STRATEGIES FOR NEW MARKET ENTRY

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STRATEGIES FOR NEW MARKET ENTRY
STRATEGIES FOR NEW MARKET
ENTRY
Lecture Notes
Idil Yaveroglu
DYNAMIC MARKETING STRATEGIES
① ② ③ Marketing Strategies for New Product Market
Entries
Marketing Strategies for Growth Markets
Marketing Strategies for Declining Markets
2
STAGES IN A PRODUCT LIFE CYCLE
 Introductory
 Product often lacks easy availability
 Growth
 Sales increase at a progressively faster rate
 Shakeout
 Growth rate decreases resulting in strong price
competition
 Mature
 Net adoption rate holds steady
 Decline
 Sales rate declines
Product category
sales (real dollars)
GENERALIZED PRODUCT LIFE CYCLE
Life-cycle
extension
Sales
Profit per unit
(real dollars)
Profit/unit
Introduction
Growth
Competitive
turbulence
Maturity
Time
(years)
Decline or extension
Stages in the Product Life Cycle
Stage
Strategic Market
Objective
Investments
Profits
Cash
Flow
Introduction
For both innovators and
followers, accelerate
overall market growth and
product acceptance
through awareness, trial,
and product availability
Moderate to high
for R&D,
capacity,
working capital,
and marketing
(sales and
advertising)
Highly
negative
Highly
negative
Growth
Increase competitive
position
High to very
High
High
Negative
Shakeout
Improve/solidify
competitive
position
Moderate
Low to
moderate
Low to
moderate
Mature
Maintain position
Low
Low
Moderate
Decline
Maintain position/ PLC
extension strategies
Low
Low
Low
INTRODUCTION STAGE OF THE PLC
Summary of Characteristics, Objectives, & Strategies
SALES
Low
COSTS
High Cost per Customer
PROFITS
Negative
MKTG OBJECTIVES
Create product awareness
(primary demand)
Product
Narrow product line
Price
Skimming or Penetration
Distribution
Selective
Advertising
Build awareness among
early adopters/dealers/ Primary demand
Adv. and Personal Selling for channel acceptance
GROWTH STAGE OF THE PLC
Summary of Characteristics, Objectives, & Strategies
SALES
Rapidly rising sales
COSTS
Average Cost per Customer
PROFITS
Increasing Profits/ Peak
MKTG OBJECTIVES
Maximize Market Share
Product
Offer extended product line
Price
Price differences diminish
Distribution
Extensive
(Maximum product availability)
Advertising
Build secondary demand/
focus on brand differentiation
Promotion costs remain high
MATURITY
STAGE OF THE PLC
Summary of Characteristics, Objectives, & Strategies
SALES
At Peak
COSTS
Low Cost per Customer
PROFITS
Declining Profits
MKTG OBJECTIVES
Maximize profits while
building market share
Product
Diversify products
Breakthrough R&D
Price
Prices stable/
Competitive price pressure increases
Distribution
Intensive
Advertising
Decrease in advertising/
Increase in sales promoions
DECLINE
STAGE OF THE PLC
Summary of Characteristics, Objectives, & Strategies
SALES
Declining Sales
COSTS
Low Cost per Customer
PROFITS
Declining Profits
MKTG OBJECTIVES
Reduce expenditures and
milk the brand/ reduce costs
Product
Phase out weak items
Price
Cut price
Distribution
Phase out unprofitable outlets
Advertising
Reduce spending to level needed to
retain loyal customers
NEW MARKET ENTRIES
 Six
      categories of new products:
New-to-the-world products: New to the firm and
create a new market
New product lines – New to the company but not new
to customers in TM
Additions to existing product lines – New items that
supplement a firms established product line
Improvements in existing products Repositionings – Existing products that are targeted
at new applications and new market segments
Cost reductions – Product modifications providing
similar performance at lower cost.
