X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Investing in leaders - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 26, 2009

    Investing in leaders

    King of the Hill (also known as "King of the Mountain" or "King of the Castle"), is a game, the object of which is to stay on top of a large hill or pile (or any other designated area) as the "King of the Hill". Other players attempt to knock the current King off of the pile and take their place, thus becoming the new King of the Hill. (Source: Wikipedia).

    While this is just a game, the situation holds true in case of the modern business scenario too. The company which wants to be the king of the mountain needs to follow well planned strategies. To be the king of the mountain called business, one needs to convince the customers, suppliers and even the shareholders that one has all the requisite qualities to be the king. The players in this game need to follow certain rules. The one who follows these rules emerges the king.

    A few of those rules are:

    Rule 1 - Guard the summit.
    The most important rule is to protect the company against every possible avenue of assault. The company can be attacked on the products front or the final consumer (target group) front or distribution front. The company needs to guard itself against all its competitors, be it small or big. As a market leader, the company cannot afford to be complacent and relax.

    In the late 1990s, Colgate was the King of the oral care mountain. Hindustan UniLever (HUL) replaced it by biting off a 37 % market share from Colgate. HUL used the novelty element in gel toothpaste to make steady inroads into Colgate's dominance in the oral care market. By 1999-end, Close Up, a HUL product had garnered an 18% share of the market.

    ITC with a slew of competitively priced products gave a tough fight to Britannia. Britannia's market share dropped from 35.8% in 2004-05 to 30.5% in May 2006 (volumes). Parle's shares also dropped from 42.2 to 38.4% in the same period. ITC's Sunfeast was a big gainer with its share increasing from 2.7 to 6.7%.

    Rule 2 - Fight from an uphill position- use the first mover advantage.
    The army, just like the company, has a first mover advantage if it is positioned atop a hill. However, deployment of resources is necessary in this case. To maintain the leadership position, companies need to constantly innovate their products. They need to target new set of consumers and expand their distribution. Branding plays a very important role.

    Eg: GSK Consumers is the market leader in the health beverage space. Horlicks' market share of the Rs 23 bn milk beverages market is above 50% (source: The Nielsen Company). Rivals know beating Horlicks in the market place is a tough act. Nestlé has stopped making Milo and new entrant Dabur India has decided to stay clear of Horlicks and pitch its 'Chyawan Junior' against GSK Consumer Healthcare's other beverage brand, Boost.

    Rule 3 - Use superior weapons.
    Having superior weapons (resources) always puts the player at an advantage. The products, marketing strategies, branding power, distribution network are the weapons of the companies. Also, it is very important to use the resources efficiently. The company, in order to maintain leadership needs to have superior quality products. If not technically superior, the company should be able to meet the demands of the target group. In terms of the marketing strategies, the 4 P's should be conveyed properly. Targeting the right group at right place and with right emotions is the need of the day.

    Eg: HUL used sachets to target rural areas. Marico leveraged its Parachute brand to other products like Parachute Advansed Night Repair Crème, men's gel etc.

    Rule 4 - Leverage your allies.
    A company cannot survive without the help of suppliers, employees and distributors among others. Hence, it is necessary for the companies to maintain good relations as it is easier to remain at the top if your supporter wants you to.

    Eg: ITC has a huge distribution network for its tobacco business. It leveraged this network for its Bingo brand.

    Rule 5 - Move secretly and deceptively.
    The company should keep its plans confidential. A strong market leader knows more about the competitor than the competitor does about himself. There should be an element of surprise involved.

    Eg: HUL entered the oral care market with the gel category which gave a tough time to Colgate. Every marketer has then signed Colgate off saying that it cannot fight with HUL. But Colgate struck back with the launch of Colgate fresh energy gel and the famous campaign “TALK TO ME" that stole the gel category from HUL. Close Up never recovered from that blow.

    Rule 6 - Don't let the enemy gain momentum.
    One should never let the competitor gain an advantage. This was clearly evident during the HUL – P& G detergent war. By letting the competitor gain momentum, HUL faced trouble.

    Rule 7- Don't let the enemy see you sweat.
    This arises when the company is in critical stages and nearing defeat. It is advisable to send messages that the company still doing well which may discourage the competitors.

    Eg: When Colgate lost the market share to HUL, it fought back with launch of Colgate fresh energy gel and now is a market leader.

    As an investor:
    Thus, as an investor, one must select companies which follow the above set of rules. One should select companies which dominate the segment they operate in and manage to adapt to the changing environment Investing in market leaders is betting on the long-term that the company would have a dominant advantage to flourish for years to come. However, one must always keep a track of these stocks as the market leaders may get complacent and can fall from glory. Further, these stocks are also not insured against price volatility. Hence, valuations too play an important role.(The rules are taken from PYRAMID White Paper)

     

     

    Equitymaster requests your view! Post a comment on "Investing in leaders". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    Deep State First (Vivek Kaul's Diary)

    Aug 23, 2017

    Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 23, 2017 03:36 PM

    MARKET STATS