CH-7 Differentiation and Brand Positioning – Marketing Strategy: A Decision-Focused Approach : Chapter Notes

This document contains Chapters 7 to 8 Chapter 7 Differentiation and Brand Positioning I. “A Sustainable Retailer? Marks & Spencer Says “Yes” in Tangible Ways” discusses how M&S, the venerable operator of department and food stores in the United Kingdom and abroad, announced plans to become the world’s most sustainable retailer. M&S uses less energy in its stores and its fleet (down 20 percent), reduces packaging (down 19 percent in its food business and 35 percent in general merchandise), and even sends its food waste to anaerobic digestion plants, which turn it into energy, instead of to landfills. II. Strategic Challenges Addressed in Chapter 7 Brand positioning refers to both the place a brand occupies in customers’ minds relative to their needs and competing brands and to the marketer’s decision making intended to create such a position. Thus, positioning comprises both competitive and customer considerations. Brand positioning is basically concerned with differentiation. Ries and Trout, who popularized the concept of positioning, view it as a creative undertaking whereby an existing brand in an overcrowded marketplace of similar brands can be given a distinctive position in the minds of targeted prospects. Drawing on decisions made about target markets, as discussed in Chapter 6, this chapter addresses the critical question: “How should a business position its product offering—whether goods or services—so customers in the target market perceive the offering as providing the benefits they seek, thereby giving the product an advantage over current and potential future competitors?” III. Differentiation: One Key to Customer Preference and Competitive Advantage In today’s highly competitive markets, consumers have numerous options. In most cases, consumers or organizational customers choose what they buy for one of two reasons: What they choose is better What they choose is cheaper In either case, the good or service they choose is, in some way, almost always different from others they could have chosen: differentiation is why people buy. A. Differentiation among Competing Brands Customers in one market segment have wants and needs that differ in some way from those of customers in other segments. Brand positioning allows marketer to take advantage of and be responsive to such differences and position particular goods and services to better meet the needs of customers in one or more of these segments. Creating both physical and perceptual differences, using all elements of the marketing mix—product, pricing, promotion, and distribution decisions—is what effective brand positioning seeks to accomplish. IV. Physical Positioning One way to assess the current position of a brand relative to competitors is on the basis of how various brands compare on some set of objectives physical characteristics. In many cases, a physical positioning analysis: Provides useful information to a marketing manager, particularly in the early stages of identifying and designing new product offerings. Contributes to a better marketing/R&D interface by determining key physical product characteristics Helps define the structure of competition by revealing the degree to which the various brands compete with one another May indicate the presence of meaningful product gaps, which, in turn, may reveal opportunities for a new product entry A. Limitations of Physical Positioning A simple comparison of only the physical dimensions of alternative offerings usually does not provide a complete picture of relative positions because positioning ultimately occurs in customers’ minds. Customers’ attitudes toward a product are often based on social or psychological attributes not amenable to objective comparison. Consequently, perceptual positioning analysis—whether aimed at discovering opportunities for new product entries or evaluating and adjusting the position of a current offering—is critically important. V. Perceptual Positioning Consumers often know very little about essential physical attributes of many of the brands they buy. Many consumers do not want to be bothered about a product’s physical characteristics because they are not buying these physical properties but rather the benefits they provide. While the physical properties of a product certainly influence the benefits provided, a consumer can typically evaluate a product better on the basis of what it does than what it is. The evaluation of many goods and services is subjective because it is influenced by factors other than physical properties, including the way the products are presented, our past experiences with them, and the opinion of others. VI. Levers Marketers Can Use To Establish Brand Positioning Marketing decision makers seeking to win a particular position in customers’ minds will seek to endow their brand with various kinds of attributes, which may be categorized as follows: Simple physically based attributes Complex physically based attributes Essentially abstract attributes Price The importance of perceptual attributes with their subjective component varies across consumers and product classes. Perceptual attributes must be considered in positioning must products because of the growing similarity of the physical characteristics of more and more brands. VII. Preparing the Foundation for Marketing Strategies: The Brand Positioning Process Positioning a new brand in customer’s minds or repositioning a current brand involves a series of steps: Identify relevant set of competitive products serving a target market Identify the set of determinant attributes that define the “product space” in which positions of current offerings are located Collect information from a sample of customers and potential customers about perceptions of each product on the determinant attributes Determine brand’s current location (positioning) in the product space and intensity thereof Determine customers’ most preferred combination of determinant attributes Examine the fit between preferences of market segments and current position of brands Write positioning statement or value proposition to guide development and implementation of marketing strategy These steps are applicable to goods and service, in domestic or international markets, and to new and existing brands. A. Step 1: Identify a Relevant Set of Competitive Products Positioning analyses are useful at many levels. At the company or business unit level, such analyses are useful to determine how an entire company or business unit is positioned relative to its competitors. At the product category level, the analysis examines customers’ perceptions about types of products they might consider as substitutes to satisfy the same basic need. At product or brand level, an analysis can be helpful to better understand how various brands appeal to customers, to position proposed new products or reposition current ones, and to identify where new competitive opportunities might be found. At whichever level the position analysis is to be done, the analysts’ choice of competing products is critical. Marketers who omit important substitute products or potential competitors risk being blindsided by the unforeseen competition. B. Step 2: Identify Determinant Attributes Positioning, whether for goods or services, can be based on a variety of attributes—some in the form of surrogates that imply desirable features or benefits as a positioning base. Some common bases are the following: Features are often used in physical product positioning and, hence, with industrial products. Benefits, like features, are directly related to the product. Parentage includes who makes it and prior products. Manufacturing process is often the subject of a firm’s positioning efforts. Ingredients as a positioning concept is illustrated by some manufacturers’ saying their products are made only of a particular kind of material. Endorsements are of two types—those by experts and those via emulation. Comparison with a competitor’s product is common. Pro environment positioning seeks to portray a company as a good citizen