CH-9 Strategies for Growth Markets – Marketing Strategy: A Decision-Focused Approach : Chapter Notes

This document contains Chapters 9 to 10 Chapter 9 Strategies for Growth Markets I. “The Global Battle for Jocks’ Soles” discusses how Nike used an aggressive competitive strategy to achieve share leadership and become the world’s leading sportswear company. The challenges presented to Nike by its global competitors are also discussed. II. Strategic Challenges Addressed in Chapter 9 This chapter examines both opportunities and competitive risks often found in growing product-markets. The primary objective of the early share leader, usually the market pioneer, in a growth market is share maintenance. The second section of this chapter explores marketing strategies—both defensive and offensive—that leaders might use to maintain a dominant market share in the face of growth and competition. The third section details share-growth strategies the market challengers use under different conditions. III. Opportunities and Risks in Growth Markets A. Gaining Share is Easier There may be many potential new users who have no established brand loyalties and who may have different needs or preferences than earlier adopters. To take full advantage of, the new entrant must be able to develop a product offering that new customers see as more attractive than the alternatives, and it must have necessary marketing resources and competencies to effectively persuade them of that fact. The notion that established competitors are less likely to react aggressively to market-share erosion as long as their sales continue to grow, is a tenuous one. It overlooks that fact that those competitors may have higher expectations for increased revenues when the market itself is growing. Industry leaders often react forcefully when their sales growth falls below industry levels or when industry growth rates slow. B. Share Gains are Worth More The implicit assumption is that the business can hold its relative share as the market grows. The validity of this assumption depends on: The existence of positive network effects Future changes in technology or other key success factors Future competitive structure of the industry Future fragmentation of the market If a firm captures share through short-term promotions or price cuts that competitors can easily match and that may tarnish its image among customers, its gains may be short-lived. C. Price Competition is Likely to be Less Intense In some rapidly growing markets, demand exceeds supply. However, this does not hold true in every developing product-market. If there are few barriers to entry or the adoption process is protracted and new customers enter the market slowly, demand may not exceed supply—at least not for very long. D. Early Entry is Necessary to Maintain Technical Expertise Later entrants, lacking customer contact and production and R&D experience, are at a disadvantage. Sometimes, however, an early commitment to a specific technology can turn out to be a liability. This is particularly true when multiple unrelated technologies might serve a market or when a newly emerging technology might replace the current one. IV. Growth-Market Strategies for Market Leaders Often the share leader’s strategic objective is to maintain its leading share position in the face of increasing competition as the market expands. A. Marketing Objectives for Share Leaders Share maintenance for a market leader involves two important marketing objectives: The firm must retain its current customers, ensuring that those customers remain brand loyal when making repeat or replacement purchases. The firm must stimulate selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales. In some cases, might pursue a third objective: stimulating primary demand to help speed up overall market growth. B. Marketing Actions and Strategies to Achieve Share-Maintenance Objectives A market leader might employ five internally consistent strategies, singly or in combination, to maintain its leading share position: Fortress or position defense strategy Flanker strategy Confrontation strategy Market expansion strategy Contraction or strategic withdrawal strategy Which, or what combination of these five strategies is most appropriate for a particular product-market depends on: The market’s size and customers’ characteristics The number and relative strengths of competitors or potential competitors in that market The leader’s resources and competencies C. Fortress, or Position Defense, Strategy The most basic defensive strategy is to continually strengthen a strongly held current position. By shoring up an already strong position, the firm can improve the satisfaction of current customers while increasing the attractiveness of its offering to new customers with needs and characteristics similar to those of earlier adopters. Strengthening the firm’s position makes particularly good sense when current and potential customers have relatively homogeneous needs and desires and the firm’s offering already enjoys a high level of awareness and preference in the mass market. Action to Improve Customer Satisfaction and Loyalty The leader must pay particular attention to quality control. Perhaps the most obvious way a leader can strengthen its position is to continue to modify and improve its product. The leader should take steps to improve not only the physical product but also customers’ perceptions of it as well. As competitors enter or prepare to enter the market, the leader’s advertising and sales promotion emphasis should shift from stimulating primary demand to building selective demand for the company’s brand. Although the leader may continue sales promotion efforts aimed at stimulating trial among later adopters, some of those efforts might be shifted toward encouraging repeat purchases among existing customers. For industrial goods, some salesforce efforts should shift from prospecting for new accounts to servicing existing customers. A leader can strengthen its position as the market grows by giving increased attention to post sale service. Actions to Encourage and Simplify Repeat Purchasing One of the most critical actions a leader must take to ensure that customers continue buying its product is to reduce stockouts on retail store shelves or shorten delivery times for industrial goods. Some market lead, particularly in industrial markets, can take more proactive steps to turn their major customers into captives and help guarantee future purchases. For example, a firm might negotiate requirements contacts or guaranteed price agreements with its customers to ensure future purchases, or it might tie them into a computerized reorder system or a tightly integrated supply-chain relationship. Although it makes good sense to begin building strong customer relationships right from the beginning, they become even more crucial as market matures and competition to win over established customers becomes more intense. D. Flanker Strategy To defend against an attack directed at weaknesses in its current offering (its exposed flank), a leader might develop a second brand (a flanker or fighting brand) to compete directly against a challenger’s offering. This might involve trading up, where the leader develops a high-quality brand offered at a higher price to appeal to the prestige segment of the market. More commonly, a flanker brand is a lower-quality product designed to appeal to a low-price segment to protect the leader’s primary brand from direct price competition. A flanker strategy is always used in conjunction with a position defense strategy. A flanker strategy is appropriate only when the firm has sufficient resources to develop and support two or more entries. E. Confrontation Strategy The leader usually decides to meet or beat attractive features of a competitor’s offering—by making product improvements, increasing promotional efforts, or lowering prices—only after the challenger’s success has become obvious. A confrontation based largely on lowering prices creates an additional problem of shrinking margins for all concerned. The leader can avoid the problems of a confrontation strategy by reestablishing the competitive advantage eroded by challengers’ frontal attacks. F. Market Expansion Strategy A market expansion strategy is a more aggressive and proactive version of the flanker strategy. Here the leader defends its relative market share by expanding into a number of market segments. Such a strategy is particularly appropriate in fragmented markets if the leader has the resources to undertake multiple product development and marketing efforts. 