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Chapter 9: Strategies for Growth Markets

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The Global Battle for Jocks Soles discusses how Nike used an aggressive competitive strategy to achieve share leadership and become the worlds leading sportswear company today. The challenges presented to Nike by its global competitors are also discussed. Strategic Challenges Addressed in Chapter 9 a. Opportunities and competitive risks found in growing product-markets b. Marketing strategies (defensive and offensive) that leaders use to maintain a dominant market share in the face of growth and competition c. Details share-growth strategies the market challengers use

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Opportunities and Risks in Growth Markets a. Gaining share is easier i. There may be many potential new users who have no established brand loyalties and who may have different needs or preferences than earlier adopters 1. Must be able to develop a product offering that new customers see as more attractive than the alternatives so must have necessary resources and competencies ii. Established competitors are less likely to react aggressively to marketshare erosion as long as their sales continue to grow 1. This overlooks that fact that those competitors may have higher expectations for increased revenues when the market is growing 2. Leaders often react forcefully when their sales growth falls below industry levels or when industry growth rates slow b. Share gains are worth more: the assumption is that the business can hold its relative share as the market grows. The validity of this assumption depends on: i. The existence of positive network effects ii. Future changes in technology or other key success factors iii. Future competitive structure of the industry iv. Future fragmentation of the market v. Also, if a firm captures share through short-term promotions or price cuts that competitors can easily match, its gains may be short-lived c. Price competition is likely to be less intense i. In some rapidly growing markets, demand exceeds supply ii. Doesnt hold true in every developing product-market: if theres few barriers to entry or the adoption process is protraction d. Early entry is necessary to maintain technical expertise i. Later entrants lacking customer contact and production and R&D expenses are at a disadvantages ii. Sometimes an early commitment to a technology can be a liability 1. Multiple unrelated technologies service a market

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2. A newly emerging technology replaces the current one

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Growth-Market Strategies for Market Leaders a. Often the leading firms strategic objective is to maintain its leading share position in the face of increasing competition as the market expands b. Marketing objectives for share leaders i. Retain its current customers ii. Stimulate selective demand among later adopters iii. In some cases, stimulating primary demand to help speed up overall market growth c. Marketing actions and strategies to achieve share-maintenance objectives i. There are five internally consistent strategies used to maintain leading share position: fortress or position defense strategy, flanker strategy, confrontation strategy, market expansion strategy, and a contraction or strategic withdrawal strategy 1. The most appropriate strategy, or combination of strategies, depends on: a. The markets size and customers characteristics b. The number and relative strengths of competitors c. The leaders resources and competencies d. Fortress, or Position Defense, Strategy i. Continually strengthen a strongly held current position: improve satisfaction of current customers and increase attractiveness of its offering ii. Makes sense in homogeneous markets iii. Actions to improve customer satisfaction and loyalty 1. Pay particular attention to quality control 2. Continue to modify and improve its product; not only the physical product but customers perceptions of it as well. This involves shifting promotion emphasis from stimulating primary demand to building selective demand 3. Encourage repeat purchases among existing customers 4. Industrial goods: shift salesforce efforts from prospecting for new accounts to servicing existing accounts 5. Give increased attention to post-sale service iv. Actions to encourage and simplify repeat purchasing 1. Reduce stockouts on retail store shelves or shorten delivery times for industrial goods 2. More proactive steps: a. Negotiate requirements contacts or guaranteed price agreements b. Tie customers into a computerized re-order system or a tightly integrated supply-chain relationships 3. Becomes more crucial as market matures e. Flanker Strategy

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Chapter 9: Strategies for Growth Markets

i. Develop a second brand to compete against a challengers offering and defend against an attack directed at weaknesses in its current offering

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Chapter 9: Strategies for Growth Markets

1. Trading up: develop high-quality brand offered at a higher price 2. Most often it involves a lower-quality product to protect leaders primary brand from direct price competition ii. Always used in conjunction with a position defense strategy iii. Appropriate only when firm as sufficient resources to develop and support multiple entries f. Confrontation Strategy i. Meet or beat attractive features of a competitors offering after the challengers success has become obvious (a reactive strategy) ii. A confrontation based largely on lowering prices creates an additional problem of shrinking margins for all concerned iii. Avoid problems of a confrontation strategy by reestablishing the competitive advantage g. Market Expansion Strategy i. More aggressive, proactive version of the flanker strategy ii. Defends market share by expanding into a number of market segments iii. Particularly appropriate in fragmented markets iv. Ways to implement it: 1. Line extensions 2. New brands 3. Alternative product forms using similar technologies 4. Retain basic product but vary other elements of the marketing program h. Contraction, or Strategic Withdrawal, Strategy i. In some highly fragmented markets, may not be able to defend itself in all segments ii. Reduce or abandon efforts in some segments to focus on areas where it enjoys the greatest advantages or the greatest potential for growth V. Share Growth Strategies for Followers a. Marketing objectives for followers i. Some seek to build a profitable business in a small segment while avoiding direct competition from larger competitors (niche strategy) ii. Some seek to displace the leader or become a powerful competitor (increase share growth) b. Marketing actions and strategies to achieve share growth i. When leader has already penetrated a large portion of the market, the challenger can steal away some of the repeat purchase or replacement demand from the competitors current customers ii. When market is early in the growth phase or if market is heterogeneous and fragmented, attract a larger share of potential new customers

