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MARKET STRATEGY & PLC (PP5 – CH2)

PRODUCT LIFETIME CYCLE


In the market analysis field, a key issue is market attractiveness: its main drivers are dimension, growth
potential and product/brand lifetime cycle, which is in fact the last to be analysed. Before taking into
consideration the actual PLC curve, we need to consider another relevant concept, the Rogers’ Curve, which
represents the individual probability of adopting a new product: Rogers suggests a total of five categories of
adopters in relation to adoption time (true for both radical and incremental innovations).

Rogers’ curve is shaped as a standard normal curve, and has a phase of growth and of decline. The five
categories of adopters in highlights are:
 Innovators, who are eager to try new ideas; since they’re interested in being the first owners of a
new technological product, they’re often price insensitive. They’re usually risk-takers, wealthier than
the average and generally young.
 Early adopters are not interested in technology for its own sake, but they can detect the value of a
new product and how it will enhance their lives or their businesses; this group is critical in making a
new technologically based product successful.
 Early majority; these buyers are interested in new technologies, but take a wait-and-see attitude to
determine if the product is worthy. It’s a large group and it’s necessary to attract them for the
product to be commercially viable.
 Late majority adopters are similar to the early majority, but are much more conservative in terms of
how much of an industry infrastructure must be built before they’ll buy.
 Laggards are often not interested in new technologies, sceptic approach.
If a brand had to choose, the preferable shape of a Rogers curve is the steepest and shortest, since it
expresses a very fast diffusion of the product: the brand knows anything about the potential repeat purchases,
so being fast to spread the product means high initial cashflow). What’s important is that the Rogers curve
tells nothing about the product life-cycle or
repeated purchases: it simply represents the
time needed for a product to become
widespread.
We can compare the Rogers curve to the PLC
curve, and notice that even after the peak of
the Rogers curve, the PLC still is in growth
phase. The area between the PLC and the
Rogers curve represents purchases made by
those who already purchased the product once,
namely, repeated purchases. If the PLC
follows the shape of the Rogers curve, it’s a
complete failure for the new product, because
it means that those who once purchased the
product weren’t satisfied with it and decided
not to re-purchase.
Theoretical Product Life-Cycle.

The theoretical PLC curve divides the life-cycle of a product in four different stages, with own
characteristics: they’re fundamental for market analysis and marketing strategy, since strategies adopted by
the firms must be consistent with the phase of the PLC in which they’re adopted.
1. In the introduction phase the growth rate is at its maximum, while the size of the market is still low.
The company has very few information about potential market and market shares, since the market
itself still is not well defined: usually there’s one company, the pioneer, which developed the
product; if he’s effective in building demand (or the category appears attractive to other companies),
the number of competitors will increase, as the size of the market. Normally, this is a phase of
hardship for the pioneer, because of the huge investments needed to develop the product, which
cause negative profits. Since the number of competitors is low and the market is still growing, there
are low entry barriers.
2. Eventually, the market reaches its growth phase: during this phase the market still grows quickly;
potential market is still not definable, and the market shares are more or less equally distributed
among competitors and they start to become more stable. In this phase the number of competitors is
at its maximum, since many see the potential of high profits and try to enter in a still unstructured
market: this means fierce competition for market shares. Moreover, company usually gained some
experience and volume of sales increased, so that they can achieve economies of scale or experience
curves, lowering costs and increasing profits.
3. When market growth becomes steady, the product reaches its maturity phase: the potential market is
now low, and market shares are concentrated among the largest competitors, since during the growth
phase small firms and competitors left the market. Market share consequently become more stable,
even if competitors try to steal market shares from each other. Profits are stable, but may be quite
high, depending on cost function of each firm (even if in average are lower than in previous phases).
Entry barriers are high.
4. At some point (variable in time), the market slows down and the decline phase starts: instead of
growing the market decreases, and potential market is very small. Market shares become more and
more concentrated and volatile, since weaker firms leave the market due to decreasing sales,
consequently, also number of competitors decreases. Due to lower volume of sales, profits decrease.
The entry barrier concept no longer makes sense, since there are no incentives to enter in a low-
income market.
The PLC is however a theoretical model, because often categories do not follow perfectly the pattern, and
the curve may go through several cycles (frequently when aggressive promotions give a push) or scalloped
patterns (frequent in cases of new generations of the product, as happens with iPhones).