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. A less expensive way to appeal to a variety of customer segments is to retain the basic product but vary other elements of the marketing program to make it relatively more attractive to specific users. G. Contraction, or Strategic Withdrawal, Strategy In some highly fragmented markets, a leader may be unable to defend itself adequately in all segments. The firm may have to reduce or abandon its efforts in some segments to focus on areas where it enjoys the greatest advantages or that have the greatest potential for future growth. V. Share Growth Strategies for Followers A. Marketing Objectives for Followers Some competitors, particularly those with limited resources and competencies, may seek to build a small but profitable business within a specialized segment of the target market that earlier entrants have overlooked. This kind of niche strategy is one of the few entry options that small, late entrants can pursue with a reasonable assurance of success. Many followers, particularly larger firms entering a product-market shortly after the pioneer, seek to displace the leader or at least to become a powerful competitor within the total market. Thus, their major marketing objective is to attain share growth and the size of the increased relative share such challengers seek is usually substantial. B. Marketing Actions and Strategies to Achieve Share Growth Where the share leader and perhaps some other early followers have already penetrated a large portion of the potential market, a challenger may have no choice but to steal away some of the repeat purchase or replacement demand from the competitors’ current customers. If the market is relatively early in the growth phase and no previous entrant has captured a commanding share of potential customers, the challenger can focus on attracting a larger share of potential new customers who enter the market for the first time. This also may be a viable option when the overall market is heterogeneous and fragmented and the current share leader has established a strong position in only one or a few segments. The five share-growth strategies are: Frontal attack Leapfrog strategy Flanking attack Encirclement Guerrilla attack Which, or what combination, of these five strategies is best for a particular challenger depends on market characteristics, the existing competitors’ current positions and strengths, and the challenger’s own resources and competencies. C. Deciding Whom to Attack When more than one competitors is already established in the market, a challenger must decide which competitor, if any, to target. There are several options: Attack the market-share leader within its primary target market: This typically involves either a frontal assault or an attempt to leapfrog the leader through the development of superior technology or product design. Attack another follower who has an established position within a major market segment Attack one or more smaller competitors who have only limited resources Avoid direct attacks on any established competitor: This usually involves either a flanking or an encirclement strategy, with the challenger developing differentiated product offerings targeted at one large or several smaller segments in which no competitor currently holds a strong position. D. Frontal Attack Strategy Where the market for a product category is relatively homogeneous, with few untapped segments and at least one well-established competitor, a follower wanting to capture an increased market share may have little choice but to tackle a major competitor head-on. Such an approach 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 the challenger’s resources and competencies are greater than the target competitor’s. To successfully implement a frontal attack, a challenger should seek one or more ways to achieve a sustainable advantage over the target competitor Such an advantage is usually based on attaining lower costs or a differentiated position in the market. In general, the best way for a challenger to most effectively implement a frontal attack is to differentiate its product or associated services in ways that better meet needs and preferences of many customers in the mass market. E. Leapfrog Strategy A leapfrog strategy is an attempt to gain a significant advantage over the existing competition by introducing a new generation of products that significantly outperform or offer more desirable customer benefits than do existing brands. Such a strategy often inhibits quick retaliation by established competitors. To be successful, the challenger must have technology superior to that of established competitors as well as the product and process engineering capabilities to turn that technology into an appealing product. The challenger must also have the marketing resources to effectively promote its new products and convince customers already committed to an earlier technology that the new product offers sufficient benefits to justify the costs of switching. F. Flanking and Encirclement Strategies The military historian B. H. Liddell-Hart, after analyzing battles ranging from the Greek Wars to World War I concluded that it is usually wiser to avoid attacking an established adversary’s point of strength and to focus instead on an area of weakness. Flank Attack A challenger may be able to capture a significant share of the total market by concentrating primarily on one large untapped segment. A challenger can sometimes meet the special needs of an untapped segment by providing specially designed customer services or distribution channels. Encirclement An encirclement strategy involves targeting several smaller untapped or underdeveloped segments in the market simultaneously. The idea is to surround the leader’s brand with a variety of offerings aimed at several peripheral segments. This strategy usually involves developing a varied line of products with features tailored to the needs of different segments. G. Guerilla Attack When well-established competitors already cover all major segments and challenger’s resources are limited, flanking, encirclement, or all-out frontal attacks may be impossible. In such cases, the challenger may be reduced to making a series of surprise raids against its more established competitors. To avoid massive retaliation, the challenger should use guerrilla attacks sporadically, perhaps in limited geographic areas where the target competitor is not particularly well entrenched. A challenger can choose from a variety of means for carrying out guerrilla attacks: These include sales promotion efforts (e.g., coupon drops and merchandising deals), local advertising blitzes, and even legal action. Short-term price reductions through sales promotion campaigns are a particularly favored guerrilla tactic