Marketing Strategies for Growth Market

Strategy for Success

Marketing Strategies for Growth Markets

Opportunities and Risks in Growth Markets

Why are followers attracted to rapidly growing markets? Conventional wisdom suggests such markets present attractive opportunities for future profits because

• It is easier to gain share when a market is growing.

• Share gains are worth more in a growth market than in a mature market.

Price competition is likely to be less intense.

• Early participation in a growth market is necessary to make sure that the firm keeps pace with the technology.

While generally valid, each of these premises may be seriously misleading for a particular business in a specific situation. Many followers attracted to a market by its rapid growth rate are likely to be shaken out later when growth slows because either the preceding premises did not hold or they could not exploit growth advantages sufficiently to build a sustainable competitive position.

Gaining Share Is Easier

The premise that it is easier for a business to increase its share in a growing market is based on two arguments. First, there may be many potential new users who have no established brand loyalties or supplier commitments and who may have different needs or preferences than earlier adopters. Thus there may be gaps or undeveloped segments in the market. It is easier, then, for a new competitor to attract those potential new users than to convert customers in a mature market. Second, established competitors are less likely to react aggressively to market share erosion as long as their sales continue to grow at a satisfactory rate.

There is some truth to the first argument. It usually is easier for a new entrant to attract first time users than to take business away from entrenched competitors. To take full advantage of the situation, however, the new entrant must be able to develop a product offering that new customers perceive as more attractive than other alternatives, and it must have the marketing resources and competence to effectively persuade them of that fact.

Share Gains Are Worth More

The premise that share gains are more valuable when the market is growing stems from the expectation that the earnings produced by each share point continue to expand as the market expands. The implicit assumption in this argument, of course, is that the business can hold its relative share as the market grows. The validity of such an assumption depends on a number of factors, including the following:

The existence of positive network effects . For information based products, such as computer software or Internet auction sites, one of the most important such advantage is the existence of positive network effects, the tendency for the product to become more valuable to users as the number of adopters grows.

Future changes in technology or other key success factors. On the other hand, if the rules of the game change, the competencies a firm relied on to capture share may no longer be adequate to maintain that share.

Future competitive structure of the industry. The number of firms that ultimately decide to compete for a share of the market may turn out to be larger than the early entrants anticipate, particularly if there are few barriers to entry.

Future fragmentation of the market. As the market expands, it may fragment into numerous small segments, particularly if potential customers have relatively heterogeneous functional, distribution, or service needs.

Price Competition Is Likely to Be Less Intense

In many rapidly growing markets demand exceeds supply. The market exerts little pressure on prices initially; the excess demand may even support a price premium. Thus, early entry provides a good opportunity for a firm to recover its initial product development and commercialization investment relatively quickly.

New customers also may be willing to pay a premium for technical service as they learn how to make full use of the new product.

Early Entry Is Necessary to Maintain Technical Expertise

In high-tech industries early involvement in new product categories may be critical for staying abreast of technology. The early experience gained in developing the first generation of products and in helping customers apply the new technology can put the firm in a strong position for developing the next generation of superior products. Later entrants, lacking such customer contact and production and R&D experience, are likely to be at a disadvantage.

Growth-Market Strategies for Market Leaders

For the share leader in a growing market, of course, the question of the relative advantages versus risks of market entry is moot. The leader is typically the pioneer, or at least one of the first entrants, who developed the product market in the first place. Often, that firm’s strategic objective is to maintain its leading share position in the face of increasing competition as the market expands. Share maintenance may not seem like a very aggressive objective, because it implies the business is merely trying to stay even rather than forge ahead. But two important facts must be kept in mind.

First, the dynamics of a growth market – including the increasing number of competitors, the fragmentation of market segments, and the threat of product innovation from within and outside the industry – make maintaining an early lead in relative market share very difficult.

Second, a firm can maintain its current share position in a growth market only if its sales volume continues to grow at a rate equal to that of the overall market, enabling the firm to stay even in absolute market share. However, it may be able to maintain a relative share lead even if its volume growth is less than the industry’s.

Marketing Objectives for Share Leaders

Share maintenance for a market leader involves two important marketing objectives.

First, the firm must retain its current customers, ensuring that those customers remain brand loyal when making repeat or replacement purchases.

This is particularly critical for firms in consumer nondurable, service, and industrial materials and components industries where a substantial portion of total sales volume consists of repeat purchases. Second, the firm must stimulate selective demand among later adopters to ensure that it captures a large share of the continuing growth in industry sales.

Fortress, or Position Defense, Strategy

The most basic defensive strategy is to continually strengthen a strongly held current position – to build an impregnable fortress capable of repelling attacks by current or future competitors. This strategy is nearly always part of a leader’s share maintenance efforts. By shoring up an already strong position, the firm can improve the satisfaction of current customers while increasing the attractiveness of its offering to new customers with needs and characteristics similar to those of earlier adopters.

