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.
oThe 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.
oIt 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:
oThe existence of positive network effects
oFuture changes in technology or other key success factors
oFuture competitive structure of the industry
oFuture 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.
oIf 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.
oThis 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:
oThe firm must retain its current customers, ensuring that those customers
remain brand loyal when making repeat or replacement purchases.
oThe firm must stimulate selective demand among later adopters to ensure that
it captures a large share of the continuing growth in industry sales.
oIn 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:
oFortress or position defense strategy
oFlanker strategy
oConfrontation strategy
oMarket expansion strategy
oContraction or strategic withdrawal strategy
Which, or what combination of these five strategies is most appropriate for a
particular product-market depends on:
oThe market’s size and customers’ characteristics
oThe number and relative strengths of competitors or potential competitors in
that market
oThe 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
oThe leader must pay particular attention to quality control.
oPerhaps the most obvious way a leader can strengthen its position is to
continue to modify and improve its product.
oThe leader should take steps to improve not only the physical product but also
customers’ perceptions of it as well.
oAs 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.
oAlthough 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.
oFor industrial goods, some salesforce efforts should shift from prospecting for
new accounts to servicing existing customers.
oA leader can strengthen its position as the market grows by giving increased
attention to postsale service.
Actions to Encourage and Simplify Repeat Purchasing
oOne 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.
oSome 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.
oAlthough 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.
oThis 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.
oMore 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.
oThis 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.
oThis 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:
oFrontal attack
oLeapfrog strategy
oFlanking attack
oEncirclement
oGuerrilla 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:
oAttack 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.
oAttack another follower who has an established position within a major
market segment
oAttack one or more smaller competitors who have only limited resources
oAvoid 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.
oSuch 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
oSuch 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.
oThe 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
oA challenger may be able to capture a significant share of the total market by
concentrating primarily on one large untapped segment.
oA challenger can sometimes meet the special needs of an untapped segment
by providing specially designed customer services or distribution channels.
Encirclement
oAn encirclement strategy involves targeting several smaller untapped or
underdeveloped segments in the market simultaneously.
oThe idea is to surround the leader’s brand with a variety of offerings aimed at
several peripheral segments.
oThis 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.
oIn 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:
oThese 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:
oBusinesses 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.
oShare-gaining businesses typically developed and added more new products,
line extensions, or product modifications to their line than share-losing
businesses.
oShare-gaining businesses tended to increase their marketing expenditures
faster than the rate of market growth.
oThere was little difference in the relative prices charged between firms that
gained and those that lost market share.