NEW TO THE WORLD
 Fuel
Chevrolet Volt – Electric Car
Fuel Cell Car
Inbev: PerfectDraft
WHAT IS A NEW MARKET ENTRY?
High
10%
Newness to the company
20%
New-to-the world
products
New product lines
26%
26%
Revisions/
Improvements to
existing products
Additions to existing
product lines
11%
Low
7%
Repositionings
Cost reductions
Low
High
Newness to the market
Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Reprinted by permission.
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OBJECTIVES OF NEW PRODUCT AND
MARKET DEVELOPMENT
 Maintain
position as a product innovator
 Defend a current market-share position
 Establish a foothold in a future new market
 Exploit technology in a new way
 Capitalize on distribution strengths
 Provide a cash generator
 Use excess or off-season capacity
NEW PRODUCT MORTALITY RATE
• New product failure rates are high.
– Approximately 68% of new products are unsuccessful
(Source: Booz, Allen, Hamilton)
– 46% of product development and commercialization
resources are spent on products that are cancelled or
fail to yield an adequate financial return. (Source:
PDMA).
• Many new ideas are needed to create a single successful new
product.
– It takes seven new product ideas to generate one
successful new product.(Source: Booz, Allen,
Hamilton).
15
THREE MARKET POSITIONS
• Pioneer
• Early Follower
• Late Follower
 What are appropriate marketing strategies for each
over time?
WHO IS A PIONEER?
 Firms
that take an initial competitive
action
 Generally possess the resources and
capabilities that enable them to be
pioneers in new products, new markets or
new technologies
 Can earn above average profits until
competitors respond
 Gain customer loyalty, helping to create a
barrier to entry by competitors
 Advantage depends upon difficulty of
imitation
PIONEER STRATEGY
 Potential
       sources of competitive advantage
First choice of market segments and positions
Defining the rules of the game
Distribution advantages
Economies of scale and experience
High switching costs for early adopters
Possibility of positive network effects
Possibility of preempting scarce resources
A PIONEERING FIRM Can Achieve LONGTERM SUCCESS WHEN…
 The
new product-market is insulated from the
entry of competitors, at least for a while, by:
    strong patent protection,
proprietary technology (such as a unique production
process),
substantial investment requirements, or
positive network effects.
 The
firm has sufficient size, resources, and
competencies to take full advantage of its
pioneering position and preserve it in the face of
later competitive entries.
WHO IS A FOLLOWER?
 Firms
that respond to a First
Mover’s actions
 Followers frequently imitate First
Movers
 Speed of response often dictates
success
 Should evaluate customers’
response before moving
 “Fast” Followers can capture some
of initial customers and develop
some brand loyalty
 Avoid some of the risks associated
with First Move
 Must possess necessary capabilities
to imitate
WHO IS A FOLLOWER?
 Theodore
Levitt in his article, “Innovative Imitation”
argued that a product imitation strategy might be
just as profitable as a product innovation strategy
  Four
    e.g. Product innovation—Sony vs. Product-imitation—
Panasonic
broad follower strategies:
Counterfeiter (which is illegal)
Cloner e.g. the IBM PC clones
Imitator e.g. car manufacturers imitate the style of one
another
Adapter e.g. many Japanese firms are excellent adapters
initially before developing into challengers and eventually
leaders
FOLLOWER STRATEGY
 Possible
advantages:
 Ability to take advantage of:
     Pioneer’s positioning mistakes
Pioneer’s product mistakes
Pioneer’s marketing mistakes
Latest technology
Pioneer’s limited resources
A FOLLOWER WILL MOST LIKELY SUCCEED
WHEN:
 There
are few legal, technological, or financial
barriers to inhibit entry.
 It
has sufficient resources or competencies to
overwhelm the pioneer’s early advantage.
