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, has the resources to purchase the product, and is permitted by law and other regulations to acquire the product. The market definition begins with the total population and progrssively narrows as shown in the following diagram. Market Definition Conceptual Diagram
Beginning with the total population, various terms are used to describe the market based on the level of narrowing:
• • • •
Total population Potential market - those in the total population who have interest in acquiring the product. Available market - those in the potential market who have enough money to buy the product. Qualified available market - those in the available market who legally are permitted to buy the product.
Target market - the segment of the qualified available market that the firm has decided to serve (the served market). Penetrated market - those in the target market who have purchased the product.
In the above listing, "product" refers to both physical products and services. The size of the market is not necessarily fixed. For example, the size of the available market for a product can be increased by decreasing the product's price, and the size of the qualified available market can be increased through changes in legislation that result in fewer restrictions on who can buy the product. Defining the market is the first step in analyzing it. Since the market is likely to be composed of consumers whose needs differ, market segmentation is useful in order to better understand those needs and to select the groups within the market that the firm will serve. Ansoff Matrix To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below: Ansoff Matrix Existing Products
Ansoff's matrix provides four different growth strategies:
Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.
• • •
Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets.
Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk. The BCG Growth-Share Matrix The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share". Market growth serves as
a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability. BCG Growth-Share Matrix
This framework assumes that an increase in relative market share will result in an increase in the generation of cash. This assumption often is true because of the experience curve; increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors, thus developing a cost advantage. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its cash consumption. Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-Share Matrix was born. The four categories are:
Dogs - Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture. Question marks - Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash comsumption. A
question mark (also known as a "problem child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Stars - Stars generate large amounts of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it will become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation. Cash cows - As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generate more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the cash required to turn question marks into market leaders, to cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the present value of its cash stream using a discounted cash flow analysis.
Under the growth-share matrix model, as an industry matures and its growth rate declines, a business unit will become either a cash cow or a dog, determined soley by whether it had become the market leader during the period of high growth. While originally developed as a model for resource allocation among the various business units in a corporation, the growth-share matrix also can be used for resource allocation among products within a single business unit. Its simplicity is its strength - the relative positions of the firm's entire business portfolio can be displayed in a single diagram. Limitations The growth-share matrix once was used widely, but has since faded from popularity as more comprehensive models have been developed. Some of its weaknesses are:
Market growth rate is only one factor in industry attractiveness, and relative market share is only one factor in competitive advantage. The
. A business unit may dominate its small niche. Here is the ' Seven Steps to Brand-Led Marketing ' that we promised you.. but there is another dimension. If you can't find this point of difference you're in danger of becoming a price-based commodity. the definition of the market can make the difference between a dog and a cash cow. Because of that they are of limited help in inspiring or guiding the behaviour of the business team. The framework assumes that each business unit is independent of the others. 'best'. In some cases. look around. Brand-led marketing ensures that you meet customer needs in a way that is different from your competitors . In such a case. Too many business Visions include words like 'leader'. Few business managers take adequate time out to stop. most companies die young. economic trends or technology developments that might have an impact on my business? Step 3: Have a Meaningful Vision for your Business and your Brand A business Vision (or Mission ) has a number or roles: most important of which are to inspire and guide. While its importance has diminished. Words like this can mean many different things to different people.• • growth-share matrix overlooks many other factors in these two important determinants of profitability. 'most successful'. at least once a quarter : What are the changing consumer trends. the BCG matrix still can serve as a simple tool for viewing a corporation's business portfolio at a glance. and may serve as a starting point for discussing resource allocation among strategic business units. As a result. Step 1: Become truly 'Marketing Minded' When many people think of marketing they think of meeting customers needs. legislation. 'preeminent'. and reflect on how these changes might have an impact. but have very low market share in the overall industry. Ask yourself. The matrix depends heavily upon the breadth of the definition of the market. a business unit that is a "dog" may be helping other business units gain a competitive advantage. Brand Visions have just the same . Understanding and responding to changing customer needs is essential. Ask yourself: Do my customers really see me as different from my closest competitors? How/Why? What can I do to make my business more distinctive and appealing to help secure them as long-term and profitable customers? Step 2: Monitor the Changing Environment We live in a rapidly changing world of many threats and opportunities. competitor activity.
