategy, with roughly a one-in-ten chance of succeeding, but it can work if the supplier is perceived from the outset as a potential starting player.

(Note: This Perspective was written in the context of the economy in 1996. While some of the companies may have changed their policies or indeed no longer exist, the patterns they exhibit still hold today.)


THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns. describes the inductive results of these thousands of observations and their patterns.