in consumer goods markets. The ultimate objective of a series of guerrilla attacks is not so much for the challenger to build its own share as it is to prevent a powerful leader from further expanding its share or engaging in aggressive actions to which it would be costly for followers to respond. H. Supporting Evidence The marketing programs and activities of businesses that successfully achieved increased market share differed from their less successful counterparts in the following ways: 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. Share-gaining businesses tended to increase their marketing expenditures faster than the rate of market growth. There was little difference in the relative prices charged between firms that gained and those that lost market share. End of Chapter Discussion Questions and Answers Apple Computer’s iPod holds a commanding share of the rapidly growing global market for digital music players. To maintain its lead as the market continues to grow, what strategic marketing objectives should Apple focus on and why? Answer: Strategic Marketing Objectives for Apple's iPod: 1. Continuous Innovation and Product Development: • Objective: To maintain its lead in the digital music player market, Apple should focus on continuous innovation and product development. • Why: By introducing new features, functionalities, and designs, Apple can stay ahead of competitors and meet evolving consumer preferences. 2. Enhanced User Experience and Design: • Objective: To differentiate iPod from competitors and strengthen brand loyalty. • Why: Apple should focus on delivering an exceptional user experience and iconic design, making iPods user-friendly and aesthetically appealing. 3. Compatibility and Ecosystem Integration: • Objective: To create a seamless and integrated ecosystem for iPod users. • Why: By ensuring compatibility with other Apple products such as iTunes, iPhones, and MacBooks, Apple can enhance the overall user experience and encourage customer retention. 4. Market Expansion and Global Reach: • Objective: To explore new markets and expand the global reach of iPod. • Why: Apple should focus on penetrating emerging markets and reaching untapped customer segments to sustain growth and maintain its market leadership position. 5. Marketing and Branding Strategies: • Objective: To strengthen brand awareness and maintain a strong brand image. • Why: Through strategic marketing campaigns, Apple can reinforce its brand identity, communicate product benefits effectively, and stay top-of-mind among consumers. 6. Customer Engagement and Loyalty Programs: • Objective: To build and maintain strong customer relationships and loyalty. • Why: By offering excellent customer service, personalized experiences, and loyalty programs, Apple can foster long-term relationships with its customers, leading to repeat purchases and brand advocacy. 7. Competitive Pricing and Value Proposition: • Objective: To ensure competitive pricing while delivering superior value. • Why: Apple should focus on offering competitive pricing without compromising on product quality, ensuring that iPod remains an attractive choice for consumers. 8. Partnerships and Collaborations: • Objective: To form strategic partnerships with content providers, artists, and other stakeholders. • Why: Collaborations can enhance the iPod ecosystem, provide exclusive content, and offer unique experiences to users, further strengthening its market position. Conclusion: By focusing on continuous innovation, enhancing user experience, expanding its market reach, strengthening its brand, and fostering customer loyalty, Apple can maintain its lead in the global market for digital music players and sustain long-term success. Given your answer to question 1, which specific marketing actions would you recommend for accomplishing Apple’s objectives? Be specific with regard to each of the 4 Ps in the firm’s marketing program. Answer: Marketing Actions for Accomplishing Apple's Objectives: 1. Product: • Continuous Innovation and Product Development: • Action: • Introduce new iPod models with advanced features such as improved storage capacity, longer battery life, enhanced audio quality, and innovative designs. • Develop new iPod variants targeting specific customer segments (e.g., iPod Shuffle for fitness enthusiasts, iPod Touch for gaming). • Implement regular software updates to improve functionality and introduce new features. • Enhanced User Experience and Design: • Action: • Focus on sleek and user-friendly designs that offer intuitive navigation and easy accessibility. • Incorporate touchscreens, haptic feedback, and voice control features to enhance user interaction. • Collaborate with designers and artists for limited edition iPod designs to appeal to fashion-conscious consumers. 2. Price: • Competitive Pricing and Value Proposition: • Action: • Implement competitive pricing strategies to maintain affordability while delivering superior value. • Offer various pricing tiers based on storage capacity and features to cater to different customer segments. • Provide trade-in programs and discounts for existing iPod users to encourage upgrades. 3. Place: • Market Expansion and Global Reach: • Action: • Expand distribution channels to reach new markets and untapped customer segments. • Increase presence in emerging markets through partnerships with local retailers and online platforms. • Strengthen Apple Stores and online presence to provide a seamless purchasing experience for customers worldwide. 4. Promotion: • Marketing and Branding Strategies: • Action: • Implement integrated marketing campaigns focusing on the unique features and benefits of iPod. • Utilize various channels such as television, social media, online advertising, and influencer partnerships to reach target audiences. • Leverage Apple's strong brand image and customer loyalty to generate buzz and excitement around new product launches. • Customer Engagement and Loyalty Programs: • Action: • Offer personalized customer experiences through targeted marketing communications and exclusive content. • Implement loyalty programs offering rewards, discounts, and special offers for loyal iPod users. • Provide exceptional customer service through Apple Care and Genius Bar support to ensure customer satisfaction and loyalty. Conclusion: By implementing these specific marketing actions focusing on product innovation, competitive pricing, global expansion, and effective promotion, Apple can accomplish its strategic objectives and maintain its lead in the global market for digital music players. These actions will strengthen Apple's brand, enhance customer loyalty, and ensure long-term success in the industry. How would you characterize the strategies of the major Korean automakers (e.g., Hyundai, Kia) as they attempt to capture a larger share of developed markets such as Europe and the United States? What marketing variables do you think are critical to the ultimate success of their strategies? Answer: Strategies of Major Korean Automakers (Hyundai, Kia) in Developed Markets: 1. Value Proposition: • Affordable Quality: Korean automakers offer vehicles with high-quality features at competitive prices, providing excellent value for money compared to their competitors. • Warranty: Extensive warranty programs, such as Hyundai's 10-year/100,000-mile powertrain warranty, build consumer trust and confidence in the reliability of their vehicles. 2. Product Portfolio: • Diverse Range: Hyundai and Kia offer a diverse range of vehicles, including sedans, SUVs, and electric vehicles, catering to various consumer preferences and market segments. • Innovation: Continuous innovation in design, technology, and fuel efficiency helps Korean automakers stay competitive and appeal to a broader audience. 