What Is a Market Leader?

A market leader is a company with the largest market share in an industry that can often use its dominance to affect the competitive landscape and direction the market takes. A market leader typically enjoys the largest market share or the largest percentage of total sales in a given market. It may surpass its competitors according to other metrics, too, including brand loyalty, perceived value, distribution coverage, image, price, promotional spending, and profit.

Such a company may be the first to develop a product or service, which would allow it to set the tone for messaging, define the ideal product characteristics, and to become considered by the market as the brand that consumers associate with the offering itself.

How Market Leadership Works

A company can establish itself as the market leader by being the first to offer a product or service. The product or service must be novel enough to attract a consumer base, and then the company must keep on top of consumer preferences to maintain leadership. If a company enters a market as a competitor to the first mover(s), it can aggressively market its own version of the product with differentiated features. Competitors that seek market leadership status may invest heavily in market research and product development, and then use consumer information to develop attributes that improve an existing product.

Market leaders may be able to leverage economies of scale to control market prices. Consumers trust market leaders and will choose to minimize risk by purchasing from market leaders. Market leaders have a detailed awareness of the purchasing decision-makers in their customer base and leverage aggressive advertising to take advantage of that knowledge while strengthening their brand. Market leaders attract the highest-quality development partners and are most likely to be innovative in adopting the technologies and processes that will help them continue to outshine their competition.

Examples of Market Leaders

Maintaining a dominant market share requires a company to not only retain its existing customers by building brand loyalty but also attract new customers who may be unfamiliar with the product or service. The company may also attract the customers of competitors by figuring out the ideal combination of quality and price. In this modern age of the internet, it is easy to identify consumer-oriented market leaders, such as Apple, Google, and Amazon. In capital goods, Boeing and Caterpillar are two examples.

Market leaders have to be careful when it comes to how they use and obtain their market share. If a company becomes too dominant in the market, or if it seems to be abusing its position, it may become subject to anti-trust lawsuits. Microsoft once became a target of regulators, for example. Also, from an investor's perspective, a market leader may not necessarily be the most profitable. Despite having the most market share, it could be the case that the company's total expenses, including product R&D, manufacturing costs, marketing costs, etc., are too high to make the company the most profitable among its competitors.