Nor is it just about your 'product' or 'service'. ask yourself : How can I build learning into this.you have to know where you want to get to! Ask yourself : Do I have a brand plan with clear. and how much trust they have in you. If you can achieve steps 1 6 that's great. ask yourself : Will this get me closer to where I want to be in the mind of my customers? Step 5: Plan for Success There is a phrase: " If you don't know where you want to go. and then consider everything that you say and do. You have to be prepared to change. and it is true in business. measurable objectives? (And am I measuring the things that are really important!). any road will get you there ". In everything that you say and do. measurable objectives . To build a strong brand you have to have a clear idea of how you want to be thought of. Step 6: Become a 'Learning Business' Continuously improving your brand-led effectiveness is essential to long-term success. so that I can find out what works and what doesn't. Ask yourself : Do I have a brand Vision that everyone understands and has bought into? How might I improve my brand Vision. If you want to succeed you have to have clear.function. but you have to go one step further. Don't just do the same things better. . experiment and anticipate. and do it better next time? Step 7: Be Prepared to Change What worked in the past may not work in the future. so it is a stronger inspiration and guide? Step 4: Build Your Brand 'From the Inside Out ' Building a brand is not just about advertising or 'marketing communications'. look around for new ways of pursuing your vision and your desired brand. Your brand is really what your customers think of you. The best way to achieve this is to ensure that you take a little time to become a 'Learning Business' by building learning into your processes. Make sure that you have a written Vision for your brand that is strong enough to inspire and guide behavior. For every marketing initiative you undertake. Explore. This is true in life.
Each of the three options are considered within the context of two aspects of the competitive environment: Sources of competitive advantage .Generic Strategies . and seem to be even more popular today.' However. Factories are built and maintained. Differentiation. Differentiation Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices . 'cost advantage' is the focus. Cost Leadership The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. niche market? The generic strategies are: 1. 2. labor is recruited and trained to deliver the lowest possible costs of production. 2. or are they the lowest cost producer in an industry? Competitive scope of the market .are the products differentiated in any way. exploiting the benefits of a bigger margin than competitors. 1. Products tend to be 'no frills. Cost leadership. are very good not only at producing high quality autos at a low price. but have the brand and marketing skills to use a premium pricing policy. or does it focus on a very narrow. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Producers could price at competitive parity.does the company target a wide market. Some organization. low cost does not always lead to low price. Costs are shaved off every element of the value chain.Michael Porter (1980) Generic strategies were used initially in the early 1980s. Focus. and 3. such as Toyota.
Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy. The Need for Market Segmentation The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs. Mass marketing allows economies of scale to be realized through mass production. It is argued that if you select one or more approaches. These costs must be offset by the increase in revenue generated by sales. There are potentially problems with the niche approach. that your organization gets stuck in the middle without a competitive advantage. Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Cost focus is unachievable with an industry depending upon economies of scale e. mass distribution. Focus or Niche strategy The focus strategy is also known as a 'niche' strategy. telecommunications. Costs must be recovered. generating a higher than average price. Competitive advantage is generated specifically for the niche. a niche strategy could be more suitable. Therefore there is always an incentive to innovated and continuously improve. and it rarely is possible to satisfy all customers by treating them alike.g. and then fail to achieve them. Small. There is also the chance that any differentiation could be copied by competitors. A company could use either a cost focus or a differentiation focus. British Airways differentiates its service. Market Segmentation Market segmentation is the identification of portions of the market that are different from one another. defined segment of a market.' Make sure that you select one generic strategy. The differentiating organization will incur additional costs in creating their competitive advantage. A niche strategy is often used by smaller firms. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments. For example. 3. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. Here an organization focuses effort and resources on a narrow. . With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. specialist niches could disappear in the long term. The danger of being 'stuck in the middle.and focus on value that generates a comparatively higher price and a better margin. Segmentation allows the firm to better satisfy the needs of its potential customers.