Price/Quality is used in cases such as Walmart successfully positioning itself as the lowest-price seller of household products. Theoretically, consumers can use many attributes to evaluate competing brands, but the number actually influencing a consumer’s choice is typically small, partly because consumers can consider only attributes of which they are aware. The positioning effort must be kept as simple as possible and complexity should generally be avoided at all costs. In using one or more attributes as the basis of a brand’s positioning effort, it is important to recognize that the importance attached to these attributes often varies. The determinant attribute plays a major role in helping customers to differentiate among the alternatives and to determine the product they prefer. Marketers should rely primarily on determinant attributes, whether benefits or features, in defining the product space in a positioning analysis. C. Step 3: Collect Data about Customers’ Perceptions for Brands in the Competitive Set Having identified a set of competing brands, the marketer needs to know what attributes are determinant for the target market and product category under consideration. The marketer also needs to know how different brands in the competitive set are viewed on these attributes. Typically, this market knowledge is developed by first conducting qualitative research, perhaps interviews or focus groups, to learn which attributes are determinant. Then quantitative research follows, perhaps a survey of consumers about their perceptions, to gather data on how competing brands score on these attributes. D. Step 4: Analyze the Current Positions of Brands in the Competitive Set There are two useful tools for developing a clear understanding of the positioning of the existing brands in the competitive set: Positioning grid—also called a perceptual map provides a visual representation of the positions of various products or brands in the competitive set in terms of (typically) two determinant attributes. When more than two attributes are to be considered in a positioning analysis, multidimensional grids, or multiple grids, are produced. Value curve—where more than two attributes are to be considered in a positioning analysis, a value curve, which comprises of more than just two dimensions, can also be generated. Building a Positioning Grid Store positioning provides useful information about possible opportunities for the launching of a new store or the repositioning of an existing one. Positioning for a new store could be done by examining the positioning map for empty spaces (competitive gaps) where no existing store is currently located. Building a Value Curve Value curves indicate how products within a category compare in terms of the level—high or low—of as many attributes as are relevant. Sometimes, value is best delivered by eliminating or reducing the level of some attributes, especially those not really desired or appreciated by the target customer, and increasing the level of others, the ones the customer really wants. Marketing Opportunities to Gain a Distinct Position In situations where one or a limited number of brands dominate a product class (or type) in the minds of consumers, the main opportunity for competitors generally lies in obtaining a profitable position within a market segment not dominated by a leading brand. In such situations, it is better to concentrate on an attribute prized by members of a given market segment. Constraints Imposed by an Intense Position Repositioning carries with it the threat of alienating part or all of the product’s current users regardless of success with its newly targeted group. Another concern is the dilution of an existing intense position as a result of consolidation. Another danger associated with an intensely positioned brand is the temptation to overexploit that position by using the brand name on line extensions and new products. Limitations of Product Positioning Analysis The product positioning analysis does not tell the marketer which positions are most appealing to customers. Thus, there is no way to determine if there is a market for a new brand or store that might locate in an “open” position or whether the customers in other market segments prefer brands or stores with different attributes and positions. To solve such problems, it is necessary to measure customers’ preferences and locate them in the product space along with their perceptions of the positions of existing brands. This is called a market positioning analysis. E. Step 5: Determine Customers’ Most Preferred Combination of Attributes There are several ways analysts can measure customer preferences and include them in a positioning analysis. For instance, survey respondents can be asked to think of the ideal brand within a category—a hypothetical brand possessing the perfect combination of attributes (from the customer’s viewpoint). Respondents could then rate their ideal product and existing products on a number of attributes. An alternative approach is to ask respondents not only to judge the degree of similarity among pairs of existing brands, but also to indicate their degree of preference for each. Another method of assessing customers’ preferences and trade-offs among them is a statistical technique called conjoint analysis. Customers are surveyed and asked their preferences among various real or hypothetical product configurations, each with attributes that are systematically varied. By analyzing the resulting data, the marketer can learn which of several attributes are more important than the others. Using price as one dimension of a positioning grid, or a key dimension on which a brand is positioned, is typically not very useful unless price is a key driver of the marketing strategy. This is the case for two reasons: Price is easily imitable by competitors. Claims that one’s brand—whether a good or a service—is low-priced are sometimes not very credible because so many marketers make such claims. F. Step 6: Consider Fit of Possible Positions with Customer Needs and Segment Attractiveness An important criterion for defining market segments is the difference in the benefits sought by different customers. Because differences between customers’ ideal points reflect variations in the benefits they seek, a market positioning analysis can simultaneously identify distinct market segments as well as the perceived positions of different brands. Step 6 not only concludes the analysis portion of the positioning process and crystallizes the decision about the positioning a brand should hold, but it also can uncover locations in the product space where additional new brands could be positioned to serve customer needs not well served by current competitors. G. Step 7: Write Positioning Statement or Value Proposition to Guide Development of Marketing Strategy The final decision about where to position a new brand or reposition an existing one should be based on both the market targeting analysis and the results of a brand positioning analysis. The position chosen should: Match the preferences of a particular market segment and should take into account the current positions of competing brands Reflect the current and future attractiveness of the target market (its size, expected growth, and environmental constraints) Reflect the relative strengths and weaknesses of competitors Most successful products are positioned based on one or, at most, two determinant attributes, whether physical or perceptual. When there are no real product differences, as in me-too products, or no differential benefits to the user, not only is success hard to achieve, but also ethical issues may arise. Once the desired positioning for the product is determined, it’s a good idea to write it down so those charged with developing and implementing the marketing strategy have a clear understanding of what is intended for the product and where it will fit its competitive set. Two approaches are commonly used for doing so: In the classical approach, a positioning statement is written. A more recent approach, one adopted by a growing number of firms, involves writing a value