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iii. There are five major share growth strategies. What strategies are used depends on market characteristics, existing competitors current positions and strengths, and challengers own resources and competencies

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Chapter 9: Strategies for Growth Markets

c. How to decide which competitor to target: i. Attack market-share leader within its primary target market ii. Attack another follower who has an established position within a major market segment iii. Attack one or more smaller competitors who have only limited resources iv. Avoid direct attacks on any established competitor d. Frontal Attack Strategy i. Tackling a major competitor head-on ii. Is most likely to succeed when existing customers dont have strong brand preferences, target competitors product doesnt benefit from positive network effects, and challengers competencies and resources are greater than the target competitors iii. Achieve a sustainable advantage over the target competitor. This is usually based on attaining lower costs or a differentiated position iv. To most effectively implement this strategy, differentiate the product in ways that better meet needs and preferences of customers in the mass market e. Leapfrog Strategy i. Gain a significant advantage by introducing a new generation of products that significantly outperform or offer more desirable benefits than do existing brands ii. Inhibits quick retaliation by established competitors iii. Must have superior technology, product and process engineering capabilities, and marketing resources. f. Flanking and Encirclement Strategies: focus on areas of weakness i. Flank attack 1. Capture a significant share of the total market by concentrating on one large untapped segment 2. Meet special needs of an untapped segment by providing specially designed customer services or distribution channels ii. Encirclement 1. Target smaller untapped or underdeveloped segments simultaneously 2. Surround leaders brand with offerings aimed at peripheral segments 3. Develop a varied line of products with features tailored to the needs of different segments g. Guerilla Attack i. Used when well-established competitors already cover all major segments and challengers resources are limited ii. Involves making a series of surprise raids against established competitors iii. Do this sporadically, in limited geographic areas iv. Ways to implement guerilla attacks:

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1. Sales promotion efforts 2. Local advertising blitzes

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3. Short-term price reductions through sales promotion campaigns v. Main objective is to prevent a powerful leader from further expanding its share or engaging in aggressive actions to which it would be costly for followers to respond h. Supporting Evidence: marketing programs of businesses that successfully achieved increased market share differed from less successful businesses in the following ways: i. Increased quality of products relative to those of competitors ii. Develop and add more new products or implement product modifications iii. Increase marketing expenditures faster than the rate of market growth iv. Little difference in relative prices charged

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Chapter 9: Strategies for Growth Markets

End of Chapter Discussion Questions and Answers 1. Apple Computers iPod holds a commanding share of the rapidly growing global market for digital music players. To maintain its lead as the market continues to grow, what strategic marketing objectives should Apple focus on and why? The text indicates three main objectives for share leaders: First, the firm must retain its current customers, ensuring that those customers remain brand loyal when making repeat or replacement 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. Third there is another objective: stimulating primary demand to help speed up overall market growth.

2. Given your answer to question 1, which specific marketing actions would you recommend for accomplishing Apples objectives? Be specific with regard to each of the 4 Ps in the firms marketing program. Apple should innovate and improve the iPod to attract later market entrants and keep innovators and early adopters interested. Significant innovations will achieve each of the three objectives as well as provide a measure of obstacles for follower competitors. Product: More features, easier to use Price: Lower and declining over time even in the face of more features Promotion: Stress the new features, ease of use and applications of the iPod Place: Possibly - increase the number of outlets. Probably - keep distribution valuable to retailers. 3. How would you characterize the strategies of the major Korean automakers (e.g., Hyundai, Kia) as they attempt to capture a larger share of developed markets such as Europe and the United States? They seem to employ a combination of direct frontal attacks and flanking strategies based on cost. The leading US car makers maintain a level of quality for a price. The Korean challengers offer lower cost and initially offered lower quality. That value equation allowed direct comparisons to existing offerings. It also flanked the price/quality ratios of existing cars. What marketing variables do you think are critical to the ultimate success of their strategies? Product variables such as quality are critical if the Korean manufacturers wish to increase their market shares. Currently, raising perceptions of quality while maintaining price points or increasing price somewhat may create the image of a 'Value ' and gain repeat and new sales.

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4. If you were the top marketing executive at General Motors or Ford, what strategy would you recommend to defend your firms market share against this competitive threat from South Korea? The choice would be to raise perceptions of quality and customer satisfaction while controlling costs. That is difficult to achieve but would counter the challengers' strategy.

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