MARKETING STRATEGY ELEMENTS
PURSUED BY SUCCESSFUL PIONEERS, FAST
FOLLOWERS, AND LATE ENTRANTS
Successful pioneers
• Large entry scale
• Broad product line
• High product quality
• Heavy promotional expenditures
Successful fast
followers
• Larger entry scale than the pioneer
• Leapfrogging the pioneer with superior:
• Product technology
• Product quality
• Customer service
Successful late
entrants
• Focus on peripheral target markets or
niches
STRATEGIC MARKETING PROGRAMS FOR
PIONEERS
 Mass-market penetration
    Niche penetration
     Gain large share of total market
Requires substantial resources
More likely to work when barriers to entry exist
Gain large share of one segment (niche)
Requires fewer resources
More likely to be used when several competitors with substantial
resources are likely to enter the market
Must have clearly distinguishable segments
Skimming and early withdrawal
   Charge high price, withdraw product when substantial price
competition appears
Must have inelastic demand for product category
Must have continuously strong R&D
MECHANISMS FOR ENTERING
FOREIGN MARKET
 Exporting
through agents
 Contractual agreements
 Direct investment
EXPORTING
 Simplest
way to enter foreign market
 Export merchants
 Buy and sell products overseas for their own account
 Export
 agents
Sell on a commission basis
 Cooperative
 organizations
Export for several producers
CONTRACTUAL AGREEMENTS
 Nonequity
arrangements involving
transfer of technology to an entity in a
foreign country
 Licensing
 Firm offers the right to use its intangible
assets in exchange for royalties
 Franchising
 Grants the right to use the company’s name,
trademarks, and technology
CONTRACTUAL AGREEMENTS
(CONTINUED)
 Contract
    manufacturing
Sourcing a product from a manufacturer
located in a foreign country for sale there or
elsewhere
Turnkey construction contract
 Requires the contractor to have the
project up and operating before releasing
it to the owner
Coproduction
 Involves a company’s providing technical
know-how and components
Countertrade
 Includes barter, compensation packages,
counterpurchase, and a buyback
arrangement
DIRECT INVESTMENT
 Allows
the parent organization to retain total
control of the overseas operation
 Joint ventures
 Involve a joint ownership arrangement to produce or
market goods in a foreign country
 Sole
 ownership
Involves setting up a production facility in a foreign
country
FIRST MOVER ADVANTAGE?
Brand
‘23
‘83
Swift’s Premium Bacon
1
1
Kellogg’s Corn Flakes
1
Eastman Kodak Cameras
Brand
‘23
‘83
Sherwin-Williams Paint
1
1
3
Hammermill Paper
1
1
1
1
Prince Albert Pipe Tobacco
1
1
Del Monte Canned Fruit
1
1
Gillette Razors
1
1
Hershey’s Chocolates
1
2
Singer Sewing Machines
1
1
Crisco Shortening
1
2
Manhattan Shirts
1
5
Carnation Canned Milk
1
1
Coca-Cola Soft Drinks
1
1
Wrigley Chewing Gum
1
1
Campbell’s Soup
1
1
Nabisco Biscuits
1
1
Ivory Soap
1
1
Eveready Batteries
1
1
Lipton Tea
1
1
Gold Medal Flour
1
1
Goodyear Tires
1
1
LifeSavers Mint Candies
1
1
Palmolive Soap
1
2
Colgate Toothpaste
1
2
Source: (1983), “Study: Majority of 25 Leaders in 1923 Still on Top,”
Advertising Age, p. 32.
MKTG902 Summer'2010
31
FIRST MOVER ADVANTAGE THEORY
FLAWS
1. Past studies ignored pioneers who failed.
• 2. 3. ~ 2/3 of pioneers fail.
Current market leaders are wrongly labeled
pioneers.
Markets are defined too narrowly.
~ 9% of pioneers endure as market leaders.
Geard J. Tellis & Peter N. Golder (2002), Will and Vision: How Latecomers Grow to Dominate Markets, NY:
• McGraw-Hill.
32

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