Chapter 15 Strategies for New and Growing Markets

Chapter 15 Strategies for New and Growing Markets Mc. Graw-Hill/Irwin Copyright © 2010 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

How New is New? • Six categories of new products based on their degree of newness: – New-to-the-world products – New product lines – Additions to existing product lines – Improvements in or revisions of existing products – Repositionings – Cost reductions 15 -2

Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market 15 -3

How New is New? • Introducing a product that is new to both the firm and target customers requires the greatest expenditure of effort and resources. • It also involves the greatest amount of uncertainty and risk of failure. • Products new to target customers but not new to the firm are often not very innovative in design or operations, but they may present a great deal of marketing uncertainty. 15 -4

How New is New? • The marketing challenge is to build primary demand, making target customers aware of the product and convincing them to adopt it. • Products new to the company but not to the market often present fewer challenges for R&D and product engineering. 15 -5

Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? • Pioneer strategy • Potential sources of competitive advantage available to pioneers are: – First choice of market segments and positions. – The pioneer defines the rules of the game. – Distribution advantages. – Economies of scale and experience. 15 -6

Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? • Not all pioneers capitalize on their potential advantages – Some pioneers fail. – Some pioneers abandon the product category, go out of business, or get acquired before their industry matures. 15 -7

Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? • Follower strategy • The ability to take advantage of the: – Pioneer’s positioning mistakes. – Pioneer’s product mistakes. – Pioneer’s marketing mistakes. – Latest technology. – Pioneer’s limited resources 15 -8

Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? • A pioneering firm stands the best chance for long-term success in market-share leadership and profitability when: – The new product-market is insulated from the entry of competitors; or – The firm has sufficient size, resources, and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries. 15 -9

Market Entry Strategies: Is it Better to Be a Pioneer or a Follower? – A follower will most likely succeed when: • There are few legal, technological, or financial barriers to inhibit entry and • When it has sufficient resources or competencies to overwhelm the pioneer’s early advantage. – A study found that the most successful fast followers had the resources to enter the new market on a larger scale than the pioneer. 15 -10

Strategic Marketing Programs for Pioneers • A pioneer might choose from one of three different types of marketing strategies: – Mass-market penetration – Niche penetration – Skimming and early withdrawal 15 -11

Strategic Marketing Programs for Pioneers • Mass-market penetration – The objective is to capture and maintain a commanding share of the total market for the new product. – Tends to be most successful when entry barriers inhibit or delay the appearance of competitors, or when the pioneer has unique competencies or resources. 15 -12

Strategic Marketing Programs for Pioneers • Niche penetration – Can help the smaller pioneer gain the biggest bang for its limited bucks and avoid direct confrontations with bigger competitors. – Instead of pursuing the objective of capturing and sustaining a leading share of the entire market, it may make more sense for such firms to focus their efforts on a single market segment. 15 -13

Strategic Marketing Programs for Pioneers • Skimming and early withdrawal – Involves setting a high price and engaging in only limited advertising and promotion to maximize per-unit profits and recover the product’s development costs quickly. – The firm may also work to develop new applications for its technology or the next generation of more advanced technology. 15 -14

Strategic Marketing Programs for Pioneers • Marketing program components for a mass-market penetration strategy – Maximizing the number of customers adopting the firm’s new product as quickly as possible with a marketing program focused on: • Aggressively building product awareness and motivation to buy among a broad cross-section of potential customers and • Making it easy for those customers to try the new product, on the assumption that they will try it, like it, develop loyalty, and make repeat purchases. 15 -15

Strategic Marketing Programs for Pioneers • Marketing program components for a mass-market penetration strategy (cont. ) – Increasing customers’ awareness and willingness to buy – Increasing customers’ ability to buy – Additional considerations when pioneering global markets 15 -16

Strategic Marketing Programs for Pioneers • Marketing program components for a niche penetration strategy – The marketing program elements are likely to be similar to that of mass-market strategies. – The niche penetrator should keep its marketing efforts clearly focused on the target segment to gain as much impact as possible from its limited resources. 15 -17

Strategic Marketing Programs for Pioneers • Marketing program components for a skimming strategy – A relatively high price is appropriate for a skimming strategy to increase margins and revenues. – Introductory promotional programs might best focus on customer groups who are least sensitive to price and most likely to be early adopters of the new product. 15 -18

Growth-Market Strategies for Market Leaders • Two important facts must be kept in mind. – The dynamics of a growth market make maintaining an early lead in relative market share very difficult. – A firm can maintain its current share position in a growth market only if its sales volume continues to grow at a rate equal to that of the overall market, enabling the firm to stay even in absolute market share. 15 -19

