#1. Briefly discribe the expected characteristics and responses by major life cycle stages.

Introductory: In the first stage, the product is introduced in the market and its acceptance is
obtained. As the product is not known to all consumers and they take time to shift from the
existing products, sales volume and profit margins are low. Competition is very low, distribution is
limited and price is relatively high.
Heavy expenditure is incurred on advertising and sales promotion to gain quick acceptance and
create primary demand. Growth rate of sales is very slow and costs are high due to limited
production and technological problems. Often a product incurs loss during this stage due to high
startup costs and low sales turnover.

There are various marketing strategies that can be used for introducing a new product to the
market. Two pricing strategies are available. The choice between the two strategies depends on
the nature of the product and the level of competition:

Price skimming involves charging a high initial price, before reducing the price gradually to “skim”
each potential target group in the market as the market grows.

Price penetration involves setting a low price to enter the market quickly and capturing market
share, before adjusting the price to increase profits once the market has grown.

You can read more about the alternative pricing strategies here.
Growth: As the product gains acceptance, demand and sales grow rapidly. Competition increases
and prices fall. Economies of scale occur as production and distribution are widened. Attempt is
made to improve the market share by deeper penetration into the existing market or entry into
new markets. The promotional expenditure remains high because of increasing competition and
due to the need for effective distribution. Profits are high on account of large scale production
and rapid sales turnover.

Shakeout: During this stage of the cycle, growth rate delines and firms begin to compete directly
with one another for market share, rather than capturing a share of an increasing pie. Weaker
firms are forced out of the industry. Profit erodes and only the strongest and most efficient firms
survive as increasing rivalry in the industry as firms begin to cut prices and offer more services to
gain more market share. The importance of process innovation increases while the importance of
product innovation declines.

Mature: During this stage prices and profits fall due to high competitive pressures. Growth rate
becomes stable and weak firms are forced to leave the industry. Heavy expenditure is incurred on
promotion to create brand loyalty. Firms try to modify and improve the product, to develop new
uses of the product and to attract new customers in order to increase sales.

Decline: Market peaks and levels off during saturation. Few new customers buy the product and
repeat orders disappear. Prices decline further due to stiff competition and firms fight for
retaining market share or replacement sales. Sales and profits inevitably fall unless substantial
improvements in the product or reduction in costs are made.

The product is gradually displaced by some new products due to changes in buying behaviour of
customers. Promotion expenditure is drastically reduced. The decline may be rapid and the
product may soon disappear from the market. However, decline may be slow when new uses of
the product are created.

There are several alternative strategies available for handling the decline stage appropriately.
Milking or Harvesting: When this strategy is used, the product receives only little or no marketing
support. The firm aims to maximize the life of the product while generating the cash and the time
required to establish new products. In addition, the slow decline of the product provides the firm
with sufficient time to adjust to the declining cash flow and to find alternative means of
generating income.

Phased Withdrawal: Unlike under the milking approach, where the product could in theory
continue indefinitely, phased withdrawal involves setting a hard cut-off date for the product.
Before the cut-off date, there may be interim stages at which the product is either pulled form
certain channels of distribution or certain geographic areas. Phased withdrawal provides the
advantage of enabling the firm to plan the introduction of replacement products. However, it can
be a source of dissatisfaction to customers, who may not like the sudden disappearance of their
favoured product. A typical example of the phased withdrawal strategy can be found in the
automotive industry: car manufacturers normally set hard cut-off dates to existing products, so
that both dealers and the public are notified of product withdrawals and new product launches.

Contracting out or Selling: Loyal users of a product can be retained when the brand or the rights
to produce and sell the product are handed on to a niche operator or by subcontracting. Many
smaller firms use this strategy since they are flexible enough to offer the product’s market a
satisfactory return. Each party involved in this strategy benefits from the deal: the originating firm
can dispose profitably of a product it no longer wants, consumers can keep buying products they
desire, and the subcontractor or buyer can gain the benefits of a brand they could never have
established on their own.

#2. What are those categories of new products defined according to their degree of newness to
the firm and customers in the target market.

