Transcript Strategies for New and Growing Markets

Chapter 15
Strategies for
New and
Growing
Markets
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-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
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Categories of New Products Defined According to Their
Degree of Newness to the Company and Customers
in the Target Market
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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Strategic Choices for Share Leaders in Growth
Markets
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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.
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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.
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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.
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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.
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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.
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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.
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Strategic Choices for Challengers in Growth
Markets
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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