proposition for the product. Writing a Positioning Statement or a Value Proposition A positioning statement is a succinct statement that identifies the target market for which the product is intended and the product category in which it competes and states the unique benefit the product offers. Both positioning statements and value propositions should generally reflect a unique selling position (USP) that the product embodies. It is important that the positioning statement or value proposition states benefits that the user will obtain, rather than features or attributes of the product itself or vague or ambiguous platitudes about high quality or excellent service. The positioning statements and value propositions are short and succinct and are typically not written in catchy consumer language, though catchy slogans and tag lines for communication with customers often follow. The positioning statement or value proposition constitutes the foundation upon which the marketing strategy is built. When used at the business level, these statements articulate the strategic direction toward which the company’s activities in all arenas should be directed. VIII. The Outcome of Effective Positioning: Building Brand Equity Brand equity is the term marketers use to refer to the value created by establishing customer preference for one’s brand. It reflects how consumers feel, think, and act toward the brand, and it has implications for the prices and profits the brand can achieve in the marketplace. When companies create differences between their brands and other brands, differences that consumers view as meaningful, brand equity is the result. A. Managing Brand Equity While brand positioning decisions are crucial in large companies and to the development of new brands, whether goods or services, in entrepreneurial start-ups, there are two ongoing issues that are essential if whatever brand value that has been built is to be maintained and grown: Brand reinforcement Brand revitalization Brand positioning is an ongoing, never-ending process, one in which the best marketers keep abreast of market and competitive changes in order to maintain and grow the brand equity they have built. X. Positioning Decisions in Global Markets As many industries have undergone consolidation in recent years, the consolidators have found themselves managing a plethora of brands. Over time, as the globalization of most media make it possible for consumers to understand what’s available elsewhere and see how it is positioned, marketers will have to be careful that marketing messages in one part of the world don’t conflict with established positioning in another. IX. Some Caveats in Positioning Decision-Making It is generally desirable to identify a unique selling proposition that clarifies how the product is differentiated from others. Patrick Barwise and Seán Meehan argue that contrary to conventional wisdom, buyers rarely look for uniqueness. They argue that the degree to which a brand can grow to dominate its category is a reflection of how many users in the category believe it delivers the main category benefits. A second caveat is the question of whether, if one is to differentiate, the focus should be on features—tangible attributes of the good or service itself, or the benefits the features deliver. The challenge for marketing strategists is to keep benefits as the focus of the value proposition and at the top of everyone’s mind and find a way to credibly support and effectively communicate the benefits that are claimed. End of Chapter Discussion Questions and Answers Given the challenges inherent in repositioning a fast-food chain, how would you further update the Subway product line and advertising campaign in light of current macro trends? Answer: Updating the Subway Product Line and Advertising Campaign in Light of Current Macro Trends: 1. Health and Wellness Trend: Product Line Update: Introduce more plant-based and protein-rich options to cater to the growing demand for healthier food choices. •Advertising Campaign: Emphasize Subway's commitment to providing fresh, nutritious, and customizable meal options that align with consumers' health and wellness goals. 2. Sustainability and Environmental Consciousness: • Product Line Update: Source ingredients from sustainable and environmentally friendly suppliers. • Advertising Campaign: Highlight Subway's sustainable sourcing practices, such as using locally sourced ingredients and reducing packaging waste, to appeal to environmentally conscious consumers. 3. Customization and Personalization: • Product Line Update: Offer more customizable options, allowing customers to build their sandwiches, salads, and bowls according to their preferences. • Advertising Campaign: Showcase Subway's wide range of fresh ingredients and customizable menu items, emphasizing the ability for customers to create their perfect meal. 4. Convenience and Digital Innovation: • Product Line Update: Introduce convenient grab-and-go options and meal bundles for on-the-go consumers. • Advertising Campaign: Highlight Subway's easy ordering and delivery options, mobile app features, and loyalty program to make ordering and enjoying Subway meals more convenient than ever. 5. Authenticity and Transparency: • Product Line Update: Increase transparency around ingredient sourcing and preparation methods. • Advertising Campaign: Communicate Subway's commitment to transparency and quality, emphasizing the freshness and quality of ingredients used in every Subway meal. 6. Community Engagement and Social Responsibility: • Product Line Update: Introduce community-focused initiatives, such as partnerships with local farms or charities. • Advertising Campaign: Showcase Subway's involvement in the community and commitment to social responsibility, emphasizing its role as a responsible and caring brand. 7. Digital Marketing and Social Media Engagement: • Product Line Update: Invest in digital menu boards and online ordering platforms to enhance the customer experience. • Advertising Campaign: Utilize social media platforms and digital marketing channels to engage with customers, share promotions, and gather feedback to continuously improve the Subway experience. Conclusion: By updating the Subway product line to align with current macro trends and adapting the advertising campaign to emphasize Subway's commitment to health, sustainability, customization, convenience, authenticity, community engagement, and digital innovation, Subway can strengthen its brand positioning and appeal to a broader range of consumers in today's competitive fast-food market. These updates will not only attract new customers but also retain existing ones, ensuring Subway remains a relevant and preferred choice in the fast-food industry. What is meant by a determinant attribute for a given product? Explain why the identification of such attributes is so important. What would be an example of a determinant attribute for each of the following products and services? a. A cruise line b. A laptop computer c. French wine d. Women’s sportswear e. A hospital f. A liberal arts college g. A tractor Answer: Determinant Attribute: A determinant attribute for a given product or service is a feature or characteristic that significantly influences the purchasing decision of customers. Identifying determinant attributes is crucial because they are the key factors that differentiate one product or service from its competitors and drive customer preferences. Examples of Determinant Attributes: a. Cruise Line: • Determinant Attribute: Itinerary and Destinations • Example: The variety and exclusivity of destinations offered on a cruise itinerary, including exotic ports of call and unique shore excursions. b. Laptop Computer: • Determinant Attribute: Performance and Speed • Example: Processing power, RAM capacity, and storage space, which directly impact the speed and efficiency of the laptop. c. French Wine: • Determinant Attribute: Terroir and Grape Varieties • Example: The region where the wine is produced (e.g., Bordeaux, Burgundy) and the grape varieties used (e.g., Cabernet Sauvignon, Chardonnay). d. Women’s Sportswear: • Determinant Attribute: Comfort and Fit • Example: Fabric quality, design, and fit that provide maximum comfort and support during physical activity. e. Hospital: • Determinant Attribute: Quality of Care and Patient Satisfaction • Example: Reputation for medical expertise, patient outcomes, cleanliness, and overall patient experience. f. Liberal Arts College: • Determinant Attribute: Academic Reputation and Alumni Success • Example: Faculty credentials, student-to-faculty ratio, graduation rates, and success of alumni in their careers and further education. g. Tractor: • Determinant Attribute: Engine Power and Versatility • Example: Engine horsepower, towing capacity, fuel efficiency, and versatility in various agricultural and industrial applications. Importance of Identifying Determinant Attributes: • Determinant attributes play a critical role in influencing consumer preferences and purchasing decisions. • Identifying these attributes allows businesses to focus their differentiation efforts on the key factors that matter most to customers. • By understanding and emphasizing determinant attributes, businesses can effectively position their products or services in the market and gain a competitive advantage over their rivals. Should positioning be based on product features or benefits? Why? Under what circumstances should features be the focus of an advertising campaign? Answer: Positioning Based on Product Features or Benefits: 1. Product Features vs. Benefits: • Product Features: These are characteristics or attributes of a product or service. • Benefits: These are the outcomes or results that customers experience by using the product or service. 2. Positioning Based on Benefits: • Advantages: • Benefits-focused positioning communicates the value that the product or service delivers to customers. • It addresses customers' needs, desires, and pain points, making the offering more relevant and compelling. • Benefits-oriented positioning resonates with customers on an emotional level, driving stronger brand connections and loyalty. 3. Positioning Based on Features: • Advantages: • Features-focused positioning highlights the specific attributes or functionalities of the product or service. • It appeals to customers who are more technically oriented or interested in the product's specifications. • Features-oriented positioning is particularly effective when the features themselves are unique or represent a competitive advantage. 4. Circumstances for Features-focused Advertising Campaign: • Unique Features: When the product's features provide a significant competitive advantage or point of differentiation. • Technical Audience: When the target audience is technically savvy and values specific product specifications or functionalities. • Educational Campaign: When the market needs to be educated about the unique features and capabilities of the product. Example: • Smartphone: • Benefits-focused Positioning: "Stay connected, anytime, anywhere." • Emphasizes the convenience, connectivity, and freedom provided by the smartphone. • Features-focused Positioning: "Industry-leading camera technology." • Highlights the specific feature (camera technology) that sets the smartphone apart from competitors. Conclusion: Positioning should ideally be based on both product features and benefits, depending on the target audience and competitive landscape. While benefits-focused positioning appeals to customers' emotions and addresses their needs and desires, features-focused positioning highlights the unique attributes or functionalities of the product, particularly when they represent a competitive advantage. Ultimately, the choice between features and benefits should be based on a thorough understanding of the target market, their preferences, and the competitive environment in which the product or service operates. In terms of positioning strategy, what is the rationale for the fact that Nabisco offers many different brands within the cracker category, each of which is perceived as being only slightly different from the others? What are the advantages and limitations of such a strategy? Answer: Rationale for Nabisco's Positioning Strategy in the Cracker Category: 1. Rationale: • Market Segmentation: Nabisco offers many different brands within the cracker category to cater to various segments of consumers with different preferences and tastes. • Perceived Differentiation: Each brand is perceived as being only slightly different from the others, allowing Nabisco to target specific consumer segments with tailored product offerings. 2. Advantages: • Market Segmentation: Allows Nabisco to target different consumer segments with specific preferences and tastes. • Increased Market Share: Offers a broader product range, capturing a larger share of the cracker market. • Reduced Cannibalization: Minimizes the risk of cannibalization within Nabisco's own product portfolio by offering slight variations that appeal to different consumer preferences. • Brand Loyalty: Builds brand loyalty by offering consumers a variety of options within the Nabisco product portfolio. 3. Limitations: • Brand Confusion: Consumers may find it difficult to distinguish between the different brands, leading to brand confusion. • Marketing Costs: Maintaining multiple brands within the same category may increase marketing and advertising costs. • Limited Differentiation: If the differences between the brands are too subtle, consumers may not perceive enough differentiation, leading to decreased brand loyalty and reduced competitive advantage. Example: • Nabisco offers a range of cracker brands such as Ritz, Triscuit, Wheat Thins, and Saltines, each with slight variations in taste, texture, and packaging. Conclusion: Nabisco's strategy of offering multiple brands within the cracker category allows the company to effectively segment the market and target different consumer preferences. While this strategy offers advantages such as increased market share and brand loyalty, it also presents limitations such as potential brand confusion and increased marketing costs. Nabisco must carefully manage its brand portfolio to ensure that the benefits of offering multiple brands outweigh the potential drawbacks, maintaining a competitive edge in the cracker category. Chapter 8 Marketing Strategies for New Market Entries I. “Canon, Inc.—Success That Is Hard to Copy” discusses how Canon used a sharper market focus, increased manufacturing efficiency, and a strong product development strategy to perform successfully in a market in which most firms floundered. II. Strategic Challenges Addressed in Chapter 8 This chapter examines marketing strategies and programs appropriate for offerings that are new to the target customers. The primary focus is on programs used by the pioneer firm—or first entrant—into a particular product-market. It examines the following strategic question: Is it usually better for a firm to bear the high costs and risks of being the pioneer in hopes of maintaining a profitable position as the market grows or to be a follower that watches for possible design or marketing mistakes by the pioneer before joining with its own entry? It further examines some alternative strategies that might be adopted by a pioneer and the situations where each makes most sense. It begins with a brief overview of the product life cycle, the market and competitive changes that typically occur at each of its stages, and their implications for marketing strategy. III. Sustaining Competitive Advantage over the Product Life Cycle The product life cycle concept holds that a product’s sales change over time in a predictable way and that products go through a series of five distinct stages: The introductory stage—a new product’s purchase is limited because many members of the target market are unaware of its existence; also, the product often lacks easy availability The growth stage—as more people learn about the product and it becomes more readily available, sales increase at a progressively faster rate The shakeout or competitive turbulence stage—characterized by a decreasing growth rate that results in strong price competition, forcing