There also other limitations of the PLC model:


 Differing products show different PLC shapes;
 It’s difficult to measure accurately where a product is on its life cycle, which however is crucial in
defining a proper strategy.
 The duration of each PLC stage is unpredictable, there’s no standard time interval for each stage.
Yet, the PLC is a useful model, that can be applied to analyse product categories, product forms, products
and brands.
The strategic options available to the marketing managers vary over the product life cycle, as does the
importance of various marketing-mix elements:
1. Strategies for the introductory phase. In the introductory phase, the market size and growth rate are
low, and the customers are reluctant to buy the product recently introduced. Selling and advertising
focus on the generic product, that is, the basic concept. Customers must be convinced that the
benefits from this new product provide an improvement over the product or service being replaced;
this is a risky stage, since because of huge initial investments to develop the product and build the
market costs are high, and often this implies negative profits. However, often market pioneers can
retain their leadership positions for decades. Empirical research shows that the first entrant in a
category has an advantage – first mover advantage – in that it tends to maintain its position over the
PLC; this advantage results from early access to distribution channels, locking in customers for
products with switching costs are high, and where there are strong network effects.
There are typically two choices the pioneer can take: skimming (entering with high price and creating
a narrow market, often employed in technology-based markets, to obtain customers that purchase
early and that are essentially insensitive to price) or penetration (entering with a low price to build
market share and broader market, often used by companies who want to build market share quickly
to keep competitors out, build volume and lower costs).
Strategic Objectives:
 Inform consumers
 Induce consumers to try the new product
 Reduce the duration of this phase
 Access to channels of distribution
 Build awareness and trust
2. Growth strategies which comprehend both early growth and late growth, where the rapid increase in
sales begins to flatten out, even if the category sales are still growing. What we need to consider is
that the number of competitors is increasing, and customers becoming more informed about the
product and the available options: this put pressure on the price. Moreover, with the increase
competition, market segmentation becomes necessary. For what concerns communication, it’s
necessary to stress differentiation. General purpose is sustain rapid market growth.
The general strategic options relate to the product’s position in the market: the leader can choose to
fight, keeping the leadership position by enhancing the product, or to withdraw, ceding market
leadership to another product, if the market entrants are just too strong – frequent if the marketing
leader is a small company that develops a new technology and a small market and faces the prospect
of large companies taking over. The follower, instead, has a number of options depending on the
strength of the leader, its own strength and market conditions: it may decide to exit, or to imitate the
leader by developing a me-too product, perhaps at a lower price. The riskiest move is to try to
overcome competition, as some do with pure marketing and imitative products.
3. Maturity strategies. In this phase, the sales curve has flattened out, and few new buyers are in the
market; market potential usually remains, but it is either difficult or expensive to reach non-buyers.
customers are sophisticated and well versed in product features and benefits: differential advantage
can be obtained, but through intangible or perceived product quality.
General strategies depend on the relative market position of the product in question: leaders may
decide to invest just enough money to maintain their share, or, alternatively – in the short-term – to
“harvest” the product, setting an objective of gradual share decline with minimal investment to
maximize short-run profits. The followers alternative depend on the leader’s strategy: if the leader is
harvesting the market, the n.1 position may be left open for an aggressive n.2 brand. If the leader
instead is trying to maintain its share, the follower may choose to be a profitable number 2, or exit
the category.
4. Strategies for decline. What is important is that you not need to accept the fact that a market is in
decline: most strategies for reviving mature markets also can be used to revive declining markets;
also, changes in customers’ tastes, unexpected and not linked to firm’s strategy, can be profitably
exploited. If the market is truly dying, the brand may decide to rapidly disinvest and to exit the
market, or to consciously decide to be the last iceman, gaining a monopoly which results in the
ability to charge high prices to niche consumers, reducing overall investment.

COMPLETE MARKETING STRATEGY (step 4 of the marketing plan)