The drawback of mass marketing is that customer needs and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. Substantial: the segments should be sufficiently large to justify the resources required to target them. Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. that is. • • Region: by continent. Bases for Segmentation in Consumer Markets Consumer markets can be segmented on the following customer characteristics. and the incumbant firms would lose those customers. state. for segments to be practical they should be evaluated against the following criteria: • • • • • Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified. or even neighborhood Size of metropolitan area: segmented according to size of population . Unique needs: to justify separate offerings.and mass communication. If firms ignored the differing customer needs. The first step in target marketing is to identify different market segments and their needs. Accessible: the segments must be reachable through communication and distribution channels. another firm likely would enter the market with a product that serves a specific group. • • • • Geographic Demographic Psychographic Behavioralistic Geographic Segmentation The following are some examples of geographic variables often used in segmentation. Requirements of Market Segments In addition to having different needs. Durable: the segments should be relatively stable to minimize the cost of frequent changes. and as different as possible between segments. the segments must respond differently to the different marketing mixes. as similar as possible within the segment. A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous. country.
Income Occupation Education Ethnicity Nationality Religion Social class Many of these variables have standard categories for their values. or rural Climate: according to weather patterns common to certain geographic regions Demographic Segmentation Some demographic segmentation variables include: • • • • • • • • • • • • Age Gender Family size Family lifecycle Generation: baby-boomers. Some psychographic variables include: • • • • • Activities Interests Opinions Attitudes Values Behavioralistic Segmentation Behavioral segmentation is based on actual customer behavior toward products. interests. married with no children (DINKS: Double Income. Psychographic Segmentation Psychographic segmentation groups customers according to their lifestyle. or III depending on the age of the children. for example. Activities. family lifecycle often is expressed as bachelor. Some of these categories have several stages.• • Population density: often classified as urban. Generation X. empty-nest. For example. and opinions (AIO) surveys are one tool for measuring lifestyle. No Kids). full-nest I. suburban. etc. II. Some behavioralistic variables include: • • Benefits sought Usage rate . or solitary survivor. full-nest.
Company Type Business customers can be classified according to type as follows: • • • • Company size Industry Decision making unit Purchase Criteria Behavioral Characteristics In industrial markets. first-time. Many of the consumer market segmentation variables can be applied to industrial markets. Bases for Segmentation in Industrial Markets In contrast to consumers. industrial customers tend to be fewer in number and purchase larger quantities. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region. Industrial markets might be segmented on characteristics such as: • • • Location Company type Behavioral characteristics Location In industrial markets. patterns of purchase behavior can be a basis for segmentation. as well as resellers. governments. and the decision process usually involves more than one person. Readiness to buy Occasions: holidays and events that stimulate purchases Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation. and institutions. so distance from the vendor may be critical. They evaluate offerings in more detail. Such behavioral characteristics may include: .• • • • Brand loyalty User status: potential. etc. regular. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio. customer location may be important in some cases. These characteristics apply to organizations such as manufacturers and service providers.
Virtually everything that could be produced was sold easily by a sales team whose job it was simply to execute transactions at a price determined by the cost of production. they are not restricted to those periods and are still practiced by some firms today. but this has not always been the case. it would not be adopted widely until nearly 200 years later. In 1776 in The Wealth of Nations. The Sales Concept By the early 1930's however. first-time. The key questions that a firm would ask before producing a product were: • • Can we produce the product? Can we produce enough of it? At the time. To better understand the marketing concept. Around this . negotiations. etc. Today most firms have adopted the marketing concept. Purchase procedure: sealed bids. While these alternative concepts prevailed during different historical time frames. The Production Concept The production concept prevailed from the time of the industrial revolution until the early 1920's. better than the competition. The Marketing Concept The marketing concept is the philosophy that firms should analyze the needs of their customers and then make decisions to satisfy those needs.• • • Usage rate Buying status: potential. and there was little unfulfilled demand. etc. it is worthwhile to put it in perspective by reviewing other philosophies that once were predominant. regular. mass production had become commonplace. The production concept prevailed into the late 1920's. While this philosophy is consistent with the marketing concept. the production concept worked fairly well because the goods that were produced were largely those of basic necessity and there was a relatively high level of unfulfilled demand. competition had increased. The production concept was the idea that a firm should focus on those products that it could produce most efficiently and that the creation of a supply of low-cost products would in and of itself create the demand for the products. Adam Smith wrote that the needs of producers should be considered only with regard to meeting the needs of consumers.