The Six Categories of New Products

As you see, we have to broaden our definition of new products to include the following six
categories of new products.

1. New-to-the-world Products (really new Products)

The alternative expression for new-to-the-world products (really new products) already indicates
that this is what most people would define as a new product. These products are inventions that
create a whole new market. Examples: Polaroid camera, the iPod and iPad, the laser printer and so
on.

2. New-to-the-firm Products (new Product Lines)

Products that take a firm into a category new to it. The products are not new to the world, but
are new to the firm. The new product line raises the issue of the imitation product: a “me-too”.
Examples: P&G’s first shampoo or coffee, Hallmark gift items, AT&T’s Universal credit card and so
on.
3. Additions to existing Product Lines

These are simple line extensions, designed to flesh out the product line as offered to the firm’s
current markets. Examples: P&G’s Tide Liquid detergent, Bud Light, Special K line extensions
(drinks, snack bars, and cereals).

4. Improvements and Revisions to existing Products

Current products made better. Examples: P&G’s Ivory Soap and Tide power laundry detergent
have been revised numerous times throughout their history, and there are countless other
examples.

5. Repositionings

As we already discussed before, you may have an argument about whether repositions are
actually new products. Yet, they can be considered as new products, as the firm undertakes a new
products process. Repositionings are products that are retargeted for a new use or application.
Examples: Arm & Hammer baking soda repositioned as a drain or refrigerator deodorant; aspirin
repositioned as a safeguard against heart attacks. Also includes products retargeted to new users
or new target markets. Marlboro cigarettes were repositioned from a woman’s cigarette to a
man’s cigarette years ago.

6. Cost Reductions

Finally, cost reductions complete the six categories of new products. Cost reductions refer to new
products that simply replace existing products in the line, providing the customer similar
performance but at a lower cost. May be more of a “new product” in terms of design or
production than marketing.

#3. List strategic objectives attained by successful new market entries.

The first one of the new product development strategies is Acquisition. Acquisition means buying
a whole company, a patent, or a licence to produce another company’s product.

The other strategy refers to the firm’s own new product development efforts. New products
developed by the firm can take four forms:

#4. Compare potential advantages of pioneer and follower strategies.

I. Pioneer Strategy
 Successful pioneers are handsomely rewarded.
 It is assumed competitive advantages inherent in being the first to enter a new product- market can be
sustained through the growth stage and into the maturity stage of the product life cycle, resulting in a
strong share position and substantial returns.
  Some of the potential sources of competitive advantage available to pioneers are shown below:

Exhibit 15.2 Potential advantages of pioneer and follower strategies

Pioneer Follower

Ability to take advantage of pioneer’s

• Economies of scales and experience. •
positioning mistakes.
• High switching costs for early adopters. • Ability to take advantage of pioneer’s product mistakes.
Ability to take advantage of pioneer’s
• Pioneer defines the rules of the game. •
marketing mistakes.
Ability to take advantage of the latest
• Distribution advantage. •
technology.
Influence on consumer choice criteria and
• • Ability to take advantage of pioneer’s limited resources.
attitudes.

• Possibility of pre-empting scarce resources.

1. First choice of market segments and positions- The pioneer has the opportunity to develop a product
offering with attributes most important to the largest segment of customers or to promote the importance
of attributes that favor its brand. The pioneer’s brand can become the standard of reference customers use
to evaluate other brands. This can make it more difficult for followers with me-too products to convince
existing customers that their new brands are superior to the older and more familiar pioneer. If the
pioneer has successfully tied its offering to the choice criteria of the largest group of customers, it also
becomes more difficult for followers to differentiate their offerings in ways that are attractive to the mass-
market segment. They may have to target a smaller peripheral segment or niche instead.
2. The pioneer defines the rules of the game- The pioneer’s actions on such variables as product quality,
price, distribution, warranties, post sale service, and promotional appeals and budgets set standards that
subsequent competitors must meet or beat. If the pioneer sets those standards high enough, it can raise the
costs of entry and perhaps pre-empt some potential competitors.
3. Distribution advantages- The pioneer has the most options in designing a distribution channel to bring
the new product to market. This is particularly important for industrial goods where, if the pioneer
exercises its options well and with dispatch, it should end up with a network of the best distributors. This
can exclude later entrants from some markets. Distributors are often reluctant to take on second or third
brands. This is especially true when the product is technically complex and the distributor must carry
large inventories of the product and spare parts and invest in specialized training and service.