Actions to Improve Customer Satisfaction and Loyalty

The rapid expansion of output necessary to keep up with a growth market often can lead to quality control problems for the market leader. As new plants, equipment, and personnel are quickly brought on line, bugs can suddenly appear in the production process. Thus, the leader must pay particular attention to quality control during this phase. Most customers have only limited, if any, positive past experiences with the new brand to offset their disappointment when a purchase does not live up to expectations. Perhaps the most obvious way a leader can strengthen its position is to continue to modify and improve its product. This can reduce the opportunities for competitors to differentiate their products by designing in features or performance levels the leader does not offer. The leader might also try to reduce unit costs to discourage low-price competition.

Finally, a leader can strengthen its position as the market grows by giving increased attention to post sale service. Rapid growth in demand not only can outstrip a firm’s ability to produce a high-quality product, but it also can overload the firm’s ability to service customers.

Actions to Encourage and Simplify Repeat Purchasing

One of the most critical actions a leader must take to ensure that customers continue buying its product is to maximize its availability. It must reduce stock outs on retail store shelves or shorten delivery times for industrial goods. To do this, the firm must invest in plant and equipment to expand capacity in advance of demand, and it must implement adequate inventory control and logistics systems to provide a steady flow of goods through the distribution system. The firm also should continue to build its distribution channels. In some cases, a firm might even vertically integrate parts of its distribution system – such as building its own warehouses, as Amazon.com and several other e-retailers have done recently – to gain better control over order fulfillment activities and ensure quick and reliable deliveries.

Flanker Strategy

One shortcoming of a fortress strategy is that a challenger might simply choose to bypass the leader’s fortress and try to capture territory where the leader has not yet established a strong presence. This can represent a particular threat when the market is fragmented into major segments with different needs and preferences and the leader’s current brand does not meet the needs of one or more of those segments. A competitor with sufficient resources and competencies can develop a differentiated product offering to appeal to the segment where the leader is weak and thereby capture a substantial share of the overall market.

To defend against an attack directed at a weakness in its current offering (its exposed flank), a leader might develop a second brand (a flanker or fighting brand) to compete directly against the challenger’s offering. This might involve trading up, where the leader develops a high-quality brand offered at a higher price to appeal to the prestige segment of the market.

Confrontation Strategy

Suppose a competitor chooses to attack the leader head to head and attempts to steal customers in the leader’s main target market. If the leader has established a strong position and attained a high level of preference and loyalty among customers and the trade, it may be able to sit back and wait for the competitor to fail. In many cases, though, the leader’s brand is not strong enough to withstand a frontal assault from a well-funded, competent competitor. In such situations, the leader may have no choice but to confront the competitive threat directly. If the leader’s competitive intelligence is good, it may decide to move proactively and change its marketing programme before a suspected competitive challenge occurs. A confrontational strategy, though, is more commonly reactive. The leader usually decides to meet or beat the attractive features of a competitor’s offering – by making product improvements, increasing promotional efforts, or lowering prices – only after the challenger’s success has become obvious. Simply meeting the improved features or lower price of a challenger, however, does nothing to reestablish a sustainable competitive advantage for the leader.

Market Expansion Strategy

A market expansion strategy is a more aggressive and proactive version of the flanker strategy. Here the leader defends its relative market share by expanding into a number of market segments. This strategy’s primary objective is to capture a large share of new customer groups who may prefer something different from the firm’s initial offering, protecting the firm from future competitive threats from a number of directions. Such a strategy is particularly appropriate in fragmented markets if the leader has the resources to undertake multiple product development and marketing efforts.

The most obvious way a leader can implement a market expansion strategy is to develop line extensions, new brands, or even alternative product forms utilizing similar technologies to appeal to multiple market segments. For instance, although Pillsbury holds a strong position in the refrigerated biscuit dough category, biscuit consumption is concentrated among older, more traditional consumers in the South. To expand its total market, gain increased experience curve effects, and protect its overall technological lead, Pillsbury developed a variety of other product forms that use the same refrigerated dough technology and production facilities but appeal to different customer segments. The expanded line includes crescent rolls, Danish rolls, and soft breadsticks. Similarly, Nike captured and has sustained a leading share of the athletic shoe market by developing a series of line extensions offering technical, design, and style features tailored to the preferences of enthusiasts in nearly every sport.

Contraction, or Strategic Withdrawal, Strategy

In some highly fragmented markets, a leader may be unable to defend itself adequately in all segments. This is particularly likely when newly emerging competitors have more resources than the leader. The firm may then have to reduce or abandon its efforts in some segments to focus on areas where it enjoys the greatest relative advantages or that have the greatest potential for future growth. Even some very large firms may decide that certain segments are not profitable enough to continue pursuing.

Share-Growth Strategies for Followers

Marketing Objectives for Followers

Not all late entrants to a growing product market have illusions about eventually surpassing the leader and capturing a dominant market share. Some competitors, particularly those with limited resources and competencies, may simply seek to build a small but profitable business within a specialized segment of the larger market that earlier entrants have overlooked. If a firm can successfully build a profitable business in a small segment while avoiding direct competition with larger competitors, it often can survive the shakeout period near the end of the growth stage and remain profitable throughout the maturity stage.