many firms to exit the industry or sell out The mature stage—reached when the net adoption rate holds steady—that is, when adopters approximate dropouts The decline stage—adopters begin to exceed new first-time users, the sales rate declines, and the product is said to have reached its final stage Fads, such as pet rocks and hula hoops, enter suddenly, experience strong and quick enthusiasm, peak early, and enter the decline stage shortly thereafter. A. Market and Competitive Implications of Product Life-Cycle Stages The various stages of the product life cycle present different opportunities and threats to the firm. By understanding the characteristics of the major stages, a firm can do a better job of setting forth its objectives and formulating its strategies as well as developing its action plans. Introductory Stage The introductory period, in particular, is apt to be long, even for relatively simple product classes. Because product type and subtype entries usually emerge during the late-growth and maturity stages of the product class, they have shorter introductory and growth periods. Marketing Mix in the Introductory Stage The length of the product line typically should be relatively short to reduce production costs and hold down inventories. The firm’s pricing is strongly affected by a variety of factors: The product’s value to the end user How quickly it can be imitated by competitors The presence of close substitutes The effect of price on volume (elasticity) and, in turn, on costs Skimming is designed to obtain as much margin per unit as possible. This enables the company to recover its new product investments more quickly. Penetration pricing enables firm to strive for quick market development and makes sense when there is a steep experience curve, which lowers costs; a large market; and strong potential competition. The importance of distribution and channel intermediaries varies substantially from consumer to industrial goods. During the introductory period, promotion expenditures involving advertising and salesforce are a high percentage of sales, especially for a mass-market, small-value product. The communications task at the outset is to build awareness of the new product’s uniqueness, which is typically an expensive undertaking. Growth Stage This stage starts with a sharp increase in sales. Important product improvements continue in the growth stage, but at a slower rate. The product line expands to attract new segments, offering an array of prices and different product features. Marketing Mix Changes Although the product line expands to attract new market segments, the quest for competitive advantage shifts to differentiation from other entrants in the product class. Prices tend to decline during the growth period, and price differences between brands decrease. During this period, sellers of both industrial and consumer goods strive to build a channel or a direct sales system that provides maximum product availability and service at the lowest cost. Promotion costs (advertising and personal selling) become more concerned with building demand for a company’s brand (selective demand) than demand for the product class or type (primary demand). Communications are used to cultivate new segments. Shakeout Stage The advent of this period is signaled by a drop in the overall growth rate and is typically marked by substantial price cuts. Major changes in industry’s competitive structure occur. During shakeout, the firm must rationalize its product line by eliminating weaker items, emphasize creative promotional pricing, and strengthen channel relationships. Marketing Mix Changes In addition to entering into more direct price competition, firms make every effort to maintain and enhance their distribution system. Promotion costs may increase, particularly for low-share firms, as companies attempt to maintain their distribution by offering customers buying incentives. Mature Stage When sales plateau, the product enters the mature stage, which typically lasts for some time. Stability in terms of demand, technology, and competition characterizes maturity. Marketing Mix Changes Because of technical maturity, the various brands in the marketplace become more similar; therefore, any significant breakthroughs by R&D or engineering that help to differentiate the product or reduce its cost can have a large payout. Increasingly, service becomes a way of differentiating the offering. Promotion expenditures and prices tend to remain stable during the mature stage. Decline Stage Eventually most products enter the decline stage primarily because of technologically superior substitutes or a shift in consumer tastes, values, and beliefs. As sales decline, costs increase, and radical efforts are needed to reduce costs and asset base. Marketing Mix Changes Prices tend to remain stable if the rate of decline is slow, there are some enduring profitable segments and low exit barriers, customers are weak and fragmented, and there are few single-product competitors. Conversely, aggressive pricing is apt to occur when decline is fast and erratic, there are no strong unique segments. For consumer goods, marketing activity centers on distribution—persuading intermediaries to continue to stock the item even though they may not promote it. For industrial products, problem may center around maintaining the interest of the salesforce in selling the item. B. Strategic Implications of the Product Life Cycle The product life-cycle model is a framework that signals the occurrence of opportunities and threats in the marketplace and the industry, thereby helping a business better anticipate change in the product’s strategic market objective, its strategy, and its marketing program. Introductory and Growth Stages Because the introduction of a new product requires large investments, most firms sustain a rather sizable short-term loss. As the product moves into the growth stage, sales increase rapidly; hence substantial investments continue. The firm with the largest share during this period should have the lowest per-unit costs due to scale and learning effects. New entrants and low-share sellers are at a disadvantage here. They must not only invest to accommodate market growth, but also to gain market share. Mature and Declining Stages As the product enters the mature stage, the larger-share sellers should be able to reap the benefits of earlier investments. Given that the price is sufficient to keep the higher-cost sellers in business, and that growth investments are no longer needed, and that most competitors may no longer be striving to gain share, the leader’s profitability and positive cash flow can be substantial. The leader needs to continue making investments to improve its product and to make its manufacturing, marketing, and physical logistics more efficient. C. Limitations of the Product Life-Cycle Framework The product life-cycle model’s major weakness lies in its normative approach to prescribing strategies based on assumptions about the features or characteristics of each stage. It fails to take into account the product life cycle is, in reality, driven by market forces expressing evolution of consumer preferences (the market), technology (the product), and competition (the supply side). IV. New Market Entries—How New is New? A survey of new product development practices of 700 U.S. corporations conducted by the consulting firm Booz, Allen & Hamilton identified six categories of new products based on their degree of newness as perceived by both the company and the target customers. New-to-the-world products—true innovations that are new to the firm, and create an entirely new market. New product lines—a product category that is new for the company introducing it, but not new to customers in target market because of the existence of one or more competitive brands. Additions to existing product lines—new items that supplement a firm’s established product line. Improvements in or revisions of existing products—items providing improved performance or greater perceived value brought out to replace existing products. Repositioning—existing products that are targeted at new applications and new market segments. Cost reductions—product modifications providing similar performance at lower cost. A product’s degree of newness—to the company, its target customers, or both—helps determine the amount of complexity and uncertainty involved in the engineering, operations, and marketing tasks necessary to make it a successful new entry. Introducing a product that is new to both the firm and target customers requires the greatest expenditure of effort and resources. 