3. Marketing and Branding: • Building Brand Image: Heavy investment in marketing and advertising campaigns helps improve brand perception and awareness in developed markets. • Sponsorships and Endorsements: Strategic sponsorships and endorsements, such as sports sponsorships and celebrity endorsements, help enhance brand visibility and credibility. 4. Distribution and Sales Network: • Expansion of Dealerships: Increasing the number of dealerships and service centers in developed markets improves accessibility and convenience for customers. • Online Presence: Enhanced online presence and digital sales platforms facilitate easy access to information and purchasing options for customers. 5. Customer Experience: • Focus on Customer Satisfaction: Prioritizing customer satisfaction through excellent service, personalized experiences, and after-sales support helps build long-term relationships with customers. • Feedback and Improvement: Gathering customer feedback and continuously improving products and services based on customer preferences and market trends. Critical Marketing Variables for Success: 1. Quality and Reliability: • Ensuring consistent quality and reliability of vehicles is crucial to building trust and loyalty among consumers. 2. Brand Image and Perception: • Enhancing brand image and perception through effective marketing campaigns, sponsorships, and endorsements is essential for gaining consumer trust and confidence. 3. Competitive Pricing and Value Proposition: • Offering competitive pricing and a strong value proposition is vital to attracting price-sensitive consumers in developed markets. 4. Innovation and Technology: • Continuous innovation in design, technology, and sustainability features is necessary to meet evolving consumer preferences and regulatory standards. 5. Customer Service and Support: • Providing exceptional customer service, convenient sales and service networks, and responsive after-sales support contribute to overall customer satisfaction and loyalty. 6. Market Segmentation and Targeting: • Understanding and catering to the specific needs and preferences of different consumer segments in developed markets is critical for market penetration and growth. Conclusion: Hyundai and Kia's strategies in developed markets focus on offering affordable quality, a diverse product portfolio, effective marketing and branding, expanding distribution networks, and prioritizing customer satisfaction. Critical marketing variables for their success include maintaining quality and reliability, enhancing brand image, offering competitive pricing and value, continuous innovation, excellent customer service, and effective market segmentation and targeting. These factors collectively contribute to their efforts to capture a larger share of developed markets such as Europe and the United States. If you were the top marketing executive at General Motors or Ford, what strategy would you recommend to defend your firm’s market share against this competitive threat from South Korea? Answer: Defensive Strategy for General Motors or Ford Against Korean Automakers: 1. Product Innovation and Differentiation: • Focus on Innovation: Invest heavily in research and development to continuously innovate and differentiate products. • Advanced Technology: Introduce advanced technology features, such as electric vehicles (EVs), autonomous driving capabilities, and connectivity solutions, to stay ahead of the competition. • Diverse Product Portfolio: Expand the product portfolio to include a wide range of vehicles, including SUVs, electric vehicles, and trucks, catering to different consumer preferences. 2. Quality and Reliability: • Enhance Quality: Improve the quality and reliability of vehicles to match or exceed the standards set by Korean automakers. • Long-Term Durability: Offer competitive warranty programs and emphasize long-term durability to instill confidence in customers. 3. Competitive Pricing and Value Proposition: • Value for Money: Ensure competitive pricing while offering superior value for money compared to Korean competitors. • Finance and Incentives: Provide attractive financing options, rebates, and incentives to attract price-sensitive consumers. 4. Marketing and Branding: • Brand Image Enhancement: Enhance brand image and perception through strategic marketing campaigns highlighting the heritage, innovation, and reliability of GM and Ford vehicles. • Customer Engagement: Engage customers through personalized marketing, loyalty programs, and customer-centric initiatives. 5. Customer Experience and Service: • Exceptional Customer Service: Focus on providing exceptional customer service, from the sales process to after-sales support and maintenance. • Convenience and Accessibility: Expand dealership networks and service centers to improve accessibility and convenience for customers. 6. Market Expansion and Global Reach: • Targeted Market Expansion: Identify and target emerging markets with growth potential to offset any loss in market share in developed markets. • Global Presence: Strengthen global presence and adapt marketing strategies to local market dynamics. 7. Strategic Partnerships and Alliances: • Collaborations: Form strategic partnerships and alliances with technology companies to leverage their expertise in areas such as electric and autonomous vehicles. • Supply Chain Optimization: Collaborate with suppliers to optimize the supply chain and reduce costs while maintaining quality. 8. Regulatory Compliance and Sustainability: • Environmental Sustainability: Emphasize sustainability initiatives and ensure compliance with environmental regulations to meet consumer expectations and regulatory standards. • Emission Reduction: Invest in alternative fuel technologies and reduce emissions to align with global sustainability goals. Conclusion: By implementing a comprehensive defensive strategy focusing on product innovation, quality, competitive pricing, marketing, customer service, market expansion, strategic partnerships, and sustainability, General Motors and Ford can effectively defend their market share against the competitive threat from Korean automakers. This strategy will help them maintain their position as industry leaders and continue to thrive in a highly competitive automotive market. Chapter 10 Strategies for Mature and Declining Markets I. “Johnson Controls: Making Money in Mature Markets” discusses Johnson Controls Inc.’s development and implementation of a four-pronged strategy for making money in mature markets. This strategy allowed the firm to grow and expand into a global market while increasing profits and revenues II. Strategic Challenges Addressed in Chapter 10 A period of competitive turbulence almost always accompanies the transition from market growth to maturity in an industry. This period often begins after approximately half the potential customers have adopted the product and the rate of sales growth starts to decline. As the growth rate slows, many competitors tend to overestimate future sales volume and consequently end up developing too much production capacity. Competition becomes more intense as firms battle to increase sales volume to cover their high fixed costs and maintain profitability. As a result, such transition periods are commonly accompanied by a shakeout during which weaker businesses fail, withdraw from the industry, or are acquired by other firms. The next section of this chapter examines some strategic traps that can threaten a firm’s survival during industry shakeout. A. Challenges in Mature Markets Businesses that survive the shakeout face new challenges as market growth stagnates. As