Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Marketing Strategies for New Market Entries 8 C H A P T E R EIGHT

8-2 Stages in a Product Life Cycle oIntroductory oProduct often lacks easy availability oGrowth oSales increase at a progressively faster rate oShakeout oGrowth rate decreases resulting in strong price competition oMature oNet adoption rate holds steady oDecline oSales rate declines

8-3 Generalized Product Life Cycle Exhibit 8.1 Generalized Product Life Cycle 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

8-4 StageStrategic Market Objective InvestmentsProfitsCash Flow IntroductionFor 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 GrowthIncrease competitive position High to very high HighNegative ShakeoutImprove/solidify competitive position ModerateLow to moderate Low to moderate MatureMaintain positionLow Moderate Stages in the Product Life Cycle Exhibit 8.3 Relationship of Strategic Market Position Objective, Investment Levels, Profits, and Cash Flow

8-5 Limitations of the Product Life Cycle oNormative approach to prescribing strategies oStrategies are based on assumptions about the features of each stage

8-6 New Market Entries oSix categories of new products: oNew-to-the-world products oNew product lines oAdditions to existing product lines oImprovements in existing products oRepositionings oCost reductions

8-7 Categories of New Products Defined According to their Degree of Newness 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. High Low 26% New product lines Revisions/ Improvements to existing products 11% Additions to existing product lines Repositionings New-to-the world products Newness to the company 26% 20% 10% 7% Cost reductions Low Newness to the market High

8-8 Objectives of New Product and Market Development oMaintain position as a product innovator oDefend a current market-share position oEstablish a foothold in a future new market oExploit technology in a new way oCapitalize on distribution strengths oProvide a cash generator oUse excess or off-season capacity oPreempt market segment

8-9 Pioneer Strategy oPotential sources of competitive advantage oFirst choice of market segments and positions oDefining the rules of the game oDistribution advantages oEconomies of scale and experience oHigh switching costs for early adopters oPossibility of positive network effects oPossibility of preempting scarce resources

8-10 Follower Strategy oPossible advantages: oAbility to take advantage of: oPioneer’s positioning mistakes oPioneer’s product mistakes oPioneer’s marketing mistakes oLatest technology oPioneer’s limited resources

8-11 Marketing Strategy Elements Pursued by Successful Pioneers, Fast Followers, and Late Entrants Exhibit 8.8 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

8-12 Strategic Marketing Programs for Pioneers oMass-market penetration oNiche penetration oSkimming and early withdrawal

8-13 Marketing Program Components for Pioneers oIncrease customers’ awareness and willingness to buy oIncrease customers’ ability to buy

8-14 Mechanisms for Entering Foreign Market oExporting through agents oContractual agreements oDirect investment

8-15 Exporting oSimplest way to enter foreign market oExport merchants oBuy and sell products overseas for their own account oExport agents oSell on a commission basis oCooperative organizations oExport for several producers

8-16 Contractual Agreements oNonequity arrangements involving transfer of technology to an entity in a foreign country oLicensing oFirm offers the right to use its intangible assets in exchange for royalties oFranchising oGrants the right to use the company’s name, trademarks, and technology

8-17 Contractual Agreements (continued) oContract manufacturing oSourcing a product from a manufacturer located in a foreign country for sale there or elsewhere oTurnkey construction contract oRequires the contractor to have the project up and operating before releasing it to the owner oCoproduction oInvolves a company’s providing technical know-how and components oCountertrade oIncludes barter, compensation packages, counterpurchase, and a buyback arrangement

8-18 Direct Investment oAllows the parent organization to retain total control of the overseas operation oJoint ventures oInvolve a joint ownership arrangement to produce or market goods in a foreign country oSole ownership oInvolves setting up a production facility in a foreign country