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. The marketing challenge here is to build a primary demand, making target customers aware of the product and convincing them to adopt it. Products new to company but not to the market often present fewer challenges for R&D and product engineering. Once a company introduces such a product into the market, its primary marketing objective is to build selective demand and capture market share, convincing customers the new offering is better than the existing competitive products. V. Objectives of New Product and Market Development The primary objective of most new product and market development efforts is to secure future volume and product growth. Individual development projects also may accomplish a variety of other strategic objectives. Different types of new entries are appropriate for achieving different strategic objectives. A business’s objective for its new entries influence the kind of entry strategy it should pursue and the marketing and other functional programs needed to implement that strategy. VI. Market Entry Strategies: Is It Better To Be a Pioneer or a Follower? A. Pioneer Strategy Conventional wisdom holds that although successful pioneers take the greatest risks and probably experience more failures than their more conservative competitors, they are greatly rewarded. Some of the potential sources of competitive advantage available to pioneers are as follows: First choice of market segments and positions: The pioneer has the opportunity to develop a product offering with attributes most important to the largest segment of customers or to promote the importance of attributes that favor its brand. The pioneer defines the rules of the game: The pioneer’s actions on such variables as product quality, price, distribution, warranties, postsale service, and promotional appeals and budgets set standards that subsequent competitors must meet or beat. Distribution advantages: This is particularly important for industrial goods where, if the pioneer exercises its options well and with dispatch, it should end up with a network of the best distributors. Economies of scale and experience: Being first means the pioneer can gain accumulated volume and experience and thereby lower per unit costs at a faster rate than followers. High switching costs for early adopters: Customers who are early to adopt a pioneer’s new product may be reluctant to change suppliers when competitive products appear. This is particularly true for industrial goods where the costs of switching suppliers can be high. Possibility of positive network effects: The value of some kinds of goods and services to an individual customer increases as greater numbers of other people adopt the product and the network of users grows larger. Economists say that such products exhibit network externalities or positive network effects. Possibility of preempting scarce resources and suppliers: The pioneer may be able to negotiate favorable deals with suppliers who are eager for new business or who do not appreciate the size of the opportunity for their raw materials or component parts. B. Not All Pioneers Capitalize on Their Potential Advantages Some pioneers fail. They either abandon the product category, go out of business, or get acquired before their industry matures. Some fail during the introductory or shakeout stages of their industries’ life cycles. Those that survive may lack resources to keep up with rapid growth or competencies needed to maintain their early lead in the face of onslaughts by strong followers. C. Follower Strategy Possible advantages of a follower strategy are: Ability to take advantage of the pioneer’s positioning mistakes Ability to take advantage of the pioneer’s product mistakes Ability to take advantage of the pioneer’s marketing mistakes Ability to take advantage of the latest technology Ability to take advantage of pioneer’s limited resources D. Determinants of Success for Pioneers and Followers 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 entry of competitors, at least for a while, by strong patent protection, proprietary technology, substantial investment requirements, or positive network effects 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 A follower will most likely succeed when: There are few legal, technological, or financial barriers to entry It has sufficient resources or competencies to overwhelm pioneer’s early advantage The author of a study conducted across a broad range of industry found that, regardless of the industry involved, pioneers able to maintain their preeminent position well into the market’s growth stage had supported their early entry with one or more of the following marketing strategy elements: Large entry scale Broad product line High product quality Heavy promotional expenditures The same study found that some late entrants achieved substantial profits by avoiding direct confrontation with more established competitors and by pursuing peripheral target markets. VII. Strategic Marketing Programs for Pioneers A. Mass-Market Penetration The ultimate objective of a mass-market penetration strategy is to capture and maintain a commanding share of the total market for the new product. The critical marketing task is to convince as many potential customers as possible to adopt the pioneer’s product quickly to drive down unit costs and build a large contingent of loyal customers before competitors enter the market. Mass-market penetration tends to be most successful when entry barriers inhibit or delay the appearance of competitors, thus allowing the pioneer more time to build volume, lower costs, and create loyal customers, or when the pioneer has competencies or resources that most potential competitors cannot match. Mass-market penetration is also appropriate strategy when product category is likely to experience positive network effects. B. Niche Penetration Instead of pursuing the objective of capturing and sustaining a leading share of the entire market, it may make more sense for small firms with limited resources, to focus their efforts on a single market segment. This kind of niche penetration strategy can help the smaller pioneer gain the biggest bang for its limited and avoid direct confrontations with bigger competitors. C. Skimming and Early Withdrawal Even when a firm has the resources to sustain a leading position in a new product-market, it may choose not to. Competition is usually inevitable, and prices and margins tend to drop dramatically after followers enter the market. Therefore, some pioneers opt to pursue a skimming strategy while planning an early withdrawal from the market. Skimming strategy 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 as quickly as possible. At the same time, the firm may work to develop new applications for its technology or the next generation of more advanced technology. It is critical that the company using strategies of skimming and early withdrawal has good R&D and product development skills so it can produce a constant stream of new products or new applications to replace older ones as they attract heavy competition. Since a firm pursuing this kind of strategy plans to remain in a market only short term, it is most appropriate when there are few barriers to entry, the product is expected to diffuse rapidly, and the pioneer lacks the capacity or other resources necessary to defend a leading share position over the long haul. D. Marketing Program Components for a Mass-Market Penetration Strategy The crucial marketing task in a mass-market penetration strategy is to maximize the number of customers adopting the firm’s new product as quickly