For consumer package goods, it is more difficult to slow the entry of later competitors by pre-empting
distribution alternatives. Nevertheless, the pioneer still has the advantage of attaining more shelf-
facings at the outset of the growth stage. By quickly expanding its product line following an initial
success, the pioneer can appropriate still more shelf space, thereby making the challenge faced by
followers even more difficult. And as many retailers are reducing the number of brands they carry in a
given product category to speed inventory turnover and reduce costs, it is becoming more difficult for
followers with unfamiliar brands and small market shares to gain extensive distribution.

4. Economies of scale and experience- Being first means the pioneer can gain accumulated volume and
experience and thereby lower per unit costs at a faster rate than followers. This advantage is particularly
pronounced when the product is technically sophisticated and involves high development costs or when
its life cycle is likely to be short with sales increasing rapidly during the introduction and early growth
stages.

As we shall see later, the pioneer can deploy these cost advantages in a number of ways to protect its
early lead against followers. One strategy is to lower price, which can discourage followers from
entering the market because it raises the volume necessary for them to break even. Or the pioneer
might invest its savings in additional marketing efforts to expand its penetration of the market, such as
heavier advertising, a larger salesforce, or continuing product improvements or line extensions.
5. High switching costs for early adopters- Customers who are early to adopt a pioneer’s new product
may be reluctant to change suppliers when competitive products appear. This is particularly true for
industrial goods where the costs of switching suppliers can be high. Compatible equipment and spare
parts, investments in employee training, and the risks of lower product quality or customer service make
it easier for the pioneer to retain its early customers over time. In some cases, however, switching costs
can work against the pioneer and in favor of followers. A pioneer may have trouble converting customers
to a new technology if they must bear high switching costs to abandon their old way of doing things.
Pioneers in the development of music CDs, for instance, faced the formidable task of convincing
potential buyers to abandon their substantial investments in turntables and LP record libraries and to start
all over again with the new technology. Once the pioneers had begun to convince consumers that the
superior convenience, sound quality, and durability of CDs justified those high switching costs, however,
demand for CDs and CD players began to grow rapidly and it was easier for followers to attract
customers.
6. Possibility of positive network effects- The value of some kinds of goods and services to an individual
customer increases as greater numbers of other people adopt the product and the network of users grows
larger. Economists say that such products exhibit network externalities or positive network effects.
Information and communications technologies, such as wireless phones, fax machines, computer
software, email, and many Internet sites, are particularly likely to benefit from network effects. [8] For
instance, the value of eBay as an auction site increases as the number of potential buyers and sellers who
visit and trade on the site increase. If the pioneer in such a product or service category can gain and
maintain a substantial customer base before competing technologies or providers appear on the market,
the positive network effects generated by that customer base will enhance the benefits of the pioneer’s
offering and make it more difficult for followers to match its perceived value. And recent research
suggests that the positive impacts of such network effects on pioneer survival and economic success are
enhanced when the new products involved are relatively radical and technologically advanced. On the
other hand, for the digital new products and services most likely to benefit from positive network effects,
some of the other potential first-mover advantages may not be as relevant. For instance, because of the
relatively modest fixed costs and low marginal costs of producing digitized information products like
software and music, pioneers are unlikely to benefit from substantial economies of scale.
7. Possibility of pre-empting scarce resources and suppliers- The pioneer may be able to negotiate
favorable deals with suppliers who are eager for new business or who do not appreciate the size of the
opportunity for their raw materials or component parts. If later entrants subsequently find those materials
and components in short supply, they may be constrained from expanding as fast as they might like or be
forced to pay premium prices

II. Not All Pioneers Capitalize on Their Potential Advantages

 Surviving pioneers hold a significantly larger average market share when their industries reach maturity
than firms that were either fast followers or late entrants in the product category.
 Some pioneers fail. They abandon the product strategy, go out of business, or get acquired before their
industry matures.
 While a pioneer may have some potential competitive advantages, not all pioneers are successful at
capitalizing on them. Some fail during the introductory or shakeout stages of their industries’ life cycles.
And those that survive may lack the resources to keep up with rapid growth or the competencies needed
to maintain their early lead in the face of onslaughts by strong followers.