they typically set up separate marketing departments whose objective it was to satisfy customer needs. While this expanded sales department structure can be found in some companies today. The key questions became: • • • What do customers want? Can we develop it while they still want it? How can we keep our customers satisfied? In response to these discerning customers. Marketing was a function that was performed after the product was developed and produced. . and many people came to associate marketing with hard selling. firms began to practice the sales concept (or selling concept). but also would try to convince customers to buy them through advertising and personal selling. With increased discretionary income. Since the entire organization exists to satisfy customer needs. which involves: • • • Focusing on customer needs before developing the product Aligning all functions of the company to focus on those needs Realizing a profit by successfully satisfying customer needs over the longterm When firms first began to adopt the marketing concept. Before producing a product. Often these departments were sales departments with expanded responsibilities. under which companies not only would produce the products. the goal simply was to beat the competition to the sale with little regard to customer satisfaction. many firms have structured themselves into marketing organizations having a company-wide customer focus. and these needs were not immediately obvious.time. many people use the word "marketing" when they really mean sales. Even today. customers could afford to be selective and buy only those products that precisely met their changing needs. the key questions were: • • Can we sell the product? Can we charge enough for it? The sales concept paid little attention to whether the product actually was needed. the variety of products increased and hard selling no longer could be relied upon to generate sales.everybody must be concerned with customer satisfaction. firms began to adopt the marketing concept. The Marketing Concept After World War II. nobody can neglect a customer issue by declaring it a "marketing problem" .
advertising. their size. the marketing team makes decisions about the controllable parameters of the marketing mix. pricing. branding. The Concept of the Marketing Mix. E. To satisfy those needs. display. and fact finding and analysis. promotions. physical handling. Jerome McCarthy later grouped these ingredients into the four categories that today are known as the 4 P's of marketing. Borden published his 1964 article. and their needs. Borden began using the term in his teaching in the late 1940's after James Culliton had described the marketing manager as a "mixer of ingredients". servicing.The marketing concept relies upon marketing research to define market segments. The Marketing Mix (The 4 P's of Marketing) Marketing decisions generally fall into the following four controllable categories: • • • • Product Price Place (distribution) Promotion The term "marketing mix" became popularized after Neil H. distribution channels. depicted below: The Marketing Mix . The ingredients in Borden's marketing mix included product planning. personal selling. packaging.
selective. or exclusive distribution) Specific channel members Inventory management Warehousing Distribution centers Order processing Transportation . penetration. Here are some examples of the product decisions to be made: • • • • • • • • • Brand name Functionality Styling Quality Safety Packaging Repairs and Support Warranty Accessories and services Price Decisions Some examples of pricing decisions to be made include: • • • • • • • • Pricing strategy (skim. physical products as well as services. etc. Some examples of distribution decisions include: • • • • • • • • Distribution channels Market coverage (inclusive. The goal is to make decisions that center the four P's on the customers in the target market in order to create perceived value and generate a positive response.) Suggested retail price Volume discounts and wholesale pricing Cash and early payment discounts Seasonal pricing Bundling Price flexibility Price discrimination Distribution (Place) Decisions Distribution is about getting the products to the customer. Product Decisions The term "product" refers to tangible.These four P's are the parameters that the marketing manager can control. subject to the internal and external constraints of the marketing environment.
