BUSI 520
Chapter Twelve: Addressing Competition and Driving Growth
Growth
Growth Strategies
Primary growth strategies:
oGrow by building your market share
oGrow by developing committed customers and stakeholders
oGrow by building a powerful brand
oGrow by innovating new products, services, and experiences
oGrow by international expansion
oGrow by acquisitions, mergers, and alliances
oGrow by building an outstanding reputation for social responsibility
oGrow by partnering with government and NGOs
Growing the Core
Some of the best opportunities come from growing the core: focusing on their most
successful existing products and markets
oMarketers must avoid the trap of thinking the “grass is always greener” and
overestimating the upside of new ventures that stretch the company into uncharted
territory
Often a firm’s unique capabilities don’t effectively translate to a new industry
Growing the core can be a less risky alternative than expansion into new product
categories
oIt strengthens a brand’s credentials as a source of authority and credibility and can
yield economies of scale
oThrough improved revenues and lower costs, growing the core can also lead to
greater profits
oThree main strategies:
Make the core of the brand as distinctive as possible
Drive distribution through both existing and new channels
Offer the core product in new formats or versions
Growth strategies are not necessarily “either/or” propositions
oA focus on core businesses does not mean foregoing new market opportunities
Competitive Strategies for Market Leaders
Introduction
A market leader has the largest market share and usually leads in price hangers, new-
product introductions, distribution coverage, and promotional intensity
Market nichers serve small segments larger firms don’t reach
To stay number one, the firm must first find a way to expand total market demand
oSecond, it must protect its current share through good defense and offensive
actions
oThird, it should increase market share, even if market size remains constant
Expanding Total Market Demand
When the total market expands, the dominant firm usually gains the most
In general, the market leader should look for new customers or more usage from existing
customers
New Customers
oA company can search for new users among three groups:
Those who might use it but do not (market-penetration strategy)
Those who have never used it (new-market strategy)
Those who live elsewhere (geographical-expansion strategy)
oIn targeting new customers, a firm should not lose sight of existing ones
More Usage
oMarketers can try to increase the amount, level, or frequency of consumption
Sometimes boost the about through packaging or product redesign
Increasing frequency of consumption requires either
Identifying additional opportunities to use the brand in the same
basic way
Identifying completely new and different ways to use the brand
oAdditional Opportunities to Use the Brand
An opportunity arises when consumers’ perceptions of their usage differs
from reality
Consumers may fail to replace a short-lived product when they
should because they overestimate how long it stays fresh or
operates effectively
Other approaches include providing consumers with:
Better information about when they first used the product or need
to replace it
A gauge of the current level of product performance
oNew Ways to Use the Brand
The second approach to increasing frequency of consumption is to identify
completely new and different applications
Protecting Market Share
While trying to expand total market size, the dominant firm must actively defend its
current business
oThe most constructive response is continuous innovation
The fore-runner should lead the industry in developing new products and
customer services, distribution effectiveness and cost cutting
oComprehensive solutions increase competitive strength and value to customers so
they feel appreciative or even privileged to be a customer as opposed to feeling
trapped or taken advantage of
Proactive Marketing
oIn satisfying customer needs, we can draw a distinction between responsive
marketing, anticipative marketing, and creative marketing
A responsive marketer finds a stated need and fills it
An anticipative marketer looks ahead to needs customers may have in the
near future
A creative marketer discovers solutions customers did not ask for but to
which they enthusiastically respond
Creative marketers are proactive market-driven firms
oSuccessful companies proactively shape the market to their own interests
Instead of trying to be the best player, they change the rules of the game
oA company needs two proactive skills:
Responsive anticipation to see the writing on the wall
Creative anticipation to devise innovative solutions
oResponsive innovation is performed before a given change; reactive response
happens after the change takes place
oProactive companies create new offers to serve unmet, and maybe even unknown,
consumer needs
oProactive companies may redesign relationships within an industry, or they may
educate and engage customers
oCompanies need to practice “uncertainty management”
Proactive firms:
Are ready to take risks and make mistakes
Have a vision of the future and of investing in it
Have the capabilities to innovate
Are flexible and non-bureaucratic
Have many managers who think proactively
Companies that are too risk-averse won’t be winners
Defensive Marketing
oThe aim of defensive strategy is to:
Reduce the probability of attack
Divert attacks to less-threatened areas
Lessen their intensity
oA leader would like to do anything it legally and ethically can to:
Reduce competitors’ ability to launch a new produce
Secure distribution
Gain customer awareness, trail, and repeat
oIn any strategy, speed of response can make an important difference to profit
