Chapter 8 Marketing Strategies for New Market Entries

Exhibit 8.1 - Generalized Product Life Cycle The product life cycle is concerned with the sales history of a product or product class. The 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 Introduction, growth, shakeout, maturity, and decline. Each of these stages provides distinct opportunities and threats, thereby affecting the firm’s strategy as well as its marketing programs. Despite the fact that many new products do not follow such a prescribed route because of failure, the concept is valuable in helping management look into the future and better anticipate what changes will need to be made in strategic marketing programs.

Stages in a Product Life Cycle Introductory: Product 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 Fad: Products that enter suddenly, experience strong and quick enthusiasm, peak early, and enter the decline stage shortly thereafter.

Marketing Mix in the Introductory Stage Skimming: Designed to obtain as much margin per unit as possible Penetration pricing: Enables the firm to strive for quick market development and lowers costs Promotion: Expenditures involving advertising and salesforce are: A high percentage of sales for a mass-market, small-value product

Exhibit 8.2 - Expected Characteristics and Responses by Major Life Cycle Stages

Exhibit 8.2 - Expected Characteristics and Responses by Major Life Cycle Stages

Exhibit 8.3 - Relationship of Strategic Market Position Objective, Investment Levels, Profits, and Cash Flow

Limitations of the Product Life Cycle Normative approach to prescribing strategies based on: Assumptions about the features of each stage Length of the life cycle and the market and competitive conditions at each stage can vary: Across different product and service offerings

Categories of new products New Market Entries Categories of new products New-to-the-world products New product lines Additions to existing product lines Improvements in existing products Repositionings Cost reductions Challenge with new-to-the-world products—is to build primary demand Making target customers aware of the product and convincing them to adopt it.

Exhibit 8.4 - Categories of New Products Defined According to their Degree of Newness Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Reprinted by permission.

Exhibit 8.5 – Strategic Objective Attained by Successful New Market Entries Strategic role 10% 20% 30% 40% 50% Externally driven Internally Defend market share position Establish foothold in new market Preempt market segment Maintain position as Product innovator Exploit technology In new way Capitalize on distribution strengths Provide a cash generator Use excess or off-season capacity Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Reprinted by permission.

Exhibit 8.6 -Types of New Market Entries Appropriate for Different Strategic Objectives

Exhibit 8.7 - Potential Advantages of Pioneer and Follower Strategies Positive network effects: Value of some kinds of goods and services to an individual customer increases as greater numbers of other people adopt the product and the network of users grows larger.

Exhibit 8.8 - Marketing Strategy Elements Pursued by Successful Pioneers, Fast Followers, and Late Entrants

Strategic Marketing Programs for Pioneers Mass-market penetration - Capture and maintain a commanding share of the total market for the new product Niche penetration: Help the smaller pioneer gain the biggest bang for its limited bucks and avoid direct confrontations with bigger competitors Instructor: Refer to Exhibit 8.9

Strategic Marketing Programs for Pioneers Skimming: Setting a high price and engaging in only limited advertising and promotion to: Maximize per-unit profits Recover the product’s development costs as quickly as possible Instructor: Refer to Exhibit 8.9

Marketing Program Components for a Mass-Market Penetration Strategy Increase customers’ awareness and willingness to buy Increase customers’ ability to buy Instructor: Refer to Exhibit 8.10

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 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

Contractual Agreements Coproduction: Involves a company’s providing technical know-how and components Countertrade: Includes barter, compensation packages, counterpurchase, and a buyback arrangement

Overseas Direct Investment Joint ventures: Joint ownership arrangement to produce or market goods in a foreign country Sole ownership: Setting up a production facility in a foreign country Allows the parent organization to retain total control of the overseas operation

Marketing Program Components for a Niche Penetration Strategy Similar to but more narrowly focused than mass-market strategy Penetrator should keep its marketing efforts clearly focused on the target segment Internet provides promotional tools that can reach specific segments at relatively low cost

Marketing Program Components for a Skimming Strategy Require relatively high price to increase margins and revenues Focus on relatively upscale customers Critical element - Nature of the firm’s continuing product development efforts