The key decision in marketing strategy is which customer groups to target: many other decisions then flow
from this crucial one. Customers’ needs, competitors and industry environment analysis lead to a core
strategy that is tailored to the consumer target; finally, the marketing mix – or implementation of the strategy
is customized for each target. What constitutes a marketing strategy for a product or service is a combination
of strategic objective, customer segments, and understanding of the competition for each target and
positioning that communicates the value proposition; often, the market strategy is referred to as “3Cs”
(consumer, competitors, and company). The complete marketing strategy can be divided in some
components:
1. Objectives. Many different objectives are sent in an organization; a company’s mission statement
usually describes in general terms the company’s major business thrusts, customer orientation and
business philosophy. The corporate objective is an overall goal to be achieved, usually stated in financial
or stock price; business units/divisions also have objective (stated in sales growth or profitability), as
also single brands/products (sales/market shares).
Generally, the company’s objective must be focused on either market share or on profits: the company
faces a trade-off taking these decisions, since many of the activities required to increase market share
(lowering price, increase distribution/communication) imply higher costs, and therefore lower profits. On
the other hand, increasing profits means either lowering costs (quality) or increasing price, activities
which are likely to cause a fall in market share.
Moreover, it’s not sufficient to state an objective in terms of increase market share/profits:
characteristics of a good objective statement are:
 Quantified standard of performance, giving precise percentages or quantitative measure of the
objective;
 Clear time frame, that is, a period within the objective should be achieved.
 Measurable terms (such as market share, profitability, sales volume, which are easy to measure).
 Ambitious, but not impossible. In fact, ambitious objectives are challenging, and may stretch
management to improve performance; at the same time, however, internal and external
constraints must be taken into consideration.
2. Customer targets and strategic alternatives. When differentiating products, brands need to take into
consideration the consumer target for which they’re developing those products; this can be done
according to many different factors, such as age, gender, … one example of consumer targeting is the
Coke development of two different – although similar – brands, Diet Coke and Coke Zero. The
underlying reason here was gender targeting, as we can infer from colours of the packaging and
advertisement used.
The primary reason to think about the market in terms of groups or segments is market heterogeneity:
customers have different personal values and respond differently to marketing mix variables. The market
can be firstly divided into four categories of consumers, own consumers, competitors’ consumers,
customers in existing target segments, new segments (segments of consumers not taken into
consideration when originally computed the market potential). Consequently, the company should
choose between two strategic alternatives:
 Market penetration strategy, which targets current consumers of the product/service, which are
either buying the product of the brand or products of competitors. This kind of strategy should
always be a high priority for marketing strategies, since customers who have purchased brand’s
products are familiar with its benefits, and – assuming they enjoyed the experience – there’s
often potential to persuade them to buy more.
Targeting competitors’ customers (Apple adv vs Microsoft) is riskier and more expensive,
because it involves persuading consumers who may already be satisfied with their current brand
to switch: this is often done in markets in mature markets, through price-related promotions.
Current markets can also be target with new products, through product development (new
versions of the product)
 Market development strategy, which targets consumers who have not been persuaded to buy, or
customer who have not been targeted yet. New market segments may also be targeted using new
products, through product diversification. One particular case of market development strategy is
entrance in foreign markets; concerning this issues, some crucial decisions must be taken at
early stages, such as the choice of which country to enter, the timing of the entry, and how to
operate in these countries (one practical example is H&S entrance in Italy, when they saw
interesting market potential in Italian anti-dandruff market). When deciding how to enter a new
foreign market, a company should consider 5 sets of factors (three external and 2 internal):
 Country characteristics, such as size and growth: larger countries and those with higher
growth rates are more likely to be seen as good places to make significant investments.
One possible measure for market size is purchasing power, even if it doesn’t take into
account for population size. A second country factor is the political and environmental
risks, and finally we need to consider economic and market infrastructures.
 Trade barriers and governmental regulations; many countries have laws that place
restrictions on the ability of companies to operate freely, with some regulations targeting
foreign companies, such as tariffs or quotas on the import of foreign products.
 Product market characteristics. Physical characteristics of the product can affect how
entry should be accomplished: where it’s expensive to ship a product, local licensing or
manufacturing arrangements are usually made rather than direct exporting.
 Management objectives (internal), which basically is the commitment to international
expansion. Risk-averse and low interested companies often develop joint partnerships to
minimizer risks, while those with more aggressive expansion objectives make larger
investments in new markets.
 Country selection strategy.
3. Competitor target; for each customer target, competitor targets must be identified: these are the
brands/companies that offer the most likely competition for the targeted costumers. Competitors can be
viewed on different levels: competitors of the same product (Coke vs Pepsi), but also competitors that
produce goods that can, to some degree, substitute the product of the brand by satisfying the same need
(Coke vs beer, …). One good approach is to consider the needs that our product satisfies for consumers,
and which other products can equally satisfy that need: all identified products are potential competitors.
4. Core strategy. The basic component of the core strategy is the value proposition, a one paragraph
summary of a product’s differentiation strategy and positioning to each target customer group; in short, a
statement of why the consumer should buy that product rather than the competitors’. It serves as basis for
programs and strategies development. The basis on which consumers will buy a brand’s product instead
of the competitors’ is called competitive advantage, which allow the brand to charge higher price than
competitors or gain more share at the same price. There are many possible ways to develop competitive
advantage. A successful basis for developing such advantage must have three characteristics:
 It should generate customer value, improve some characteristic or to be relevant to some aspect
of the product or service that is valued by consumers. A point of difference is a competitive
advantage if and only if from the customers’ perspectives it delivers better value than the
competition.
 The increased value must be perceived by consumers. If the product of a brand is better than the
competition but customers cannot discern this point of difference, then that’s not a competitive
advantage.
 The advantage should be difficult to imitate: a successful competitive advantage is going to be
emulated by others, therefore its more sustainable if its difficult to copy because of unique
organizational assets and skills that can be brought into play, or because of patents.
There are three general approaches to develop competitive advantage:
I. Cost-price-based competitive advantage. Which, however, can be complex to achieve, since you
need to know the competitors’ costs to be sure that you can compete on this basis by matching
price cuts: only one firm can be the low cost competitor of the market. As a result, most
managers decide to compete on the other two bases (actual/perceived quality), while exercising
as much cost control as possible.
There are two main ways to attain the low-cost position in an industry:
 Being the largest producer of the market and take advantage of economies of scale
(larger production means that fixed costs of operations can be spread over more units,
which lowers average unit cost). This is true for manufacturing plant construction, but it
also applies to marketing, distribution, and other expenditures.
 Take advantage of the experience curve: costs fall with cumulative production, since
over time companies learn how to make the products better and more efficiently,
through changes in the production process, work specialization, product standardization
and re-design. After some observations based on the first few years of product’s life, the
continued decline in costs is predictable.
However, it’s possible to be the low-cost producer and used low-price competitive advantage
even not being the industry leader or not having the greatest experience, thanks to nowadays
flexible manufacturing systems that can have short production runs of different models of
products, tailored to segments and to simultaneously have low costs. What it’ important, most of
all, is to focus all company’s controls on costs.
II. Quality-based differentiation, which consists in developing an observable difference that is
valued by the target customers; this approach usually implies higher costs but a concomitant
higher willingness to pay by consumers, and often higher margins. The challenge, is to find the
dimensions of the product that differentiate it from the competition.
Because of increased competition, grater knowledge of the product by consumers and slow
growth markets products can be perceived similarly by customers: for this reason, it’s important
to realize that even the so-called commodities can be differentiate, even if for this kind of goods
it might be difficult to differentiate on the basis of actual quality difference (instead of perceived
difference); actual difference that can be supported with data is much more common for
industrial or highly technical products.
One approach to differentiation is to take into consideration Porter’s value chain: each step of
the value chain potentially is a source of differentiation:

III. Perceived quality / Brand-based differentiation. Many products and services differentiate
themselves from competitors by doing a better job of giving customers the perception that they
are of higher overall quality or better on particular product characteristic. Perceptual differential
advantages are often used when actual product differences are small, hard to achieve or difficult
to sustain.
Perceptual differential advantages can be conveyed using all elements of the marketing mix:
high price can communicate high quality, advertising can be used as a vehicle for delivering
images and feelings, and exclusive distribution channels to provide customers with the feeling
that the product is rare and expensive. The dimension of a perceptual differential advantage are
the same as for an actual one: we can refer, again, to Porter’s value chain. The main difference
between this approach to competitive advantage and that based on actual quality is that in this
case the claims are more difficult for customers to verify.
An important tool in understanding how your brand or product is perceived is marketing
research that measures customers’ perceptions of your product on a variety of attributes; this
kind of research is then conceptualized in a perceptual map, which provides information about
how the brand is perceived on attributes that customers consider important in choosing among
competitors. However, the map gives you information about perceptions of your brand relative
to competitors, or the brand positions (customers are often asked to provide ratings).
One of the key ways to define a perceptual differential advantage is through the brand name: the
value of a brand name (reputation) is communicating quality or other aspects of the products is
called brand equity. Brand names by themselves are powerful communicators of product quality
that form an important part of the product’s differential advantage.
Another core strategy issue is product positioning, which is basically the process of putting in practice
the value proposition and competitive advantages; in order to perform it, we need to know dimensions
customers use to evaluate product offerings, and how important these dimensions are in the decision
process, and what decision process customers do actually use. Positioning, often, involves both actual
and perceived differential advantages. Re-positioning occurs when the manager is dissatisfied with the
current positioning and seeks a new perceived advantage, which might be difficult if the product has a
high awareness level of the former image.
5. Marketing mix, which is the set of decisions about price, channels of distribution, product,
communications and customer relationship management that implements the marketing strategy; often
referred to as the “4Ps” (price, place, promotion, product). So the marketing mix is the implementation
stage of the strategy, which obviously must be consistent with the strategy: a high quality proposition
must be implemented with the appropriate channels of distribution, advertising, product features, a
commensurate price, and customer service and other relationship activities consistent with the desired
image.