which offers a single product to the entire market. process. with marketing more integrated into organizations and with a wider variety of products and markets. Marketing communication decisions include: • • • • • • Promotional strategy (push. promotion represents the various aspects of marketing communication. Attractiveness of a Market Segment The following are some examples of aspects that should be considered when evaluating the attractiveness of a market segment: • Size of the segment (number of customers and/or number of units) . some authors have attempted to extend its usefulness by proposing a fifth P. Today however.• Reverse logistics Promotion Decisions In the context of the marketing mix. such as packaging. Despite its limitations and perhaps because of its simplicity. Today. the marketing mix most commonly remains based on the 4 P's. etc. resources. pull. Target marketing contrasts with mass marketing.) Advertising Personal selling & sales force Sales promotions Public relations & publicity Marketing communications budget Limitations of the Marketing Mix Framework The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. the use of this framework remains strong and many marketing textbooks have been organized around it. Two important factors to consider when selecting a target market segment are the attractiveness of the segment and the fit between the segment and the firm's objectives. that is. etc. Target Market Selection Target marketing tailors a marketing mix for one or more segments identified by market segmentation. people. and capabilities. the communication of information about the product with the goal of generating a positive customer response.
and the more attractive the market segment. Selective specialization. and statistical demand analysis are useful for determining sales potential. it may find it profitable to pursue a larger market segment. test marketing. also known as a differentiated strategy. A single-segment approach often is the strategy of choice for smaller companies with limited resources. salesforce estimates. via patent protection. if the firm can develop a competitive advantage. the greater the profit potential to the firm.• • • • • • • Growth rate of the segment Competition in the segment Brand loyalty of existing customers in the segment Attainable market share given promotional budget and competitors' expenditures Required market share to break even Sales potential for the firm in the segment Expected profit margins in the segment Market research and analysis is instrumental in obtaining this information. resources. Suitability of Market Segments to the Firm Market segments also should be evaluated according to how they fit the firm's objectives. Some aspects of fit include: • • • • Whether the firm can offer superior value to the customers in the segment The impact of serving the segment on the firm's image Access to distribution channels required to serve the segment The firm's resources vs. For example.this is a multiple-segment strategy. One market segment (not the entire market) is served with one marketing mix. capital investment required to serve the segment The better the firm's fit to a market segment. Target Market Strategies There are several different target-market strategies that may be followed. On the other hand. for example. Note that larger segments are not necessarily the most profitable to target since they likely will have more competition. Targeting strategies usually can be categorized as one of the following: • • Single-segment strategy . buyer intentions. It may be more profitable to serve one or more smaller segments that have little competition. and capabilities. Different marketing mixes are offered to .also known as a concentrated strategy. The impact of applicable micro-environmental and macro-environmental variables on the market segment should be considered.
Single Segment S1 S2 S3 P1 P2 P3 P1 P2 P3 Selective Specialization S1 S2 S3 P1 P2 P3 Product Specialization S1 S2 S3 P1 P2 P3 Market Specialization S1 S2 S3 P1 P2 P3 Full Market Coverage S1 S2 S3 A firm that is seeking to enter a market and grow should first target the most attractive segment that matches its capabilities.in many cases only the promotional message or distribution channels vary. and S3. tailoring the product for different segments. If a curve is drawn showing product revenue over time. P2. or by pursuing a market specialization strategy and offering new products to its existing market segment. and P3. or by a differentiated strategy in which a separate marketing mix is offered to each segment. The Product Life Cycle A product's life cycle (PLC) can be divided into several stages characterized by the revenue generated by the product. Another strategy whose use is increasing is individual marketing.• • • different segments. individual marketing is becoming more viable thanks to advances in technology. Full market coverage . in which the marketing mix is tailored on an individual consumer basis. Product specialization.the firm specializes in serving a particular market segment and offers that segment an array of different products. it can expand by pursuing a product specialization strategy.the firm attempts to serve the entire market. and three products P1. This coverage can be achieved by means of either a mass market strategy in which a single undifferentiated marketing mix is offered to the entire market. it may take one of many different shapes.the firm specializes in a particular product and tailors it to different market segments. The following diagrams show examples of the five market selection patterns given three market segments S1. S2. Market specialization. Once it gains a foothold. While in the past impractical. an example of which is shown below: . The product itself may or may not be different .