III. Follower Strategy

 There may be some advantages to letting other firms go first into a product market. Let the pioneer
shoulder the initial risks while the followers observe their shortcoming and mistakes. Possible
advantages of such a follower strategy are:
1- Ability to take advantage of the pioneer’s positioning mistakes. If the pioneer misjudges the
preferences and purchase criteria of the mass-market segment or attempts to satisfy two or more
segments at once, it is vulnerable to the introduction of more precisely positioned products by a
follower. By tailoring its offerings to each distinct segment, the follower(s) can successfully
encircle the pioneer.
 2- Ability to take advantage of the pioneer’s product mistakes. If the pioneer’s initial product has
technical limitations or design flaws, the follower can benefit by overcoming these weaknesses.
Even when the pioneering product is technically satisfactory, a follower may gain an advantage
through product enhancements.
3- Ability to take advantage of the pioneer’s marketing mistakes. If the pioneer makes any
marketing mistakes in introducing a new entry, it opens opportunities for later entrants. This
observation is closely related to the first two points, yet goes beyond product positioning and
design to the actual execution of the pioneer’s marketing programme. For example, the pioneer
may fail to attain adequate distribution, spend too little on introductory advertising, or use
ineffective promotional appeals to communicate the product’s benefits. A follower can observe
these mistakes, design a marketing programme to overcome them, and successfully compete head-
to-head with the pioneer. Marketing mistakes can leave a pioneer vulnerable to challenges from
later entrants even in product categories with substantial positive network effects.
4- Ability to take advantage of the latest technology. In industries characterized by rapid
technological advances, followers can possibly introduce products based on a superior, second-
generation technology and thereby gain an advantage over the pioneer. And the pioneer may have
difficulty reacting quickly to such advances if it is heavily committed to an earlier technology.
5- Ability to take advantage of pioneer’s limited resources. If the pioneer has limited resources for
production facilities or marketing programmes, or fails to commit sufficient resources to its new
entry, followers willing and able to outspend the pioneer experience few enduring constraints.

#5. List marketing strategy elements pursued by successful pioneers, fast followers, and late
entrants.

are characterized by one or more of these strategy

These marketers …
elements:
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.

#6. Briefly discuss marketing objectives and strategies for new product pioneers.

 A pioneer chooses from one of three different types of marketing strategies and they are: mass-
market penetration, niche penetration, or skimming and early withdrawal.
1- Mass-Market Penetration
 Objective of a mass- market penetration strategy is to capture and maintain a commanding share of
the total market for the new product.
 The marketing task is to convince as many potential customers as possible to adopt the pioneer’s
product quickly to drive down unit costs and build a large contingent of loyal customers before
competitors enter the market.
  Mass-market penetration is most successful when entry barriers inhibit or delay the appearance of
competitors, thus allowing the pioneer more time to build volume, lower costs, and create loyal
customers, or when the pioneer has competencies or resources that most potential competitors
cannot match.
 A smaller firm with limited resources can successfully employ a mass-market penetration strategy
if the market has a protracted adoption process and slow initial growth.
 Slow growth can delay competitive entry because fewer competitors are attracted to a
market with questionable future growth. This allows the pioneer more time to expand
capacity.
 Mass-market penetration is an appropriate strategy when the product category is likely to
experience positive network effects.
2- Niche Penetration
 Niche penetration: focusing on a single market segment. It can help the smaller pioneer gain the
biggest bang for its limited bucks and avoid direct confrontations with bigger competitors.
 It is most appropriate when the new market is expected to grow quickly and there are a number of
different benefit or applications segments to appeal to. It is attractive when there are few barriers to
the entry of major competitors and when the pioneer has only limited resources and competencies
to defend any advantage it gains through early entry.
3- Skimming and Early Withdrawal
 Skimming strategy: setting a high price and engaging in only limited advertising and promotion
to maximize per-unit profits and recover the product’s development costs as quickly as possible.
 The firm may work to develop new applications for its technology or the next generation of more
advanced technology.
 Either small or large firms can use strategies of skimming and early withdrawal.
 It is critical that the company have good R&D and product development skills so it can produce a
constant stream of new products or new applications to replace older ones as they attract heavy
competition.