oDecisions about which strategy to adopt will depend in part on the company’s
resources and goals and its expectations about how competitors will react
Position Defense
Occupying the most desirable position in consumers’ minds,
making the brand almost impregnable
Flank Defense
Market leader should erect outposts to protect weak front or
support a possible counterattack
Preemptive Defense
Attack first, perhaps with guerrilla action across the market, hitting
on competitor here, another there, and keeping everyone off
balance
Counteroffensive Defense
Market leader can meet the attacker frontally and hit its flank or
launch a pincer movement so the attacker will have to pull back to
defend itself
Mobile Defense
Leader stretches its domain over new territories through market
broadening and market diversification
oMarket broadening shifts the company’s focus from the
current product to the underlying generic need
Contraction Defense
In planned contraction (strategic withdrawal), large companies
give up weaker markets and reassign resources to stronger ones
Increasing Market Share
The cost of buying higher market share through acquisition may far exceed its revenue
value; companies should consider four factors:
oThe possibility of provoking antitrust action
oEconomic cost
oThe danger of pursuing the wrong marketing activities
oThe effect of increasing market share on actual and perceived quality
Other Competitive Strategies
Market Challenger Strategy
Challengers set high aspirations, while market leaders can fall prey to running business as
usual
Challengers can tap into public perceptions that they are the underdog
Defining the Strategic Objective and Opponent(s)
oA market challenger must first define its strategic objective, which is usually to
increase market share
oIt then must decide whom to attack:
It can attack the market leader
It can attack firms its own size that are not doing the job and ar
underfinanced
It can attack small local and regional firms
It can attack the status quo
Choosing a General Attack Strategy
oFive types of general attack strategies:
Frontal attack
Attacker matches its opponent’s product, advertising, price, and
distribution
The force with the greater resources will wind
Modified frontal attack, such as cutting price, can work if the
market leader doesn’t retaliate and if the competitor convinces the
market its produce is equal to the leader’s
Flank attack
Identifying shifts that cause gaps to develop in the market, then
rushing to fill the gaps
Particularly attractive to a challenger with fewer resources and can
be more likely to succeed than frontal attacks
Encirclement attack
Attempts to capture a wide slice of territory by launching a grand
offensive on several fronts
Makes sense when the challenger commands superior resources
Bypass attack
Bypassing the enemy altogether to attack easier markets instead
offers three lines of approach
oDiversifying into unrelated products
oDiversifying into new geographical markets
oLeapfrogging into new technologies
Guerilla attack
Consist of small, intermittent attacks, conventional and
unconventional, including selective price cuts, intense promotional
blitzes, and occasional legal action, to harass the opponent and
eventually secure permanent footholds
Can be expensive, though less so than a frontal, encirclement, or
flank attack
Typically must be backed by a stronger attack to beat the opponent
Choosing a Specific Attack Strategy
oA challenger’s success depends on combining several more specific strategies to
improve its position over time
oOnce successful, a challenger brand must retain a challenger mentality even if it
becomes a market leader, highlighting the way it does things differently
Market-Follower Strategies
In innovative imitation the innovator bears the expense of developing the new product,
getting it into distribution, and informing and educating the market
oReward is usually market leadership
oAlthough it may not overtake the leader, a follower can achieve high profits
because it did not bear any of the innovation expenses
Many companies prefer to follow rather than challenge the market leader
oPatterns of “conscious parallelism” are common in capital-intensive,
homogenous-product industries such as steel, fertilizers, and chemicals
Each follower tries to bring to bring distinctive advantages to its target market—location,
services, financing—while defensively keeping its manufacturing costs los and its
product quality and services high
Followers must define a growth plan, but one that doesn’t invite competitive retaliation:
oCloner
Emulates the leader’s products, name, and packaging with slight variations
oImitator
Copies some things from the leader but differentiates on packaging,
advertising, pricing, or location
The leader doesn’t mind as long as the imitator doesn’t attack aggressively
oAdapter
Takes the leader’s products and adapts or improves them
Followership is often not a rewarding path
Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small market, or
niche
oSmaller firms normally avoid competing with larger firms by targeting small
markets or little or no interest to the larger firms
oOver time, those markets can sometimes end up being sizable in their own right
Firms with low shares of the total market can become highly profitable through smart
niching
oThe nicher achieves high margin, whereas the mass marketer achieves high
volume
Nichers have three tasks:
oCreating niches
oExpanding niches
oProtecting niches
Risk is that the niche might dry up or be attacked
oThe company is then stuck with highly specialized resources that may not have
high-value alternative uses
Niche market options:
oThe firm should “stick to its niching,” but not necessarily to its niche
Multiple niching can be preferable to single niching