Marketing Actions and Strategies to Achieve Share Growth

A challenger with visions of taking over the leading share position in an industry has two basic strategic options, each involving somewhat different marketing objectives and actions. Where the share leader and perhaps some other early followers have already penetrated a large portion of the potential market, a challenger may have no choice but to steal away some of the repeat purchase or replacement demand from the competitors’ current customers . Or it can attempt to leapfrog over the leader by developing a new generation of products with enough benefits to induce customers to trade in their existing brand for a new one. Secondarily, such actions also may help the challenger attract a larger share of late adopters in the mass market.

If the market is relatively early in the growth phase and no previous entrant has captured a commanding share of potential customers, the challenger can focus on attracting a larger share of potential new customers who enter the market for the first time. This also may be a viable option when the overall market is heterogeneous and fragmented and the current share leader has established a strong position in only one or a few segments. In either case, the primary marketing activities for increasing share via this approach should aim at differentiating the challenger’s offering from those of existing competitors by making it more appealing to new customers in untapped or underdeveloped market segments.

Deciding Whom to Attack

When more than one competitor is already established in the market, a challenger must decide which competitor, if any, to target. There are several options:

Attack the market share leader within its primary target market. As we shall see, this typically involves either a frontal assault or an attempt to leapfrog the leader through the development of superior technology or product design.

It may seem logical to try to win customers away from the competitor with the most customers to lose, but this can be a dangerous strategy unless the challenger has superior resources and competencies that can be converted into a sustainable advantage. In some cases, however, a smaller challenger may be able to avoid disastrous retaliation by confronting the leader only an occasionally in limited geographic territory through a series of guerrilla attacks.

Attack another follower who has an established position within a major market segment. This also usually involves a frontal assault , but it may be easier for the challenger to gain a sustainable advantage if the target competitor is not as well established as the market leader in the minds and buying habits of customers.

Attack one or more smaller competitors who have only limited resources . Because smaller competitors usually hold only a small share of the total market, this may seem like an inefficient way to attain substantial share increases. But by focusing on several small regional competitors one at a time, a challenger can sometimes achieve major gains without inviting retaliation from stronger firms.

Avoid direct attacks on any established competitor . In fragmented markets in which the leader or other major competitors are not currently satisfying one or more segments, a challenger is often best advised to ‘hit ’em where they ain’t.’ This usually involves either a flanking or an encirclement strategy, with the challenger developing differentiated product offerings targeted at one large or several smaller segments in which no competitor currently holds a strong position.

Deciding which competitor to attack necessitates a comparison of relative strengths and weaknesses, a critical first step in developing an effective share growth strategy. It also can help limit the scope of the battlefield, a particularly important consideration for challengers with limited resources.

Frontal Attack Strategy

Where the market for a product category is relatively homogeneous, with few untapped segments and at least one well-established competitor, a follower wanting to capture an increased market share may have little choice but to tackle a major competitor head-on. Such an approach is most likely to succeed when most existing customers do not have strong brand preferences or loyalties, the target competitor’s product does not benefit from positive network effects, and the challenger’s resources and competencies – particularly in marketing – are greater than the target competitor’s. But even superior resources are no guarantee of success if the challenger’s assault merely imitates the target competitor’s offering. To successfully implement a frontal attack, a challenger should seek one or more ways to achieve a sustainable advantage over the target competitor.

Leapfrog Strategy

A challenger stands the best chance of attracting repeat or replacement purchases from a competitor’s current customers when it can offer a product that is attractively differentiated from the competitor’s offerings. The odds of success might be even greater if the challenger can offer a far superior product based on advanced technology or a more sophisticated design. This is the essence of a leapfrog strategy. It is an attempt to gain a significant advantage over the existing competition by introducing a new generation of products that significantly outperform or offer more desirable customer benefits than do existing brands.

Flanking and Encirclement Strategies

They both seek to avoid direct confrontations by focusing on market segments whose needs are not being satisfied by existing brands and where no current competitor has a strongly held position.

Flank Attack

A flank attack is appropriate when the market can be broken into two or more large segments, when the leader and/or other major competitors hold a strong position in the primary segment, and when no existing brand fully satisfies the needs of customers in at least one other segment. A challenger may be able to capture a significant share of the total market by concentrating primarily on one large untapped segment. This usually involves developing product features or services tailored to the needs and preferences of the targeted customers, together with appropriate promotional and pricing policies to quickly build selective demand.

Encirclement

An encirclement strategy involves targeting several smaller untapped or underdeveloped segments in the market simultaneously. The idea is to surround the leader’s brand with a variety of offerings aimed at several peripheral segments. This strategy makes most sense when the market is fragmented into many different applications segments or geographical regions with somewhat unique needs or tastes.

Guerrilla Attack

When well-established competitors already cover all major segments of the market and the challenger’s resources are relatively limited, flanking, encirclement, or all-out frontal attacks may be impossible. In such cases, the challenger may be reduced to making a series of surprise raids against its more established competitors.

To avoid massive retaliation, the challenger should use guerrilla attacks sporadically, perhaps in limited geographic areas where the target competitor is not particularly well entrenched.

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