the primary goal is to establish a market and build primary demand for the product class. Introduction Stage When the product is introduced. During the introduction stage. sales will be low until customers become aware of the product and its benefits. changes in the marketing mix usually are required in order to adjust to the evolving challenges and opportunities. There are no sales and the firm prepares to introduce the product. assuming a skim pricing strategy for a high profit margin as the early adopters buy the product and the firm seeks to recoup .one or few products.Generally high. During the introductory stage the firm is likely to incur additional costs associated with the initial distribution of the product. As the product progresses through its life cycle. These higher costs coupled with a low sales volume usually make the introduction stage a period of negative profits. Advertising costs typically are high during this stage in order to rapidly increase customer awareness of the product and to target the early adopters. The following are some of the marketing mix implications of the introduction stage: • • Product . Product development is the incubation stage of the product life cycle. but such announcements also alert competitors and remove the element of surprise.Product Life Cycle Curve The life cycle concept may apply to a brand or to a category of product. Its duration may be as short as a few months for a fad item or a century or more for product categories such as the gasoline-powered automobile. Some firms may announce their product before it is introduced. relatively undifferentiated Price .
Maturity Stage The maturity stage is the most profitable. Growth Stage The growth stage is a period of rapid revenue growth.Distribution becomes more intensive. Sales promotions may be offered to encourage retailers to give the product more shelf space over competing products. The marketing mix may be modified as follows: • • • • Product . and converting non-users into customers. While sales continue to increase into this stage. Samples or trial incentives may be directed toward early adopters. increasing the difficulty of differentiating the product. When competitors enter the market. there may be price competition and/or increased promotional costs in order to convince consumers that the firm's product is better than that of the competition.• • development costs quickly. the primary goal is to maintain market share and extend the product life cycle. Trade discounts are minimal if resellers show a strong interest in the product. or reduced to capture additional customers. Because brand awareness is strong. Competition may result in decreased market share and/or prices. During the maturity stage. they do so at a slower pace. The firm places effort into encouraging competitors' customers to switch. Promotion . Marketing mix decisions may include: . The introductory promotion also is intended to convince potential resellers to carry the product.Maintained at a high level if demand is high. Once the product has been proven a success and customers begin asking for it. Price . often during the later part of the growth stage.Promotion is aimed at building brand awareness. Promotion . In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly. Sales increase as more customers become aware of the product and its benefits and additional market segments are targeted. The competing products may be very similar at this point.New product features and packaging options. advertising expenditures will be reduced. increasing usage per customer. The marketing team may expand the distribution at this point. improvement of product quality. sales will increase further as more retailers become interested in carrying it.Increased advertising to build brand preference.Distribution is selective and scattered as the firm commences implementation of the distribution plan. Distribution . the goal is to gain consumer preference and increase sales. During the growth stage. Distribution .
Distribution .The number of products in the product line may be reduced. During the decline phase. or customer tastes change. reducing marketing support and coasting along until no more profit can be made.New distribution channels and incentives to resellers in order to avoid losing shelf space. Decline Stage Eventually sales begin to decline as the market becomes saturated.Distribution becomes more selective. Promotion .Possible price reductions in response to competition while avoiding a price war.Emphasis on differentiation and building of brand loyalty. the life cycle concept is not well-suited for the forecasting of product sales. Price . Price . Promotion .Expenditures are lower and aimed at reinforcing the brand image for continued products. Harvest it. the firm generally has three options: • • • Maintain the product in hopes that competitors will exit.Modifications are made and features are added in order to differentiate the product from competing products that may have been introduced. Discontinue the product when no more profit can be made or there is a successor product. Furthermore. the profitability may be maintained longer.• • • • Product . Prices may be maintained for continued products serving a niche market. Incentives to get competitors' customers to switch.Prices may be lowered to liquidate inventory of discontinued products. the product becomes technologically obsolete. Channels that no longer are profitable are phased out. critics have argued that the product life cycle may become self- . If the product has developed brand loyalty. Reduce costs and find new uses for the product. Unit costs may increase with the declining production volumes and eventually no more profit can be made. Rejuvenate surviving products to make them look new again. The marketing mix may be modified as follows: • • • • Product . Limitations of the Product Life Cycle Concept The term "life cycle" implies a well-defined life cycle as observed in living organisms. Distribution . Consequently. but products do not have such a predictable life and the specific life cycle curves followed by different products vary substantially.
