Chapter 8
Marketing Strategies for New Market Entries
I. “Canon, Inc.—Success That Is Hard to Copy” discusses how Canon used a sharper market
focus, increased manufacturing efficiency, and a strong product development strategy to perform
successfully in a market in which most firms floundered.
II. Strategic Challenges Addressed in Chapter 8
This chapter examines marketing strategies and programs appropriate for offerings that are
new to the target customers.
oThe primary focus is on programs used by the pioneer firm—or first entrant—into a
particular product-market.
oIt examines the following strategic question: Is it usually better for a firm to bear the
high costs and risks of being the pioneer in hopes of maintaining a profitable position
as the market grows or to be a follower that watches for possible design or marketing
mistakes by the pioneer before joining with its own entry?
oIt further examines some alternative strategies that might be adopted by a pioneer
and the situations where each makes most sense.
oIt begins with a brief overview of the product life cycle, the market and competitive
changes that typically occur at each of its stages, and their implications for marketing
strategy.
III. Sustaining Competitive Advantage over the Product Life Cycle
The product life cycle concept holds that a product’s sales change over time in a
predictable way and that products go through a series of five distinct stages:
oThe introductory stage—a new product’s purchase is limited because many
members of the target market are unaware of its existence; also, the product often
lacks easy availability
oThe growth stage—as more people learn about the product and it becomes more
readily available, sales increase at a progressively faster rate
oThe shakeout or competitive turbulence stage—characterized by a decreasing
growth rate that results in strong price competition, forcing many firms to exit the
industry or sell out
oThe mature stage—reached when the net adoption rate holds steady—that is, when
adopters approximate dropouts
oThe decline stage—adopters begin to exceed new first-time users, the sales rate
declines, and the product is said to have reached its final stage
Fads, such as pet rocks and hula hoops, enter suddenly, experience strong and quick
enthusiasm, peak early, and enter the decline stage shortly thereafter.
A. Market and Competitive Implications of Product Life-Cycle Stages
The various stages of the product life cycle present different opportunities and
threats to the firm.
By understanding the characteristics of the major stages, a firm can do a better job
of setting forth its objectives and formulating its strategies as well as developing its
action plans.
Introductory Stage
oThe introductory period, in particular, is apt to be long, even for relatively
simple product classes.
oBecause product type and subtype entries usually emerge during the
late-growth and maturity stages of the product class, they have shorter
introductory and growth periods.
Marketing Mix in the Introductory Stage
oThe length of the product line typically should be relatively short to reduce
production costs and hold down inventories.
oThe firm’s pricing is strongly affected by a variety of factors:
The product’s value to the end user
How quickly it can be imitated by competitors
The presence of close substitutes
The effect of price on volume (elasticity) and, in turn, on costs
oSkimming is designed to obtain as much margin per unit as possible.
This enables the company to recover its new product investments more
quickly.
oPenetration pricing enables firm to strive for quick market development and
makes sense when there is a steep experience curve, which lowers costs; a
large market; and strong potential competition.
oThe importance of distribution and channel intermediaries varies
substantially from consumer to industrial goods.
oDuring the introductory period, promotion expenditures involving
advertising and salesforce are a high percentage of sales, especially for a
mass-market, small-value product.
oThe communications task at the outset is to build awareness of the new
product’s uniqueness, which is typically an expensive undertaking.
Growth Stage
oThis stage starts with a sharp increase in sales.
oImportant product improvements continue in the growth stage, but at a slower
rate.
oThe product line expands to attract new segments, offering an array of prices
and different product features.
Marketing Mix Changes
oAlthough the product line expands to attract new market segments, the quest
for competitive advantage shifts to differentiation from other entrants in the
product class.
oPrices tend to decline during the growth period, and price differences
between brands decrease.
oDuring this period, sellers of both industrial and consumer goods strive to
build a channel or a direct sales system that provides maximum product
availability and service at the lowest cost.
oPromotion costs (advertising and personal selling) become more concerned
with building demand for a company’s brand (selective demand) than demand
for the product class or type (primary demand).
oCommunications are used to cultivate new segments.
Shakeout Stage
oThe advent of this period is signaled by a drop in the overall growth rate and
is typically marked by substantial price cuts.
oMajor changes in industry’s competitive structure occur.
oDuring shakeout, the firm must rationalize its product line by eliminating
weaker items, emphasize creative promotional pricing, and strengthen
channel relationships.
Marketing Mix Changes
oIn addition to entering into more direct price competition, firms make every
effort to maintain and enhance their distribution system.
oPromotion costs may increase, particularly for low-share firms, as companies
attempt to maintain their distribution by offering customers buying incentives.
Mature Stage
oWhen sales plateau, the product enters the mature stage, which typically lasts
for some time.
oStability in terms of demand, technology, and competition characterizes
maturity.
Marketing Mix Changes
oBecause of technical maturity, the various brands in the marketplace become
more similar; therefore, any significant breakthroughs by R&D or
engineering that help to differentiate the product or reduce its cost can have a
large payout.
oIncreasingly, service becomes a way of differentiating the offering.
oPromotion expenditures and prices tend to remain stable during the mature
stage.
Decline Stage
oEventually most products enter the decline stage primarily because of
technologically superior substitutes or a shift in consumer tastes, values, and
beliefs.
oAs sales decline, costs increase, and radical efforts are needed to reduce costs
and asset base.
Marketing Mix Changes
oPrices tend to remain stable if the rate of decline is slow, there are some
enduring profitable segments and low exit barriers, customers are weak and
fragmented, and there are few single-product competitors.
oConversely, aggressive pricing is apt to occur when decline is fast and erratic,
there are no strong unique segments.
oFor consumer goods, marketing activity centers on distribution—persuading
intermediaries to continue to stock the item even though they may not
promote it.
oFor industrial products, problem may center around maintaining the interest
of the salesforce in selling the item.
B. Strategic Implications of the Product Life Cycle
The product life-cycle model is a framework that signals the occurrence of
opportunities and threats in the marketplace and the industry, thereby helping a
business better anticipate change in the product’s strategic market objective, its
strategy, and its marketing program.
Introductory and Growth Stages
oBecause the introduction of a new product requires large investments, most
firms sustain a rather sizable short-term loss.
oAs the product moves into the growth stage, sales increase rapidly; hence
substantial investments continue.
oThe firm with the largest share during this period should have the lowest
per-unit costs due to scale and learning effects.
oNew entrants and low-share sellers are at a disadvantage here. They must not
only invest to accommodate market growth, but also to gain market share.
Mature and Declining Stages
oAs the product enters the mature stage, the larger-share sellers should be able
to reap the benefits of earlier investments.
oGiven that the price is sufficient to keep the higher-cost sellers in business,
and that growth investments are no longer needed, and that most competitors
may no longer be striving to gain share, the leader’s profitability and positive
cash flow can be substantial.
oThe leader needs to continue making investments to improve its product and
to make its manufacturing, marketing, and physical logistics more efficient.
C. Limitations of the Product Life-Cycle Framework
The product life-cycle model’s major weakness lies in its normative approach to
prescribing strategies based on assumptions about the features or characteristics of
each stage.
It fails to take into account the product life cycle is, in reality, driven by market
forces expressing evolution of consumer preferences (the market), technology (the
product), and competition (the supply side).