1-1 McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved C H A P T E R EIGHT Marketing Strategies for New Market Entries 8

Canon  Cost cutting  New product development  Incremental & Completely new

How do opportunities evolve over time? Source: Reprinted with permission from p. 60 of Analysis for Strategic Marketing Decisions, by George Day. Copyright © 1986 by West Publishing Company. All rights reserved. Time (years) Product category sales (real dollars) Profit per unit (real dollars ) Profit/unit Sales Life cycle extension Growth Competitive turbulence MaturityDecline or extension Introduction

Categories of New Products Defined According to Their Degree of Newness to the Company and Customers in the Target Market (Exhibit 8.4.)Newness 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

Discussion Question 1.Is it better to be a market pioneer, or a follower?

First Movers who failed  Consider that most famous industrial success story of a century ago, Henry Ford's mass- produced Model T. By inventing the automated assembly line, he had a first-mover advantage that was so great that he scared England's Charles Stewart Rolls and Sir Frederick Henry Royce, even though their luxury cars were at the other end of the spectrum. But Ford overstayed the Model T. Remember, he insisted that they all be painted black and in the late 1920s lost leadership to more innovative Chevrolet.Model T

 In most cases entrepreneurs are better off building the second or third version of the better mousetrap. Visicalc, the first desktop spreadsheet program, faded away as Lotus took over the field with In time the Lotus software was itself crushed by Microsoft's Excel.Lotus

 For that matter, Microsoft has a history of succeeding by not being first. Digital Research developed the first desktop operating system, called CP/M. But Bill Gates upstaged it in the competition to supply an operating system for IBM's PC. Gates didn't even develop the original DOS; he bought the program from Seattle Computer Works for $50,000.DOS

 Getting in early on Web commerce was supposed to be a brilliant move. The business plan was to raise a gargantuan sum in an initial public offering and use it to construct an impregnable brand and Web presence. But roaring out of the starting gate didn't help many of these dot-coms--or their stockholders. Lord help you if you bought shares in financial news site at its $19 initial offering price in 1999, let alone at the $60 level to which it leaped. You could have made some decent money if you had waited. The shares were available at 99 cents in October 2001; today they go for $11.

 Prodigy Communications was a first mover in online connections. And it had powerful backers at its launch in 1984: IBM for technology, Sears Roebuck for online retail sales and CBS for news and ad sales. Prodigy's focus was on electronic shopping, but two decades too early. Subscribers back then were more interested in chat rooms, and then Web surfing. The firm was sold in 1996 to an investor group for only $250 million

 Dumont led the way in selling TV sets when they were new gadgets, but the company lost out to latecomers like RCA and Motorola. Chux was the leading disposable diaper yet succumbed to Procter & Gamble's Pampers. Ampex had a commanding position in video recorders and tapes for two decades until Sony took over. Rheingold Brewery brought out Gablinger's low-calorie beer in 1967, a cool summer with weak beer sales. So Rheingold lost interest and Miller Lite later mastered the field. Dumont

 Thomas Carter was a pioneer in competitive telecommunications services, one who lent his name to a famous legal case. He invented the Carterfone, a device that connected the telephone handpiece to an amateur radio transmitter or a mobile phone network. While only 4,000 Carterfones were ever installed, AT&T saw the device as a threat to its long- distance monopoly and its ownership of all telephone instruments. Then came the legal struggle. In 1968 the Supreme Court ruled in favor of Carter Electronics. It was a turning point in utility history, paving the way for MCI and other service competitors as well as hardware manufacturers. Carter didn't get rich. His firm voluntarily dissolved in 1969.

Discussion Question 2. When, and for whom, does it make sense to pursue a pioneer strategy?

 Mass Market penetration  Niche Penetration  Skimming Early withdrawal

Primary Objective

Market Characteristics

Product Characteristics

Competitor characteristics

Firm Characteristics

Niche Penetration

Market characteristics

Product characteristics

Competitor characteristics

Firm Characteristics

Skimming: Early Withdrawal

Market characteristics

Product characteristics

Competitor characteristics

Firm characteristics

Marketing program components for a mass-market penetration strategy  Aggressively building product awareness  Making it easy to try  Increasing customer’s awareness and willingness to buy  Increasing customer’s ability to buy

Pioneering Global markets  Exporting  Export merchants  Export agents  Cooperative organizations  Contractual entry mode  Licensing  Franchising  Contract manufacturing  Turnkey construction contract  Overseas direct investment  Joint Ventures  Sole ownership

Discussion Question 3. When, and for whom, does it make sense to pursue a follower strategy?

Discussion Question 4. If you want to be a pioneer, what are your strategic options?

Discussion Question 5.Under what circumstances might each option be more likely to succeed?.

Discussion Question 6. How might introductory marketing plans differ under each of these new market entry strategies?

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