#7. What are the components of strategic marketing programs for pioneers?

Strategic Skimming; early

Mass-market penetration Niche penetration
objectives and tasks withdrawal
Heavy advertising to generate Heavy advertising directed at Limited advertising to generate
Increase customers’
awareness among customers in target segment to generate awareness, particularly among
awareness and • • •
mass market; broad use of mass awareness; use selective media least price sensitive early
willingness to buy
media. relevant to target. adopters.
Extensive salesforce efforts Extensive salesforce efforts
Extensive salesforce efforts to
focused on potential customers in particularly focused on largest
win new adopters; possible use of
• • target segment; possible use of • potential adopters; possible use
incentives, to encourage new
incentives to encourage new of volume-based incentives to
product sales.
product sales to target accounts. encourage new product sales.
Advertising and sales appeals Advertising and sales appeals Advertising and sales appeals
• stress generic benefits of new • stress generic benefits of new • stress generic benefits of new
product types. product type. product type.
Extensive introductory sales Limited use, if any, of
Extensive introductory sales
promotions to induce trial introductory sales promotions; if
• • promotions to induce trial, but •
(sampling, couponing, quantity used, they should be volume-
focused on target segment.
discounts). based quantity discounts.
Move relatively quickly to Additional product development
Little, if any, additional
expand offerings (line extensions, limited to improvements or
• • • development within the
multiple package sizes) to modifications to increase appeal
product category.
appeal to multiple segments. to target segment.
Offer free trial, liberal return or Offer free trial, liberal return or
Offer free trial, liberal return or
extended warranty policies to extended warranty policies to
extended warranty policies to
• • reduce target customers’ • reduce target customers’
reduce customers’ perceived risk
perceived risk of adopting the perceived risk of adopting the
of adopting the new product.
new product. new product.
Increase customers’ • Penetration pricing; or start with • Penetration pricing; or start with • Skimming pricing; attempt to
 high price but bring out lower- high price but bring out lower-
maintain margins at level
priced versions in priced versions in
ability to buy consistent with value of product
anticipation of competitive anticipation of competitive
to early adopters.
entries. entries.
Extended credit terms to Extended credit terms to Extended credit terms to
• • •
encourage initial purchases. encourage initial purchases. encourage initial purchases.
Trade promotions aimed at
Heavy use of trade promotions gaining solid distribution along Limited use of trade promotions;
• aimed at gaining • retailers or distributors • only as necessary to gain
extensive distribution. pertinent for reaching target adequate distribution.
segment.
Offer engineering, installation Offer engineering, installation
and training services to and training services to Offer limited engineering,
increase new product’s increase new product’s installation and services as
• • •
compatibility with customers’ compatibility with customers’ necessary to overcome
current operations to reduce current operations to reduce customers’ objections.
switching costs. switching costs.

#8. Briefly explain three basic mechanisms for entering a foreign market.

Three basic mechanisms for entering a foreign market: exporting through agents, contractual
agreements, and direct investment.

Three basic mechanisms for entering a foreign market: exporting through agents, contractual agreements, and
direct investment.
Exporting has the advantage of lowering the financial risk for a pioneer entering an unfamiliar foreign market.
Such arrangements also afford a pioneer relatively little control over the marketing and distribution of its
product or service.

Investing in a wholly owned subsidiary typically makes little sense until it becomes clear that the pioneering
product will win customer acceptance.

Intermediate modes of entry, such as licensing or forming a joint venture with a local firm in the host country,
tend to be the preferred means of developing global markets for new products.