a market matures, total volume stabilizes; replacement purchases rather than first-time buyers account for the vast majority of that volume. Some firms tend to passively defend mature products while using the bulk of the revenues produced by those items to develop and aggressively market new products with more growth potential. This can be shortsighted, however. This chapter examines basic business strategies necessary for survival in mature markets and marketing strategies used to extend a brand’s sales and profits. B. Challenges in Declining Markets Eventually, technological advances; changing customer demographics, tastes, or lifestyles; and development of substitutes result in declining demand for most product forms and brands. As a product starts to decline, managers face the critical question of whether to divest or liquidate the business. An appropriate marketing strategy, however, can produce substantial sales and profits even in a declining market. If few exit barriers exist, an industry leader might attempt to increase market share via aggressive pricing or promotion policies aimed at driving out weaker competitors. The last section of this chapter examines marketing strategies for gaining the greatest possible returns from products approaching the end of their life cycle. III. Shakeout: The Transition from Market Growth to Maturity A. Characteristics of the Transition Period The transition from market growth to maturity typically begins when the market is still growing but rate of growth starts to decline. Weaker members of the industry often fail or are acquired by larger competitors during the shakeout stage. B. Strategic Traps during the Transition A business’s ability to survive the transition from market growth to maturity depends to a great extent on whether it can avoid some common strategic traps. Four such traps are: The most obvious trap is simply the failure to recognize the events signaling the beginning of the shakeout period. The second strategic trap is for a business to get caught in the middle during the transition period without a clear strategic advantage. The third trap is the failure to recognize the declining importance of product differentiation and the increasing importance of price or service. A firm should not put off responding to the more aggressive pricing or marketing actions of its competitors because doing so may lead to the fourth trap—giving up market share too easily in favor of short-run profit. IV. Strategic Choices in Mature Markets Success in mature markets requires two sets of strategic actions: The development of a well-implemented business strategy to sustain a competitive advantage, customer satisfaction, and loyalty Flexible and creative marketing programs geared to pursue growth or profit opportunities as conditions change in specific product-markets A. Strategies for Maintaining Competitive Advantage An analyzer strategy is most appropriate for developed industries that are still experiencing some technological change and may have opportunities for continued growth. The defender strategy works best in industries where basic technology is not complex or is unlikely to change dramatically in the short run. Both analyzers and defenders can attempt to sustain a competitive advantage in established product markets through differentiation of their product offering—either on the basis of superior quality or service or by maintaining a low-cost position. Generally, it is difficult for a single business to pursue both low-cost and differentiation strategies at the same time. Improvements in quality—especially the reduction of product defects via improved production and procurement processes—can reduce a product’s cost. Pursuit of low-cost strategy does not mean that a business can ignore the delivery of desirable benefits to the customer. The critical strategic questions facing the marketing manager are: How can a business continue to differentiate its offerings and justify a premium price as its market matures and becomes more competitive? How can businesses, particularly those pursuing low-cost strategies, continue to reduce their costs and improve their efficiency as their markets mature? B. Methods of Differentiation At the most basic level, a business can attempt to differentiate its offering from competitors’ by offering either superior product quality, superior service, or both. The problem is that quality and service may be defined in a variety of ways by customers. Dimensions of Product Quality: Functional performance Durability Conformance to specifications, or the absence of defects Variety of features The reliability quality dimension can refer to the consistency of performance from purchase to purchase or to a product’s uptime, the percentage of time that it can perform satisfactorily over its life. The quality dimension of serviceability refers to a customer’s ability to obtain prompt and competent service when the product breaks down. The fit and finish dimension can help convince consumers that a product is of high quality. The quality reputation of the brand name, and the promotional activities that sustain that reputation, can strongly influence consumers’ perceptions of a product’s quality. A brand’s quality reputation together with psychological factors such as name recognition and loyalty substantially determine a brand’s equity—the perceived value customers associate with a brand name and its logo or symbol. Dimensions of Service Quality The quality dimensions apply specifically to service businesses, but most of them are also relevant for judging the service component of a product offering. This pertains to both the objective performance dimensions of the service delivery system, such as its reliability, responsiveness, as well as to elements of the performance of service personnel, such as their empathy and the level of assurance. Are the Dimensions the Same for Service Quality on the Internet? Some researchers have defined online service quality as the extent to which a website facilitates efficient and effective shopping, purchasing, and delivery. The researchers identified 11 dimensions of perceived e-service quality: Access Ease of navigation Efficiency Flexibility Reliability Personalization Security/privacy Responsiveness Assurance/trust Site aesthetics Price knowledge Improving Customer Perceptions of Service Quality The major factors that determine a customer’s expectations and perceptions concerning service quality—and five gaps that can lead to dissatisfaction with service delivery—are: Gap between the customer’s expectations and the marketer’s perceptions Gap between management perceptions and service quality specifications Gap between service quality specifications and service delivery Gap between service delivery and external communications Gap between perceived service and expected service C. Methods of Maintaining a Low-Cost Position Some other means for obtaining a sustainable cost advantage besides include producing a no-frills product, creating an innovative product design, finding cheaper raw materials, automating or outsourcing production, developing low-cost distribution channels, and reducing overhead. A No-Frills Product A firm considering a no-frills strategy needs the resources to withstand a possible price war. Innovating Product Design A simplified product design and standardized component parts also can lead to cost advantages. Cheaper Raw Materials A firm with the foresight to acquire or the creativity to find a way to use relatively cheap raw materials also can gain a sustainable cost advantage. Innovative Production Processes Although low-cost defender business typically spend little on product R&D, they often