Strategies for New and Growing Markets

Exhibit 16.1 Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market High Low High Newness to the market Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Newness to the company 26% 20% New product lines Revisions/ improvements to existing products 11% Cost reductions 7% Additions to existing product lines Repositionings 10% New-to-the world products

Key question: Is it better to be a market pioneer, or a follower?

What are the advantages for pioneers?  First choice of market segments and positions  Defines 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 to suppliers

What are the advantages for followers?  Ability to take advantage of pioneer’s positioning mistakes  Ability to take advantage of pioneer’s product mistakes  Ability to take advantage of pioneers marketing mistakes  Ability to take advantage of pioneer’s limited resources

So, when and for whom does it make sense to pursue a pioneer strategy? When and for whom does it make sense to pursue a follower strategy?

A pioneering firm… …stands the best chance for long-term success in market-share leadership and profitability when:  The new product-market is insulated from the entry of competitors, at least for a while, by strong patent protection, by proprietary technology (such as a unique production process), by substantial investment requirements, or by 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.

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.

If you want to be a pioneer, what are your strategic options? Under what circumstances might each option be more likely to succeed?

Strategic options for pioneers  Mass-market penetration  Niche penetration  Skimming and early withdrawal

How might introductory marketing plans differ under each of these pioneering strategies?

Once a pioneer’s market becomes attractive to others, what are the pioneer’s strategic options? Under what circumstances might each option be more likely to succeed?

Growth stage strategic options for pioneers  Fortress defense  Flanker defense  Confrontation  Market expansion  Contraction or strategic withdrawal

Exhibit 16.9 Strategic Choices for Share Leaders in Growth Markets COMPETITOR OR POTENTIAL COMPETITORContraction or strategic withdrawal Market expansion Flanker strategy - Proactive Flanker strategy - Reactive LEADER Fortress or position defense strategy ConfrontationstrategyProactiveReactive Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA All rights reserved.

If you want to be a follower, what are your strategic options? Under what circumstances might each option be more likely to succeed?

Strategic options for followers  Frontal attack  Leapfrog  Flank attack  Encirclement

Exhibit Strategic Choices for Challengers in Growth Markets TARGET COMPETITOR Flanking attack Frontal attack Encirclement strategy Leapfrog strategy Source: Adapted from P. Kotler and R. Singh Achrol, “Marketing Warfare in the 1980’s” Reprinted with permission from Journal of Business Strategy, Winter 1981, pp Copyright © 1981 by Warren, Gorham & Lambert, Inc., 210 South Street, Boston MA All rights reserved. CHALLENGER

Some Advice for Would-Be Pioneers  First mover advantage is trumped by followers who are better. Best beats first. Concentrate on being best.  Being a pioneer without the basis for sustainable competitive advantage is a trap!

Some Advice for Followers  Differentiation is key for followers  Better benefits  Better service  Lower price  Beware of competing on price, however, unless your costs really are lower than competitors’