In an overcommunicated environment. and regular use of the term dates back to 1972 when Ries and Trout published a series of articles in Advertising Age called "The Positioning Era. The consumer's mind reacts to this high volume of advertising by accepting only what is consistent with prior knowledge or experience. Positioning: The Battle for your Mind has become a classic in the field of marketing. The following is a summary of the key points made by Ries and Trout in their book. Madison Avenue advertising executives began to develop positioning slogans for their clients and positioning became a key aspect of marketing communications. Positioning: The Battle for your Mind. thus precipitating a further decline. It also is useful for monitoring sales results over time and comparing them to those of products having a similar life cycle.fulfilling. the advertiser should present a simplified message and make that message consistent with what the consumer already believes by focusing on the perceptions of the consumer rather than on the reality of the product. Positioning In their 1981 book. Nonetheless. Getting Into the Mind of the Consumer . For example. Al Ries and Jack Trout describe how positioning is used as a communication tool to reach target customers in a crowded marketplace. managers may conclude that the product is in the decline phase and therefore cut the advertising budget. the concept really is about positioning that product in the mind of the customer.S. if sales peak and then decline. Jack Trout published an article on positioning in 1969. Information Overload Ries and Trout explain that while positioning begins with a product. This approach is needed because consumers are bombarded with a continuous stream of advertising." Not long thereafter. It is quite difficult to change a consumer's impression once it is formed. Consumers cope with information overload by oversimplifying and are likely to shut out anything inconsistent with their knowledge and experience. with advertisers spending several hundred dollars annually per consumer in the U. the product life cycle concept helps marketing managers to plan alternate marketing strategies to address the challenges that their products are likely to face.
especially in the short-term.The easiest way of getting into someone's mind is to be first. the number one brand has twice the market share of number two. It is very easy to remember who is first. 2 in rent-a-cars. Lowenbrau was the most popular German beer sold in America. If a brand is not number one. By relating itself to Coke and Pepsi as the "Uncola". consumers finally were able to relate Avis to Hertz. Ries and Trout argue that the success of a brand is not due to the high level of marketing ." Consumers rank brands in their minds. Finally. For example. Similarly. a firm effectively can cut through the noise level of other products. pretending that the number one Hertz did not exist. Miller Lite was not the first light beer. Avis tried unsuccessfully for years to win customers. Rather. to challenge the leader head-on and try to displace it. A campaign that pretends that the market leader does not exist is likely to fail. Whether Avis actually tried harder was not particularly relevant to their success. then to be successful it somehow must relate itself to the number one brand. 7-Up was able to establish itself in the mind of the consumer as a desirable alternative to the standard colas. Another example is that of the soft-drink 7-Up. Positioning of a Leader Historically. By being the first to claim a unique position in the mind the consumer. "You've tasted the German beer that's the most popular in America. That is. Even if the second entrant offers a better product. it can be nearly impossible to displace the leader." After launching the campaign. On the other hand. When there is a clear market leader in the mind of the consumer. Now taste the German beer that's the most popular in Germany. all is not lost for products that are not the first. which was number one in their minds. "Avis in only No. however. Avis quickly became profitable. However. the first mover has a large advantage that can make up for other shortcomings. it began using the line. a firm usually can find a way to position itself in relation to the market leader so that it can increase its market share. complete with a name to support that position. but it was the first to be positioned as a light beer. which has twice the market share of number three. It usually is a mistake. 3 behind Coke and Pepsi. but Beck's Beer successfully carved a unique position using the advertising. so why go with us? We try harder. which was No. the top three brands in a product category occupy market share in a ratio of 4:2:1. and much more difficult to remember who is second.