With strength in two or more niches, the company increases its chance for
survival
oFirms entering a marketing should initially aim at a niche rather than the whole
market
Product Life-Cycle Marketing Strategies
Introduction
To say a product has a life cycle is to assert four things:
oProducts have limited life
oProduct sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller
oProfits rise and fall at different stages of the product life cycle
oProducts require different marketing, financial, manufacturing, purchasing, and
human resource strategies in each life-cycle stage
Product Life Cycles
Most product life cycles are portrayed as bell-shaped curves, typically divided into four
stages:
oIntroduction
Period of slow sales growth as the product is introduced in the market
Profits are nonexistent because of the heavy expenses of product
introduction
oGrowth
A period of rapid market acceptance and substantial profit improvement
oMaturity
A lowdown in sales growth because the product has achieved acceptance
by most potential buyers
Profits stabilize or decline because of increased competition
oDecline
Sales show a downward drift and profits erode
Growth-slump-maturity pattern
oSales grow rapidly when the product is first introduced and then fall to a
“petrified” level sustained by late adopters buying the product for the first time
and early adopters replacing it
Cycle-recycle pattern
oPromotion of product initially, later sales start declining, and another promotion
push produces a second cycle (usually of a smaller magnitude)
Scalloped PLC
oSales pass through a succession of life cycles based on the discovery of new
product characteristics, uses, or users
Style, Fashion, and Fad Life Cycles
A style is a basic and distinctive mode of expression appearing in a field of human
endeavor
A fashion is a current accepted or popular style in a given field
oPass through four stages:
Distinctiveness
Emulation
Mass fashion
Decline
Fads are fashions that come quickly into public view, are adopted with great zeal, peak
early, and decline very fast
oAcceptance cycle is short
oTend to attract only a limited following searching for excitement or wanting to
distinguish themselves from others
oFads decline because they don’t normally satisfy a strong need
Marketing Strategies: Introduction Stage and the Pioneer Advantage
Sales growth tends to be slow in the introduction stage due to:
oTakes time to roll out a new product
oWork out technical problems
oFill dealer pipelines
oGain consumer acceptance
Profits are negative or low, and promotional expenditures are at their highest ratio to sales
become of the need to:
oInform potential consumers
oInduce product trail
oSecure distribution in retail outlets
Prices tend to be higher because costs are high, and firms focus on buyers who are the
most ready to buy
Companies that plan to introduce a new product must decide when to do so
oTo be first can be rewarding, but risky and expensive
oTo come in later makes sense if the firm can bring superior technology, quality, or
brand strength to create a market advantage
Pioneering Advantages
oMarket pioneers can gain a great advantage
oEarly users will recall the pioneer’s brand name if the product satisfies them
oPioneer’s brand establishes the attributes the product class should possess
oNormally aims at the middle of the market and so captures more users
oCustomer inertia and producer advantages:
Economies of scale
Technological leadership
Patents
Ownership of scarce assets
The ability to erect other barriers to entry
oAn alert pioneer can lead indefinitely
Pioneering Drawbacks
oMust watch out for “second-mover advantage”
oWeaknesses among failing pioneers:
New products that were too crude, improperly positioned, or appeared
before there was strong demand
Product-development costs that exhausted the innovator’s resources
A lack of resources to compete against entering larger firms
Managerial incompetence or unhealthy complacency
oSuccessful imitators thrive by offering lower prices, continuously improve the
product, or using brute market power to overtake the pioneer
oAn inventor is the first to develop patents in a new-product category
oA product pioneer is the first to develop a working model
oA market pioneer is the first to sell the new-product category
Gaining a Pioneering Advantage
oFive factors underpinning long-term market leadership
Vision of a mass market
Persistence
Relentless innovation
Financial commitment
Asset leverage
oWhen a pioneer starts a market with a really new product, surviving can be very
challenging
oFor incremental innovators, survival rates are much higher
oCompanies should not try to move too fast; they must carefully design and
execute their product-launch marketing
oInternet companies that realized benefits from moving fast:
Were first movers in large markets
Erected barriers of entry against competitors
Directly controlled critical elements necessary for starting a company
oThe pioneer should visualize the product markets it could enter, knowing it cannot
enter all of them at once
Marketing Strategies: Growth Stage
The growth stage is marked by a rapid climb in sales
oEarly adopters like the product, and additional consumers start buying it
oNew competitors enter, attracted by the opportunities
oThey introduce new product features and expand distribution
oPrices stabilize or fall slightly, depending on how fast demand increases
To sustain rapid market growth, the firm:
oImproves product quality and adds new features and improved styling
oAdds new models and flanker products to protect the main product
oEnters new market segments
oIncreases its distribution coverage and enters new distribution channels
oShifts from awareness and trail communications to preference and loyalty
communications
oLowers prices to attract the next layer of price-sensitive buyers