continue to devote substantial sums to process R&D. Innovations in the production process, including the development of automated or computer-controlled processes, can help them sustain cost advantages over competitors. In some labor-intensive industries, a business can achieve a cost advantage, at least in the short term, by gaining access to inexpensive labor. This is usually achieved by moving all or part of the production process to countries with low wage rates. Low-Cost Distribution When distribution accounts for a relatively high proportion of a product’s total delivered cost, a firm might gain a substantial advantage by developing lower-cost alternative channels. Typically this involves eliminating, or shifting to the customer, some of the functions performed by traditional channels in return for a lower price. Reductions in Overheads Successfully sustaining a low-cost strategy requires that the firm pare and control its major overhead costs as quickly as possible as its industry matures. D. Customers’ Satisfaction and Loyalty are Crucial for Maximizing Their Lifetime Value It is critical that a business continually work to improve the value of its offerings—by either improving product or service quality, reducing costs, or some combination—as a basis for maintaining its customer base as its markets mature and become increasingly competitive. Measuring Customer Satisfaction The growing concern with the economic “return on quality” has motivated firms to ask which dimensions of product or service quality are most important to customers and which dimensions customers might be willing to sacrifice for lower prices. Useful measures of customer satisfaction should examine both: Customers’ expectations and preferences concerning the dimensions of product and service quality (such as product performance, features, reliability, on-time delivery, competence of service personnel, etc.) Customers’ perceptions concerning how well the firm is meeting expectations Improving Customer Retention and Loyalty Maintaining the loyalty of existing customers is crucial for a business’s profitability because loyal customers: Tend to concentrate their purchases, thus leading to larger volumes and lower selling and distribution costs Provide positive word-of-mouth and customer referrals May be willing to pay premium prices for the value they receive Periodic measurement of customer satisfaction is important because a dissatisfied customer is unlikely to remain loyal over time. Customers who describe themselves as satisfied are not necessarily loyal. Satisfaction measures need to be supplemented with examinations of customer behavior, such as measures of the annual retention rate, frequency of purchases, and the percentage of a customer’s total purchases captured by the firm. Sentiment analysis examines people’s comments about the brand using statistical analysis and natural language processing, a software system designed to interpret written communications even when they include slang and abbreviations. Defecting customers should also be studied in detail to discover why the firm failed to provide sufficient value to retain their loyalty. Are All Customers Equally Valuable? An increasing number of companies are asking whether every customer’s loyalty is worthy of the same level of effort and expense. In these firms, technology is creating a new business model that alters the level of service and benefits provided to a customer based on projection of a customer’s value to the firm. The ability of firms to tailor different levels of service and benefits to different customers based on each person’s potential to produce a profit has been facilitated by the internet. The end result of the trend toward individually tailored service levels could be an increased stratification of consumer society. The segmentation of customers based on projections of their value and the tailoring of different service levels and benefits to those segments raise both ethical and strategic questions. V. Marketing Strategies for Mature Markets A. Strategies for Maintaining Current Market Share The business should strive during the early years of market maturity to maximize the flow of profits over the remaining life of the product-market. Thus, the most critical marketing objective is to maintain and protect the business’s market share. Firms that survived the shakeout period with a relatively strong share position should continue strengthening their position through a fortress defense. Since markets often become more fragmented as they grow and mature, share leaders also may have to expand their product lines, or add one or more flanker brands, to protect their position against competitive inroads. Small-share competitors can earn substantial profits in a mature market. A niche strategy can be particularly effective when the target segment is too small to appeal to larger competitors or when the smaller firm can establish a strong differential advantage or brand preference in the segment. B. Strategies for Extending Volume Growth Increased Penetration Strategy Where usage frequency is quite high among current customers but only a relatively small portion of all potential users actually buy the product, a firm might aim at increasing market penetration. It is an appropriate strategy for an industry’s share leader because such firms can more likely gain and retain a substantial share of new customers than smaller firms with less well-known brands. The secret to a successful increased penetration strategy lies in discovering why nonusers are uninterested in the product. Very often the product does not offer sufficient value from the potential customer’s view to justify the effort or expense involved in buying and using it. One solution to such a problem is to enhance the product’s value to potential customers by adding features or benefits, usually via line extensions. Extended Use Strategy In situations of good market penetration but low frequency of use, an extended use strategy may increase volume. One effective approach for stimulating increased frequency of use is to move product inventories closer to point of use. One way to move inventory closer to the point of consumption is to offer larger package sizes. Various sales promotion programs also help move inventories of a product closer to the point of use by encouraging larger volume purchases. Advertising can sometimes effectively increase use frequency by simply reminding customers to use the product more often. Market Expansion Strategy In a mature industry with a fragmented and heterogeneous market where some segments are less well developed than others, a market expansion strategy may generate substantial additional volume growth. Such a strategy aims at gaining new customers by targeting new or underdeveloped geographic markets (either regional or foreign) or new customer segments. Pursuing market expansion by strengthening a firm’s position in new or underdeveloped domestic geographic markets can lead to experience-curve benefits and operating synergies. In a different approach to domestic market expansion, the firm identifies and develops new or underserved customer or application segments One final possibility for domestic market expansion is to produce private-label brands for large retailers. Global Market Expansion—Sequential Strategies Firms can enter foreign markets in a variety of ways, from simply relying on import agents to developing joint ventures to establishing wholly owned subsidiaries. Regardless of which mode of entry a firm chooses, it can follow a number of different routes when pursuing global expansion. Japanese companies provide illustrations of different global expansion paths The