Growth-Market Strategies for Market Leaders • Marketing objectives for share leaders – Retaining current customers. – Stimulating selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales. – Stimulating primary demand to help speed up overall market growth. – Expanding total demand is often more critical near the end of the growth stage and early in the maturity stage of a product’s life cycle. 15 -20

Strategic Choices for Share Leaders in Growth Markets 15 -21

Growth-Market Strategies for Market Leaders • Fortress, or position defense, strategy – The most basic defensive strategy is to continually strengthen a strongly held current position. – Actions to improve customer satisfaction and loyalty. – Actions to encourage and simplify repeat purchasing. 15 -22

Growth-Market Strategies for Market Leaders • Flanker Strategy – One shortcoming is that a challenger might simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence. – To defend against an attack directed at a weakness in its current offering, a leader might develop a second brand to compete directly against the challenger’s offering. 15 -23

Growth-Market Strategies for Market Leaders • Confrontation Strategy – If the leader’s competitive intelligence is good, it may decide to move proactively and change its marketing program before a suspected competitive challenge occurs. – A confrontational strategy is more commonly reactive. 15 -24

Growth-Market Strategies for Market Leaders • Market Expansion – A more aggressive and proactive version of the flanker strategy. – The most obvious way a leader can implement a market expansion strategy is to develop line extensions, new brands, or even alternative product forms utilizing similar technologies to appeal to multiple market segments. 15 -25

Growth-Market Strategies for Market Leaders • Contraction or strategic withdrawal – In some highly fragmented markets, a leader may be unable to defend itself adequately in all segments. – The firm may then have to reduce or abandon its efforts in some segments to focus on areas where it enjoys the greatest relative advantages or that have the greatest potential for future growth. 15 -26

Share-Growth Strategies for Followers • Marketing objectives for followers – Some competitors may seek to build a small but profitable business within a specialized segment of the larger market that earlier entrants have overlooked. – Many followers often seek to displace the leader or at least to become a powerful competitor within the total market. 15 -27

Strategic Choices for Challengers in Growth Markets 15 -28

Share-Growth Strategies for Followers • Frontal attack strategy – A follower wanting to capture an increased market share may use this strategy: • Where the market for a product category is relatively homogeneous, • Has few untapped segments, and • At least one well-established competitor. 15 -29

Share-Growth Strategies for Followers • Frontal attack strategy is most likely to succeed when: – Most existing customers do not have strong brand preferences or loyalties, – The target competitor’s product does not benefit from positive network effects, and – When the challenger’s resources and competencies—particularly in marketing—are greater than the target competitor’s. 15 -30

Share-Growth Strategies for Followers • Leapfrog strategy – Attracting repeat or replacement purchases from a competitor’s current customers by offering a product that is attractively differentiated from the competitor’s offerings. – The odds of success might be even greater if the challenger can offer a far superior product based on advanced technology or a more sophisticated design. 15 -31

Share-Growth Strategies for Followers • Flanking and encirclement strategies – A flank attack is appropriate: • When the market can be broken into two or more large segments • When the leader and/or other major competitors hold a strong position in the primary segment, and • When no existing brand fully satisfies the needs of customers in at least one other segment. – In some cases, a successful flank attack need not involve unique product features. 15 -32

Share-Growth Strategies for Followers • Flanking and encirclement strategies – Encirclement • Involves targeting several smaller untapped or underdeveloped segments in the market simultaneously. • It usually involves developing a varied line of products with features tailored to the needs of different segments 15 -33

Share-Growth Strategies for Followers • Supporting evidence – Businesses that increased the quality of their products relative to those of competitors achieved greater share increases than businesses whose product quality remained constant or declined. – Share-gaining businesses typically developed and added more new products, line extensions, or product modifications to their line than share-losing businesses. 15 -34

Share-Growth Strategies for Followers • Supporting evidence – Share-gaining businesses tended to increase their marketing expenditures faster than the rate of market growth. – Surprisingly, there was little difference in the relative prices charged between firms that gained and those that lost market share. 15 -35

Take-Aways • Being the pioneer in a new product or service category gains a firm a number of potential advantages. But not all pioneers are able to sustain a leading position in the market as it grows. 15 -36

Take-Aways • Some pioneers attempt to penetrate the mass market and remain the share leader as that market grows. – The appropriate strategy to adopt depends on the firm’s resources and competencies, the strength of likely competitors, and the characteristics of the product and its target market. 15 -37

Take-Aways • If a market leader wishes to maintain its number one share position as the product category moves through rapid growth, it must focus on two important objectives: – Retaining its current customers, and – Stimulating selective demand among later adopters. 15 -38

Take-Aways • For a challenger to increase its market share relative to the leader, it must differentiate its offering by delivering superior product benefits, better service, or a lower price than the leader. Challenging a leader solely on the basis of price is a highway to disaster, however, unless the challenger has a sustainable cost advantage. 15 -39