as possible. This requires a marketing program focused on: Aggressively building product awareness and motivation to buy among a broad cross-section of potential customers Making it as easy as possible for those customers to try the new product, on the assumption that they will try it, like it, develop loyalty, and make repeat purchases Increasing Customers’ Awareness and Willingness To Buy When designing a mass-market penetration marketing program, firms should broadly focus promotional efforts to expose and attract as many potential customers as possible before competitors show up. Firms might attempt to increase customers’ willingness to buy their products by reducing the risk associated with buying something new. A firm committed to mass-market penetration might also broaden its product offerings to increase its appeal to as many market segments as possible. Increasing Customers’ Ability to Buy To capture as many customers in as short a time as possible, it usually makes sense for a firm pursuing mass-market penetration to keep prices low (penetration pricing) and perhaps offer liberal financing arrangements or easy credit terms during the introductory period. Extensive personal selling and trade promotions aimed at gaining adequate distribution are usually a critical part of a mass-market penetration marketing program. Such efforts should take place before the start of promotional campaigns to ensure that the product is available as soon as customers are motivated to buy it. The pioneer might reduce switching costs by designing the product to be as compatible as possible with related equipment. Additional Considerations When Pioneering Global Markets Unless the firm already has an economic presence in a country via the manufacture or marketing of other products or services, a potential global pioneer faces at least one additional question: What mode of entry is most appropriate? There are three basic mechanisms for entering a foreign market: Exporting through agents (e.g., using local manufacturers’ representatives or distributors) Contractual agreements (e.g., licensing or franchise agreements with local firms) Direct investments Exporting is the simplest way to enter a foreign market because it involves the least commitment and risk. It can be direct or indirect. Indirect exporting relies on the expertise of domestic international middlemen: Export merchants—buy the product and sell it overseas for their own account Export agents—sell on a commission basis Cooperative organizations—export for several producers, especially those selling farm products Contractual entry modes are nonequity arrangements that involve transfer of technology or skills to an entity in a foreign country. In licensing a firm offers right to use its intangible assets (e.g., technology, know-how, patents, company name, trademarks) in exchange for some form of payment. Franchising grants the right to use the company’s name, trademarks, and technology. Contract manufacturing involves sourcing a product from a manufacturer in a foreign country for sale there or elsewhere. A turnkey construction contract requires the contractor to have the project up and operating before releasing it to the owner. Coproduction involves a company’s providing technical know-how and components in return for a share of the output that it must sell. Countertrade transactions include barter (direct exchange of goods), compensation packages (cash and local goods), counterpurchase (delayed sale of bartered goods to enable the local buyer to sell the goods), and a buyback arrangement in which the products being sold are used to produce other goods. Overseas direct investment can be implemented in two ways: Joint ventures—involve a joint ownership arrangement to produce or market goods in a foreign country. Sole ownership—involves setting up a production facility in a foreign country. It usually allows the parent organization to retain total control of the overseas operation and avoids the problems of shared management and loss of flexibility. E. Marketing Program Components for a Niche Penetration Strategy 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. The internet provides firms with a number of promotional tools that can reach specific segments at relatively low cost. F. Marketing Program Components for a Skimming Strategy A relatively high price is appropriate for a skimming strategy to increase margins and revenues, even though some price-sensitive customers may be reluctant to adopt the product at that price. In many consumer goods business, skimming strategies focus on relatively upscale customers, since they are often more likely to be early adopters and less sensitive to price. A critical element of a skimming strategy is the nature of the firm’s continuing product development efforts. End of Chapter Discussion Questions and Answers A few years ago, pet rocks were a fad and Nike Air Jordan basketball shoes were a fashion among younger customers in the United States. Graph the life cycle curves of the two products on the same chart. How do the two curves differ from one another? What are the major marketing implications for each product? Answer: The two curves should differ in height and width. The Pet Rock life cycle should be short with a low maturity level of sales. The cycle has reached the end of the decline stage. The Air Jordan basketball shoes are still in their life cycle and may arguably be at the beginning of the maturity stage. They still sell well but with Michael Jordan’s retirement from basketball, they do not benefit from nightly reports of his performance. Life Cycle Curves of Pet Rocks and Nike Air Jordan Basketball Shoes: Differences in Life Cycle Curves: 1. Pet Rocks: • Introduction Stage: • Rapid growth in popularity due to novelty and curiosity. • Growth Stage: • Peak in sales as the fad becomes a cultural phenomenon. • Maturity Stage: • Decline in sales as the novelty wears off and the fad loses popularity. • Decline Stage: • Sales plummet as the product becomes obsolete and is replaced by new fads. 2. Nike Air Jordan Basketball Shoes: • Introduction Stage: • Initial launch with innovative features and celebrity endorsements. • Growth Stage: • Rapid sales growth fueled by the popularity of the brand and ongoing product innovations. • Maturity Stage: • Sustained sales with a loyal customer base and ongoing brand extensions. • Decline Stage: • Sales begin to decline as consumer preferences shift or new competitors enter the market. Marketing Implications: 1. Pet Rocks: • Introduction Stage: • Focus on generating awareness and curiosity through creative marketing campaigns. • Emphasize the novelty and uniqueness of the product to attract early adopters. • Growth Stage: • Ramp up production to meet increasing demand. • Capitalize on media attention and word-of-mouth marketing to drive sales. • Maturity Stage: • Diversify product offerings or explore new markets to prolong the product's lifecycle. • Consider discounting or promotional strategies to maintain sales in a saturated market. • Decline Stage: • Prepare for the inevitable decline by managing inventory and reducing costs. • Consider liquidation or discontinuation of the product line. 2. Nike Air Jordan Basketball Shoes: • Introduction Stage: • Invest in product innovation and marketing to create buzz and generate excitement. • Utilize celebrity endorsements and limited edition releases to create exclusivity. • Growth Stage: • Expand distribution channels to reach a broader customer base. • Continuously innovate to stay ahead of competitors and maintain market leadership. • Maturity Stage: • Focus on brand loyalty and customer retention through superior product quality and customer service. • Explore new markets or demographic segments to sustain growth. • Decline Stage: • Innovate with new product features or brand extensions to revitalize sales. • Consider discontinuing the product line if sales continue to decline despite efforts to rejuvenate the brand. Conclusion: While both pet rocks and Nike Air Jordan basketball shoes experienced a lifecycle with introduction, growth, maturity, and decline stages, the major difference lies in the longevity and sustainability of the Nike brand compared to the short-lived fad of pet rocks. Marketing strategies must adapt to each stage of the product lifecycle to maximize sales and profitability while also considering the long-term viability of the product in the market. Minnetonka, Inc., is a relatively small firm that pioneered the development of consumer health and beauty products, such as Softsoap and Check-Up plaque-fighting toothpaste. What potential advantages does being the pioneer in new product-markets provide a firm such as Minnetonka in an industry dominated by giants such as Procter & Gamble and Colgate-Palmolive? Answer: Advantages of Being a Pioneer in New Product-Markets: 1. First-Mover Advantage: • Brand Recognition: Establishes Minnetonka as an innovative and forward-thinking company, enhancing brand reputation and visibility. • Market Leadership: Being the first to market gives Minnetonka a competitive edge and allows it to capture a significant share of the market before competitors enter. 