most common expansion route involves moving from Japan to developing countries to developed countries. A second type of expansion path has been used primarily for high-tech products. For the Japanese, it consists of first securing their home market and then targeting developed countries. VI. Strategies for Declining Markets The relative attractiveness of the declining product-market and the business’s competitive position within it should dictate the appropriate strategy. A. Relative Attractiveness of Declining Markets Three set of factors help determine the strategic attractiveness of declining product markets: Conditions of demand, including the rate and certainty of future declines in volume Exit barriers, or the ease with which weaker competitors can leave the market Factors affecting the intensity of future competitive rivalry within the market Conditions of Demand The cause of a decline in demand can affect both the rate and the predictability of that decline. Both the rate and certainty of sales decline are demand characteristics that affect a market’s attractiveness. Overcapacity is less likely to become excessive and lead to predatory competitive behavior, and the competitors who remain are more likely to make profits than in a quick or erratic decline. Not all segments decline at the same time or at the same rate. When the demand pockets are large and numerous and the customers in those niches are brand loyal and relatively insensitive to price, competitors with large shares and differentiated products can continue to make substantial profits. Exit Barriers The higher the exit barriers, the less hospitable a product market will be during the decline phase of its life cycle. A variety of factors influence the ease with which businesses can exit an industry: One critical consideration involves the amount of highly specialized assets. Another major exit barrier occurs when the assets or resources of the declining business intertwine with the firm’s other business units, either through shared facilities and programs or through vertical integration. Intensity of Future Competitive Rivalry Even when substantial pockets of continuing demand remain within a declining business, it may not be wise for a firm to pursue them in the face of future intense competitive rivalry. In addition to exit barriers, other factors affect the ability of remaining firms to avoid intense price competition and maintain reasonable margins: Size and bargaining power of the customers who continue to buy the product Customers’ ability to switch to substitute products or to alternative suppliers Any potential diseconomies of scale involved in capturing an increased share of the remaining volume B. Divestment or Liquidation during the Declining Phase When the market environment in a declining industry is unattractive or a business has a relatively weak competitive position, the firm may recover more of its investment by selling the business in the early stages of decline rather than later. The firm that divests early runs the risk that its forecast of the industry’s future may be wrong. C. Marketing Strategies for Remaining Competitors Conventional wisdom suggests that a business remaining in a declining product market should pursue a harvesting strategy aimed at maximizing its cash flow in the short run. But such businesses also have other strategic options. They might attempt to maintain their position as the market declines, improve their position to become the profitable survivor, or focus efforts on one or more remaining demand pockets or market niches. The appropriateness of these strategies depends on factors affecting the attractiveness of the declining market and on the business’s competitive strengths and weaknesses. Harvesting Strategy The objective of a harvesting or milking strategy is to generate cash quickly by maximizing cash flow over a relatively short-term. The trick is to hold the business’s volume and share declines to a relatively slow and steady rate. A harvesting strategy is most appropriate for a firm holding a relatively strong competitive position in the market at the start of the decline and a cadre of current customers likely to continue buying the brand even after marketing support is reduced. Implementing a harvesting strategy means avoiding any additional long-term investments in plant, equipment, or R&D It also necessitates substantial cuts in operating expenditures for marketing activities. The business should improve the efficiency of sales and distribution. Maintenance Strategy In markets where future volume trends are highly uncertain, a business with a leading share position might consider pursuing a strategy aimed at maintaining its market share, at least until the market’s future becomes more predictable. In such a maintenance strategy, the business continues to pursue the same strategy that brought it success during the market’s mature stage. This approach often results in reduced margins and profits in the short term, though, because firms usually must reduce prices or increase marketing expenditures to hold share in the face of declining industry volume. Profitable Survivor Strategy An aggressive alternative for a business with a strong share position and a sustainable competitive advantage in a declining product-market is to invest enough to increase its share position and establish itself as the industry leader for the remainder of the market’s decline. A strong competitor often can improve its share position in a declining market at relatively low cost because other competitors may be harvesting their businesses or preparing to exit. The key to success of such a strategy is to encourage other competitors to leave the market early. A firm might encourage smaller competitors to abandon the industry by being visible and explicit about its commitment to become the leading survivor. The ultimate way to remove competitors’ exit barrier is to purchase their operations and either improve their efficiency or remove them from the industry to avoid excess capacity. Niche Strategy Even when most segments of an industry are expected to decline rapidly, a niche strategy may still be viable if one or more substantial segment will remain as stable pockets of demand or decay slowly. End of Chapter Discussion Questions and Answers Suppose you were the marketing manager for General Foods’ Cool Whip frozen dessert topping. Marketing research indicates that nearly three-quarters of all households use your product, but the average user only buys it four times a year, and Cool Whip is used on only 7 percent of all toppable desserts. What marketing strategy (or strategies) would you recommend and why? What specific marketing actions would you propose to implement that strategy? Answer: Marketing Strategy for Cool Whip Frozen Dessert Topping: Strategy: Increasing Usage Frequency and Market Penetration 1. Objective: • Increase the frequency of Cool Whip purchases and expand its usage on a wider variety of desserts to increase market share and revenue. 