Marketing Strategies in Growth Markets

7/28/2019 Marketing Strategies in Growth Markets

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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 worlds leading

sportswear company today. The challenges presented to Nike by its global

competitors are also discussed.

II. Strategic Challenges Addressed in Chapter 9

a. Opportunities and competitive risks found in growing product-markets

b. Marketing strategies (defensive and offensive) that leaders use to maintain a

dominant market share in the face of growth and competition

c. Details share-growth strategies the market challengers use

III. Opportunities and Risks in Growth Markets

a. Gaining share is easier

i. There may be many potential new users who have no established brandloyalties and who may have different needs or preferences than earlier

adopters

1. Must be able to develop a product offering that new customers see

as more attractive than the alternatives so must have necessary

resources and competencies

ii. Established competitors are less likely to react aggressively to market-

share erosion as long as their sales continue to grow

1. This overlooks that fact that those competitors may have higher

expectations for increased revenues when the market is growing

2. Leaders often react forcefully when their sales growth falls below

industry levels or when industry growth rates slowb. Share gains are worth more: the assumption is that the business can hold its

relative share as the market grows. The validity of this assumption depends on:

i. The existence of positive network effects

ii. Future changes in technology or other key success factors

iii. Future competitive structure of the industry

iv. Future fragmentation of the market

v. Also, if a firm captures share through short-term promotions or price cuts

that competitors can easily match, its gains may be short-lived

c. Price competition is likely to be less intense

i. In some rapidly growing markets, demand exceeds supply

ii. Doesnt hold true in every developing product-market: if theres few

barriers to entry or the adoption process is protraction

d. Early entry is necessary to maintain technical expertise

i. Later entrants lacking customer contact and production and R&D

expenses are at a disadvantages

ii. Sometimes an early commitment to a technology can be a liability

1. Multiple unrelated technologies service a market

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2. A newly emerging technology replaces the current one

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IV. Growth-Market Strategies for Market Leaders

a. Often the leading firms strategic objective is to maintain its leading share

position in the face of increasing competition as the market expands

b. Marketing objectives for share leadersi. Retain its current customers

ii. Stimulate selective demand among later adopters

iii. In some cases, stimulating primary demand to help speed up overall

market growth

c. Marketing actions and strategies to achieve share-maintenance objectives

i. There are five internally consistent strategies used to maintain leading

share position: fortress or position defense strategy, flanker strategy,

confrontation strategy, market expansion strategy, and a contraction or

strategic withdrawal strategy

1. The most appropriate strategy, or combination of strategies,

depends on:

a. The markets size and customers characteristics

b. The number and relative strengths of competitors

c. The leaders resources and competencies

d. Fortress, or Position Defense, Strategy

i. Continually strengthen a strongly held current position: improve

satisfaction of current customers and increase attractiveness of its offering

ii. Makes sense in homogeneous markets

iii. Actions to improve customer satisfaction and loyalty

1. Pay particular attention to quality control

2. Continue to modify and improve its product; not only the physicalproduct but customers perceptions of it as well. This involves

shifting promotion emphasis from stimulating primary demand to

building selective demand

3. Encourage repeat purchases among existing customers

4. Industrial goods: shift salesforce efforts from prospecting for new

accounts to servicing existing accounts

5. Give increased attention to post-sale service

iv. Actions to encourage and simplify repeat purchasing

1. Reduce stockouts on retail store shelves or shorten delivery times

for industrial goods

2. More proactive steps:

a. Negotiate requirements contacts or guaranteed price

agreements

b. Tie customers into a computerized re-order system or a

tightly integrated supply-chain relationships

3. Becomes more crucial as market matures

e. Flanker Strategy

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i. Develop a second brand to compete against a challengers offering and

defend against an attack directed at weaknesses in its current offering

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1. Trading up: develop high-quality brand offered at a higher price

2. Most often it involves a lower-quality product to protect leaders

primary brand from direct price competition

ii. Always used in conjunction with a position defense strategy

iii. Appropriate only when firm as sufficient resources to develop and supportmultiple entries

f. Confrontation Strategy

i. Meet or beat attractive features of a competitors offering after the

challengers success has become obvious (a reactive strategy)

ii. A confrontation based largely on lowering prices creates an additional

problem of shrinking margins for all concerned

iii. Avoid problems of a confrontation strategy by reestablishing the

competitive advantage

g. Market Expansion Strategy

i. More aggressive, proactive version of the flanker strategy

ii. Defends market share by expanding into a number of market segments

iii. Particularly appropriate in fragmented markets

iv. Ways to implement it:

1. Line extensions

2. New brands

3. Alternative product forms using similar technologies

4. Retain basic product but vary other elements of the marketing

program

h. Contraction, or Strategic Withdrawal, Strategy

i. In some highly fragmented markets, may not be able to defend itself in all

segmentsii. Reduce or abandon efforts in some segments to focus on areas where it

enjoys the greatest advantages or the greatest potential for growth

V. Share Growth Strategies for Followers

a. Marketing objectives for followers

i. Some seek to build a profitable business in a small segment while

avoiding direct competition from larger competitors (niche strategy)

ii. Some seek to displace the leader or become a powerful competitor

(increase share growth)

b. Marketing actions and strategies to achieve share growth

i. When leader has already penetrated a large portion of the market, the

challenger can steal away some of the repeat purchase or replacement

demand from the competitors current customers

ii. When market is early in the growth phase or if market is heterogeneous

and fragmented, attract a larger share of potential new customers

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iii. There are five major share growth strategies. What strategies are used

depends on market characteristics, existing competitors current positions

and strengths, and challengers own resources and competencies

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c. How to decide which competitor to target:

i. Attack market-share leader within its primary target market

ii. Attack another follower who has an established position within a major

market segment

iii. Attack one or more smaller competitors who have only limited resourcesiv. Avoid direct attacks on any established competitor

d. Frontal Attack Strategy

i. Tackling a major competitor head-on

ii. Is most likely to succeed when existing customers dont have strong brand

preferences, target competitors product doesnt benefit from positive

network effects, and challengers competencies and resources are greater

than the target competitors

iii. Achieve a sustainable advantage over the target competitor. This is usually

based on attaining lower costs or a differentiated position

iv. To most effectively implement this strategy, differentiate the product in

ways that better meet needs and preferences of customers in the mass

market

e. Leapfrog Strategy

i. Gain a significant advantage by introducing a new generation of products

that significantly outperform or offer more desirable benefits than do

existing brands

ii. Inhibits quick retaliation by established competitors

iii. Must have superior technology, product and process engineering

capabilities, and marketing resources.

f. Flanking and Encirclement Strategies: focus on areas of weakness

i. Flank attack1. Capture a significant share of the total market by concentrating on

one large untapped segment

2. Meet special needs of an untapped segment by providing specially

designed customer services or distribution channels

ii. Encirclement

1. Target smaller untapped or underdeveloped segments

simultaneously

2. Surround leaders brand with offerings aimed at peripheral

segments

3. Develop a varied line of products with features tailored to the

needs of different segmentsg. Guerilla Attack

i. Used when well-established competitors already cover all major segments

and challengers resources are limited

ii. Involves making a series of surprise raids against established competitors

iii. Do this sporadically, in limited geographic areas

iv. Ways to implement guerilla attacks:

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1. Sales promotion efforts

2. Local advertising blitzes

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3. Short-term price reductions through sales promotion campaigns

v. Main objective 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: marketing programs of businesses that successfullyachieved increased market share differed from less successful businesses in the

following ways:

i. Increased quality of products relative to those of competitors

ii. Develop and add more new products or implement product modifications

iii. Increase marketing expenditures faster than the rate of market growth

iv. Little difference in relative prices charged

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End of Chapter Discussion Questions and Answers

1. Apple Computers iPod holds a commanding share of the rapidly growing global marketfor digitalmusic players. To maintain its lead as the market continues to grow, what

strategic marketingobjectives should Apple focus on and why?

The text indicates three main objectives for share leaders:

First, the firm must retain its current customers, ensuring that those customers remain

brand loyal when making repeat or replacement purchases.

Second, the firm must stimulate selective demand among later adopters to ensure that it

captures a large share of the continuing growth in industry sales.

Third there is another objective: stimulating primary demand to help speed up overall

market growth.

2. Given your answer to question 1, which specific marketing actions would you

recommend for accomplishingApples objectives? Be specific with regard to each of the 4

Ps in the firms marketingprogram.

Apple should innovate and improve the iPod to attract later market entrants and keep innovators

and early adopters interested. Significant innovations will achieve each of the three objectives as

well as provide a measure of obstacles for follower competitors.

Product: More features, easier to use

Price: Lower and declining over time even in the face of more features

Promotion: Stress the new features, ease of use and applications of the iPodPlace: Possibly - increase the number of outlets. Probably - keep distribution valuable to

retailers.

3. 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?

They seem to employ a combination of direct frontal attacks and flanking strategies based on

cost. The leading US car makers maintain a level of quality for a price. The Korean challengers

offer lower cost and initially offered lower quality. That value equation allowed direct

comparisons to existing offerings. It also flanked the price/quality ratios of existing cars.

What marketing variables do you think are critical to the ultimate success of their strategies?Product variables such as quality are critical if the Korean manufacturers wish to increase their

market shares. Currently, raising perceptions of quality while maintaining price points or

increasing price somewhat may create the image of a 'Value ' and gain repeat and new sales.

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4. If you were the top marketing executive at General Motors or Ford, what strategy would

you recommend to defend your firms market share against this competitive threat from

South Korea?

The choice would be to raise perceptions of quality and customer satisfaction while controllingcosts. That is difficult to achieve but would counter the challengers' strategy.

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Marketing Strategies in Growth Markets