2. Establishing Market Presence: • Market Segmentation: Enables Minnetonka to carve out a niche in the market, catering to specific consumer needs that may not be addressed by larger competitors. • Consumer Loyalty: Early adopters of Minnetonka's products are likely to develop brand loyalty, providing a solid customer base for future growth. 3. Innovation and Differentiation: • Product Innovation: Pioneering new product categories allows Minnetonka to introduce innovative products that differentiate them from competitors. • Patent Protection: Securing patents for new products provides Minnetonka with a temporary monopoly, preventing competitors from copying their innovations. 4. Flexibility and Agility: • Speed to Market: Smaller firms like Minnetonka can often bring products to market more quickly than larger competitors, due to simplified decision-making processes and less bureaucracy. • Adaptability: Being a pioneer allows Minnetonka to quickly adapt to market changes and consumer preferences, staying ahead of larger, slower-moving competitors. 5. Market Expansion Opportunities: • Diversification: Success in pioneering new product categories provides Minnetonka with the credibility and resources to expand into related product categories, further strengthening their market position. Conclusion: Being a pioneer in new product-markets provides Minnetonka with several strategic advantages over larger competitors such as Procter & Gamble and Colgate-Palmolive. These advantages include brand recognition, market leadership, innovation, flexibility, and opportunities for market expansion. By leveraging these advantages effectively, Minnetonka can compete successfully in an industry dominated by giants. Not all new market pioneers effectively take advantage of the potential benefits inherent in their early lead. What does the research evidence suggest that Minnetonka should do relevant to major elements of its marketing strategy to gain and maintain a leading share position in the new markets it enters? Answer: Effective Marketing Strategy for Minnetonka to Gain and Maintain a Leading Share Position: 1. Market Research and Understanding: • Conduct thorough market research to identify consumer needs, preferences, and pain points. • Gain insights into competitors' strategies, strengths, and weaknesses. 2. Product Innovation and Differentiation: • Continuously invest in research and development to innovate new products. • Focus on unique selling propositions (USPs) to differentiate products from competitors. 3. Brand Building and Recognition: • Invest in building brand awareness and recognition through strategic marketing campaigns. • Develop a strong brand identity that resonates with target consumers. 4. Distribution and Market Expansion: • Develop a robust distribution network to ensure products are readily available to consumers. • Expand into new markets strategically, leveraging existing brand reputation and consumer trust. 5. Customer Relationship Management (CRM): • Implement effective CRM systems to build and maintain strong relationships with customers. • Gather feedback and insights from customers to continually improve products and services. 6. Promotional Strategies: • Utilize targeted advertising and promotional campaigns to reach potential customers. • Offer promotions, discounts, and incentives to encourage trial and repeat purchases. 7. Partnerships and Collaborations: • Form strategic partnerships with retailers, distributors, and other relevant stakeholders. • Collaborate with influencers and industry experts to amplify brand reach and credibility. 8. Continuous Improvement and Adaptation: • Monitor market trends and consumer behavior to adapt marketing strategies accordingly. • Continuously innovate and improve products to meet evolving consumer needs and preferences. 9. Sustainable Growth and Expansion: • Focus on sustainable growth strategies to ensure long-term success and market leadership. • Balance short-term objectives with long-term sustainability and profitability goals. Conclusion: By implementing a comprehensive marketing strategy that focuses on product innovation, brand building, market expansion, customer relationship management, and continuous improvement, Minnetonka can effectively gain and maintain a leading share position in the new markets it enters. It is essential for Minnetonka to leverage its pioneer status effectively and capitalize on the potential benefits inherent in its early lead to establish a strong foothold in the market and sustain long-term growth and success. Under what conditions do pioneer and follower strategies each have the greatest probability of long-term success? Answer: Conditions for Long-Term Success: Pioneer vs. Follower Strategies Pioneer Strategy: 1. Innovative Product or Service: • Pioneer strategy has the greatest probability of long-term success when the company introduces an innovative and groundbreaking product or service into the market. 2. Strong Brand and Market Leadership: • If the pioneer can establish a strong brand presence and market leadership early on, it can create significant barriers to entry for competitors, ensuring long-term success. 3. Market Acceptance and Demand: • When there is a high level of market acceptance and demand for the pioneer's product or service, it is more likely to achieve long-term success. 4. Sustainable Competitive Advantage: • If the pioneer can build sustainable competitive advantages such as patents, proprietary technology, or strong brand loyalty, it can maintain its market leadership position in the long run. Follower Strategy: 1. Market Observation and Learning: • Follower strategy has the greatest probability of long-term success when the company carefully observes and learns from the mistakes and successes of the pioneer. 2. Market Segmentation and Differentiation: • Followers can succeed in the long term by effectively segmenting the market or offering differentiated products or services that meet specific customer needs that the pioneer has overlooked. 3. Operational Efficiency and Cost Leadership: • Followers can achieve long-term success by focusing on operational efficiency, cost leadership, and optimizing their value proposition to gain market share. 4. Timing and Market Entry: • Choosing the right timing for market entry and ensuring that the market is sufficiently developed can increase the probability of long-term success for followers. Conclusion: • Pioneer strategy is most successful when the company introduces an innovative product, establishes a strong brand, and creates sustainable competitive advantages. • Follower strategy is most successful when the company observes and learns from the pioneer, offers differentiated products or services, focuses on operational efficiency, and enters the market at the right time. Both strategies can lead to long-term success under the right conditions, but the key lies in understanding the market dynamics, customer needs, and competitive landscape. Instructor Manual for Marketing Strategy: A Decision-Focused Approach Orville C. Walker, John Mullins 9780078028946