2. Marketing Strategy: a. Market Penetration: • Objective: Increase Cool Whip usage on a wider range of desserts to grow market share. • Why: Expanding the usage occasions will lead to higher product consumption and increased market penetration. b. Increase Usage Frequency: • Objective: Encourage more frequent purchases of Cool Whip by existing customers. • Why: Increasing usage frequency will boost sales and revenue without necessarily increasing the customer base. 3. Specific Marketing Actions: a. Educational Marketing Campaign: • Launch an educational marketing campaign highlighting the versatility of Cool Whip as a topping for various desserts beyond traditional uses like pies. • Emphasize its suitability for cakes, cookies, fruits, and other desserts. b. Recipe Sharing and Engagement: • Establish an online platform or social media campaign where users can share their Cool Whip dessert recipes. • Encourage user-generated content and engagement to promote the versatility of Cool Whip. c. Partnerships and Cross-Promotions: • Collaborate with dessert manufacturers, bakeries, and grocery stores to cross-promote Cool Whip with their products. • Offer discounts or bundled deals to encourage trial and usage. d. Packaging Innovation: • Introduce smaller-sized packaging options to encourage trial and reduce the barrier to purchase for occasional users. • Offer convenient packaging formats for single-use or smaller households. e. Loyalty Programs and Incentives: • Implement a loyalty program offering rewards or discounts for frequent Cool Whip purchasers. • Provide incentives for bulk purchases or repeat buys. f. Sampling and In-Store Demonstrations: • Conduct in-store demonstrations and sampling events to showcase the taste and versatility of Cool Whip. • Offer recipe cards and suggestions to inspire consumers to use Cool Whip more frequently. 4. Conclusion: By implementing these marketing strategies and actions, General Foods can increase Cool Whip's market share by encouraging more frequent purchases and expanding its usage on a wider variety of desserts. These initiatives will help capitalize on the product's high household penetration and drive revenue growth in a mature market. In recent years, McDonald’s—which had attained decades of outstanding growth by selling burgers and fries to American families with young children—has aggressively sought franchisees in foreign countries, including Russia and China. The firm has also introduced a wide variety of new product lines and line extensions (breakfast items such as Egg McMuffin, Chicken McNuggets, McChicken sandwiches, low-carbohydrate salads, etc.). What was the strategic rationale for these moves? Answer: Strategic Rationale for McDonald’s Expansion and Product Diversification: 1. Market Saturation in Mature Markets: • McDonald’s faced market saturation and declining growth in its traditional markets, particularly in the United States. • Intensifying competition and changing consumer preferences demanded strategic shifts to maintain growth. 2. International Expansion: • Market Development Strategy: • Objective: Penetrate new markets with growth potential, such as Russia and China. • Rationale: Tap into the growing middle-class population and increasing urbanization in emerging economies. • Opportunity: Establish McDonald’s as an early entrant in these markets and build brand loyalty among new consumer segments. 3. Product Diversification and Innovation: • Diversification Strategy: • Objective: Expand the product portfolio and cater to evolving consumer preferences. • Rationale: Counteract declining sales of traditional fast food items by introducing new product lines and line extensions. • Response to Market Trends: • Introduction of breakfast items like Egg McMuffin catered to changing consumer lifestyles and dining habits. • Launch of healthier options like salads and low-carbohydrate items addressed growing health-consciousness among consumers. • Innovation in menu offerings such as Chicken McNuggets and McChicken sandwiches provided variety and catered to diverse tastes. 4. Franchise Model Expansion: • Franchise Development Strategy: • Objective: Accelerate global expansion and market penetration through franchise partnerships. • Rationale: Leverage the expertise and local knowledge of franchisees to drive growth in new and existing markets. • Advantages: • Reduced capital investment and operating costs for McDonald’s. • Faster market entry and expansion facilitated by local franchisees. 5. Strategic Alliance and Partnerships: • Joint Ventures and Alliances: • Objective: Establish strategic partnerships to navigate cultural, regulatory, and operational challenges in new markets. • Rationale: Leverage local partners' knowledge, resources, and networks to accelerate market entry and growth. • Examples: • Collaborations with local businesses in Russia and China helped McDonald’s adapt its menu and operations to local preferences and regulations. Conclusion: McDonald’s aggressive pursuit of international expansion, product diversification, and franchise development was driven by the need to counteract market saturation in mature markets, respond to changing consumer preferences, and tap into new growth opportunities in emerging economies. These strategic moves aimed to sustain growth, drive revenue, and strengthen McDonald’s position as a global leader in the fast-food industry. The J. B. Kunz Corporation, the leading manufacturer of passbooks and other printed forms for financial institutions, saw its market gradually decline during the 1980s and 1990s because the switch to electronic banking was making its product superfluous. Nevertheless, the firm bought up the assets of a number of smaller competitors, greatly increased its market share within its industry, and managed to earn a very high return on investment. What kind of strategy was the company pursuing? Why do you think the firm was able to achieve a high ROI in the face of industry decline? Answer: Strategy Pursued by J. B. Kunz Corporation: 1. Market Consolidation Strategy: • Acquisition and Market Share Expansion: • Despite the industry's decline due to the shift to electronic banking, J. B. Kunz Corporation pursued a strategy of acquiring smaller competitors and consolidating its market position. • The company aimed to increase its market share within the declining industry by acquiring assets of competitors. 2. Reasons for High ROI Despite Industry Decline: a. Economies of Scale: • By acquiring smaller competitors, J. B. Kunz Corporation achieved economies of scale, reducing per-unit production costs. • Consolidating operations and optimizing resources helped maintain profitability despite declining industry demand. b. Vertical Integration: • Vertical integration through acquisitions allowed the company to control more stages of the production process, reducing costs and increasing efficiency. • Integration of acquired assets helped in streamlining operations and maximizing profitability. c. Market Dominance and Pricing Power: • Increased market share allowed the company to exercise greater pricing power and negotiate better terms with suppliers. • Dominant market position enabled J. B. Kunz Corporation to maintain higher profit margins despite the industry decline. d. Diversification and Innovation: • Diversification of product offerings and investment in innovation helped the company adapt to changing market needs and retain customers. • Introduction of new products or services mitigated the impact of declining demand for traditional products. e. Cost Management and Efficiency: • Implementation of cost-cutting measures and operational efficiency initiatives helped in maintaining profitability. • Streamlining operations and reducing overhead costs contributed to a higher return on investment. 3. Conclusion: Despite the industry decline caused by the transition to electronic banking, J. B. Kunz Corporation successfully implemented a market consolidation strategy through acquisitions, increasing its market share and achieving a high return on investment. By capitalizing on economies of scale, vertical integration, market dominance, diversification, and cost management, the company managed to sustain profitability and outperform competitors in a declining market. Instructor Manual for Marketing Strategy: A Decision-Focused Approach Orville C. Walker, John Mullins 9780078028946