By spending money on product improvements, promotion, and distribution, the firm can
capture a dominant position
oIt trades off maximum current profit for high market share and the hope of even
greater profits in the next stage
Marketing Strategies: Mature Stage
The rate of sales growth slows
Most products are in this stage of the life cycle, which normally lasts longer than the
preceding ones
Divided into three phases
oGrowth
Sales growth starts to slow
New competitive forces emerge
oStable
Sales per capita flatten because of market saturation
oDecaying maturity
The absolute level of sales starts to decline and customers begin switching
to other products
Creates overcapacity in the industry, which intensifies competition
Three ways to change the course for a brand are:
oMarket Modification
Company might try to expand the market for its mature brand by working
with the two factors that make up sales volume, number of brand users,
and usage rate per customer
Competitors may match this strategy
oProduct Modification
Managers try to stimulate sales by improving quality, features, or style
Quality improvements increases functional performance by launching a
“new and improved” product
Feature improvement adds size, weight, materials, supplements, and
accessories that expand the product’s performance, versatility, safety, or
convenience
Style improvement increases the products esthetic appeal
oMarketing Program Modification\
Brand managers might try to stimulate sales by modifying non-product
elements:
Price
Distribution
Communications
They should access the likely success of any changes in terms of their
effects on new and existing customers
Marketing Strategies: Decline Stage
Sales decline for a number of reasons:
oTechnological advances
oShifts in consumer tastes
oIncreased domestic and foreign competition
All can lead to
oOvercapacity
oIncreased price cutting
oProfit erosion
Unless strong reasons for retention exist, carrying a weak product is often very costly
Eliminating Weak Products
oWeak products:
Consume a disproportionate amount of management’s time
Require frequent price and inventory adjustments
Incur expensive setup for what are usually short production runs
Draw advertising and sales force attention better used to make healthy
products more profitable
Cast a negative shadow on company image
oMaintaining weak products delays the aggressive search for replacement products,
creating a lopsided product mix long on yesterday’s breadwinners and short on
tomorrow’s
oCompanies that successfully restage or rejuvenate a mature product often do so by
adding value to it
Harvesting and Divesting
oHarvesting calls for gradually reducing a product or business’s costs while trying
to maintain sales
First step is to cut R&D costs and plant and equipment investment
Company might also reduce:
Product quality
Sales force size
Marginal services
Advertising expenditures
Harvesting is difficult to execute
Can substantially increase current cash flow
oWhen a company decides to divest a product with strong distribution and residual
goodwill, it can probably sell it to another firm
Some firms specialize in acquiring and revitalizing “orphan” or “ghost”
brands that larger firms want to divest or that have encountered
bankruptcy
Evidence for the Product Life-Cycle Concept
New customer durables show a distinct takeoff, after which sales increase by roughly 45
percent a year, but they also show a distinct slowdown, when sales decline by roughly 15
percent a year
Slowdown occurs at 34 percent penetration on average, well before most households own
a new product
The growth stage lasts a little more than eight years and does not seem to shorten over
time
Informational cascades exist, meaning people are more likely to adopt over time if others
already have, instead of making careful product evaluations
oOne implication is that product categories with large sales increases at takeoff
tend to have larger sales declines at slowdown
Marketing in a Slow-Growth Economy
Explore the Upside of Increasing Investment
Those willing to invest during a recession have, on average, improved their fortunes more
than those that cut back
Get Closer to Customers
A downturn or slow-growth period is an opportunity to learn even more about what
consumers are thinking, feeling, and doing, especially the loyal base that yields so much
profitability
Firms should characterize any changes as temporary rather than permanent shifts
Review Budget Allocations
Slowed growth provides an opportunity for marketers to review their spending, opening
promising new options and eliminating sacred cows if they don’t yield results
Put Forth the Most Compelling Value Proposition
Focusing heavily on price reductions and discounts can harm long-term brand equity and
price integrity
Marketers should increase—and clearly communicate—their brands’ value, conveying all
the financial, logistical, and psychological benefits
Marketers should ensure pricing has not crept up unduly over time
Discounting successful brands is not a good option because it tells the market two things:
oYour prices were too high before
oYour products won’t be worth the price once the discounts are gone
Appealing to frugal customers wit a new brand a lower prices avoids alienating those still
willing to pay for higher-priced brands
Fine-Tune Brand and Product Offerings
Marketers can review product portfolios and brand architecture to confirm that brands
and sub-brands are clearly differentiated, targeted, and supported based on their prospects
Luxury brands can benefit from lower-priced brands or sub-brands in their portfolios
Brands and sub-brands targeting the lower endo f the socioeconomic spectrum may be
particularly important during slow growth
Slow times are also an opportunity to prune products and diminish prospects
