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
oThe 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.
oUseful 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
oMaintaining 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
oPeriodic measurement of customer satisfaction is important because a
dissatisfied customer is unlikely to remain loyal over time.
oCustomers who describe themselves as satisfied are not necessarily loyal.
oSatisfaction 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.
oSentiment 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.
oDefecting 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?
oAn 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.
oThe 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.
oThe end result of the trend toward individually tailored service levels could be
an increased stratification of consumer society.
oThe 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.
oThus, 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.
oA 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
oWhere 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.
oIt 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.
oThe 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
oIn situations of good market penetration but low frequency of use, an
extended use strategy may increase volume.
oOne effective approach for stimulating increased frequency of use is to move
product inventories closer to point of use.
oOne way to move inventory closer to the point of consumption is to offer
larger package sizes.
oVarious sales promotion programs also help move inventories of a product
closer to the point of use by encouraging larger volume purchases.
oAdvertising can sometimes effectively increase use frequency by simply
reminding customers to use the product more often.
Market Expansion Strategy
oIn 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.
oPursuing market expansion by strengthening a firm’s position in new or
underdeveloped domestic geographic markets can lead to experience-curve
benefits and operating synergies.
oIn a different approach to domestic market expansion, the firm identifies and
develops new or underserved customer or application segments
oOne final possibility for domestic market expansion is to produce
private-label brands for large retailers.
Global Market Expansion—Sequential Strategies
oFirms can enter foreign markets in a variety of ways, from simply relying on
import agents to developing joint ventures to establishing wholly owned
subsidiaries.
oRegardless of which mode of entry a firm chooses, it can follow a number of
different routes when pursuing global expansion.
oJapanese 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:
oConditions of demand, including the rate and certainty of future declines in
volume
oExit barriers, or the ease with which weaker competitors can leave the market
oFactors affecting the intensity of future competitive rivalry within the market
Conditions of Demand
oThe cause of a decline in demand can affect both the rate and the
predictability of that decline.
oBoth 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.
oNot 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
oThe higher the exit barriers, the less hospitable a product market will be
during the decline phase of its life cycle.
oA 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
oEven 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.
oIn 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.
oBut such businesses also have other strategic options.
oThey 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.
oThe 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
oThe objective of a harvesting or milking strategy is to generate cash quickly
by maximizing cash flow over a relatively short-term.
oThe trick is to hold the business’s volume and share declines to a relatively
slow and steady rate.
oA 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.
oImplementing 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.
oThe business should improve the efficiency of sales and distribution.
Maintenance Strategy
oIn 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.
oIn such a maintenance strategy, the business continues to pursue the same
strategy that brought it success during the market’s mature stage.
oThis 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
oAn 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.
oA 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.
oThe key to success of such a strategy is to encourage other competitors to
leave the market early.
oA firm might encourage smaller competitors to abandon the industry by being
visible and explicit about its commitment to become the leading survivor.
oThe 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
oEven 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.