Reality of Product Life Cycle

Introduction Growth Maturity Decline

Market Development

Revenue

Product Extension

New Product Development Market Penetration

Diversification

Time

Growth Strategy Setup

Old Market Old Product Similar Technology New Product Product Development Market Penetration Similar Market New Market Market Development Concentric Diversification Horizontal Conglomerate Diversification Diversification

Intensive Strategies

Market Penetration Intensive Strategies Market Development Product Development P d D l

Intensive Strategies
Intensive strategies
Require intensive efforts to improve a firms competitive position with existing products

Intensive Strategies
Market Penetration Seeking increased market share for present products or services in present markets through greater marketing efforts Guidelines for Market Penetration
Current markets not saturated Usage rate of present customers can be increased significantly g y Market shares of competitors declining while total industry sales increasing Increased economies of scale provide major competitive advantages

Market Share Strategies

Reasons to Increase Market Share Market share often is associated with profitability and thus many firms seek to increase their sales relative to competitors. Here are some specific reasons that a firm may seek to increase its market share: Economies of scale - higher volume can be instrumental in developing a cost advantage. Sales growth in a stagnant industry - when the industry is not growing, the firm still can grow its sales by increasing its market share. Reputation - market leaders have clout that they can use to their advantage. Increased bargaining power - a larger player has an advantage in negotiations with suppliers and channel members.

Market Share Strategies

The market share of a product can be modeled as: Share of Market = Share of Preference x Share of Voice x Share of Distribution There are three drivers of market share: Share of preference - can be increased through product, pricing, and promotional changes. product pricing changes Share of voice - the firm's proportion of total promotional expenditures in the market. Thus, share of voice can be increased by increasing advertising expenditures. Share of distribution - can be increased through more intensive distribution. Market Share can be increased by changing the variables of the marketing mix Product - the product attributes can be changed to provide more value to the customer, for example, by improving product quality. Price - if the price elasticity of demand is elastic (that is, > 1), a decrease in price will increase sales revenue. This t ti may not succeed if competitors are willing and able to meet any price l Thi tactic t d tit illi d bl t t i cuts. Distribution - add new distribution channels or increase the intensity of distribution in each channel. Promotion - increasing advertising expenditures can increase market share, unless competitors respond with similar increase

Market Share Strategies

Reasons not to Increase Market Share If the firm is near its production capacity, an increase in market share might necessitate investment in additional capacity. If this capacity is underutilized, higher costs will result. result Overall profits may decline if market share is gained by increasing promotional expenditures or by decreasing prices. A price war might be provoked if competitors attempt to regain their share by lowering prices. A small niche player may be tolerated if it captures only a small share of the market. If that share increases, a larger, more capable competitor may decide to enter the niche. Antitrust issues may arise if a firm dominates its market. y In some cases it may be advantageous to decrease market share. For example, if a firm is able to identify certain customers that are unprofitable, it may drop those customers and lose market share while improving profitability

Market Share Strategies

Total Market Cause of leakage Possible areas of differentiation Possible means

Product / model not offered

Product Range.. Engineering Flexibility Manufacturing technology

B
Leaked Market

Customers not covered

Customers own initiative.. Image/reputation DistributionNetwork density Sales ForceDisciplined call pattern

Customers competed for and lost

Customers competed for and won Customers not competed for and won

Product Performance, Price Availability Sales Force..Training Service.Image/cost/performance FinancePayment terms

Share of Market

RelationshipCaptive arrangement

* Share of Market : D + E * Winning Ratio: D/(C+D) * Market Coverage: C + D + E * Product Range: B + C + D + E * Cream Skimming Factor = Winning Ratio/Share of Market

Intensive Strategies
Market Development Introducing present products or services into new geographic area Guidelines for Market Development
New channels of distribution that are reliable, inexpensive, and good quality Firm is very successful at what it does Untapped or unsaturated markets Capital d h C it l and human resources necessary to manage t expanded operations Excess production capacity Basic industry rapidly becoming global

Intensive Strategies
Product Development Seeking increased sales by improving present products or services or developing new ones Guidelines for Product Development
Products in maturity stage of life cycle Competes in industry characterized by rapid technological developments Major competitors offer better quality products at better-quality comparable prices Compete in high-growth industry Strong research and development capabilities

Product Life Cycle & Strategies

Introduction
Competitive Position Product Place Promotion Monopoly or monopolistic One or few Build channels (selective) Build primary demand Pioneer / inform Skimming or penetration

Growth
Oligopoly or monopolistic Variety (build brand) Maybe selective Build selective demand Inform / Persuade Meet competition Price dealing & cutting

Maturity
Towards pure competition Battle of the brands More intensive distribution Build selective demand Inform / Persuade Meet competition Price dealing & cutting

Decline
Toward pure competition Some drop out Intensive distribution Build selective demand Inform / Persuade Meet competition Price dealing & cutting

Price

Planning for Life Cycle Stages

Introducing New Products Managing Mature Products
Focus:

Budget / Rate of Growth

Focus :

Persuasion / Less Profit

Focus:

Future Adaptation
Focus:

New or Improve?

New Markets

New Strategies
Focus:

Dying Products

Phase Out

Product Life Cycle and Market Characteristics

Key Characteristics Marketing Message Sales Distribution Price Competitive Intensity Costs Profit Management Style Unique Explain g Pioneering Direct Selling Very High None Very High Medium/High Visionary Product Differentiation Competitive
Relative Benefits Distribution Support

Service Differentiation Brand Values Relationship Based d Mass Distribution Medium Many Medium/Low Medium/High Operational

Commodity Corporate Availability va ab ty Based 80 : 20 Low (Consumer Controlled) Many Medium/Low Medium/High Cost Management

Exclusive Distribution High Few Medium High Strategic

Integration Strategies

Forward Integration Vertical Integration Strategies Backward Integration Horizontal Integration H i lI i

Integration Strategies
Vertical Integration strategies
Allow a firm to gain control over:
Distributors Suppliers Competitors

Integration Strategies
Forward Integration Gaining ownership or increased control over distributors di t ib t or retailers t il Guidelines for Forward Integration
Present distributors are expensive, unreliable, or incapable of meeting firms needs Availability of quality distributors is limited When firm competes in an industry that is expected to grow markedly Organization has both capital and human resources needed to manage new business of distribution Advantages of stable production are high Present distributors have high profit margins

Integration Strategies
Backward Integration Seeking ownership or increased control of a firms suppliers Guidelines for Backward Integration
When present suppliers are expensive, unreliable, or incapable of meeting needs Number of suppliers is small and number of competitors large High growth in industry sector Firm has both capital and human resources to manage new business Advantages of stable prices are important Present supplies have high profit margins

Integration Strategies
Horizontal Integration Seeking ownership or increased control over competitors Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by government Competes in growing industry Increased economies of scale provide major competitive advantages Faltering due to lack of managerial expertise or need for particular resources

Sliding Backwards and Forwards

Vertical Integration in the Oil Industry Raw Materials
Back towards the source of raw materials

Backward Integration Do you want to move positions within the supply chain?

Forward towards the end consumer

Forward Integration

Exploration Drilling Production Platforms Transport Refinery Pipeline Distribution Depot Retail Outlet Auto Servicing

End Customer

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