DEFINITION of 'Market Challenger'
A firm that has a market share below that of the market leader, but enough of a market presence that it can exert upward pressure in its effort to gain more control. Market challengers are able to jockey for industry leadership several ways: challenging the market leader on price (direct approach), increasing product differentiation or improving customer service (indirect approach), or launching an entirely new product or service in order to change the field (radical approach).
BREAKING DOWN 'Market Challenger'
Companies with low market share are generally not in a position to influence prices, and are often susceptible to the actions of larger firms. Market challengers, being in a position of becoming the dominant player, may face a high degree of risk because they must take potentially radical steps in order to draw away consumers from the market leader. Each of the three primary strategies carries with it a unique risk, with the direct approach and radical approach posing more risk due to the high potential costs.