The power of the company comes from the power of its brand. Similarly. Haloid changed its name to Haloid Xerox and later to simply Xerox. However. When new technology opens the possibility of a new market that may threaten the existing one. Xerox was the first plain-paper copier and was able to sustain its leadership position. and that is boast about being number one. unchanging position in the mind of the consumer. there are certain things that a market leader should do to maintain the leadership position. Another strategy that a leader can follow to maintain its position is the multibrand strategy. then customers will think that the firm is insecure in its position if it must reinforce it by saying so. a successful firm should consider entering the new market so that it will have the first-mover advantage in it. time after time the company failed in other product categories in which it was not first. change is inevitable and a leader must be willing to embrace change rather than resist it. If a firm was the first to introduce a product. It often is easier and cheaper to introduce a new brand rather than change the positioning of an existing brand. They use the case of Xerox to make this point. in the past century the New York Central Railroad lost its leadership as air travel became possible. For example. First. and Coca-Cola failed in its effort to use Mr. This is a typical pattern of changing Name 1 to an expanded Name 1 . Pepper. If a firm does so. and implies that other colas are just imitations. and later to just Name 2. but rather.acumen of the company itself. Pibb to take on Dr. Coca-Cola's "the real thing" does just that. Sometimes it is necessary to adopt a broader name in order to adapt to change. For example. Ries and Trout emphasize what it should not do. This strategy is to introduce multiple brands rather than changing existing ones that hold leadership positions. it is due to the fact that the company was first in the product category. Ries and Trout call this strategy a single-position strategy because each brand occupies a single.Name 2. With this point in mind. The company might have been able to maintain its leadership position had it used its resources to form an airline division. These examples support the point that the success of a brand usually is due to its being first in the market rather than the marketing abilities of the company. IBM failed when it tried to compete with Xerox in the copier market. Finally. not the other way around. then the advertising campaign should reinforce this fact. Positioning of a Follower .
Wise potato chips successfully repositioned Pringle's in the mind of consumers by listing some of Pringle's non-natural ingredients that sounded like harsh chemicals. most likely as a consequence of their thinking . contained only "Potatoes.Second-place companies often are late because they have chosen to spend valuable time improving their product before launching it." Volkswagen was not the first small car. Tylenol successfully repositioned aspirin by running advertisements explaining the negative side effects of aspirin. it is better to be first and establish leadership. Stolichnaya Russian vodka successfully repositioned its Russian-sounding competitors by exposing the fact that they all actually were made in the U. and that Stolichnaya was made in Leningrad. There are too many brands that already have claimed a position and have become entrenched leaders in their positions. even though they were not. Such was the case with vodka when most vodka brands sold in the U. According to Ries and Trout.S. Wise potato chips of course. Volkswagen introduced the Beetle with the slogan "Think small. but had Russian names. but they were the first to claim that position in the mind of the consumer. Consumers tend to perceive the origin of a product by its name rather than reading the label to find out where it really is made. When Pringle's new-fangled potato chips were introduced."the one beer to have when you're having more than one.. with consumers complaining that Pringle's tasted like cardboard.") It most likely is a mistake to build a brand by trying to appeal to everyone. it then must find an unoccupied position in which it can be first." As a resulting of this advertising. If a product is not going to be first.S.S. Pringle's quickly lost market share. Vegetable oil. However. Ries and Trout suggest repositioning a competitor by convincing consumers to view the competitor in a different way. Other positions that firms successfully have claimed include: • • • • • • age (Geritol) high price (Mobil 1 synthetic engine lubricant) gender (Virginia Slims) time of day (Nyquil night-time cold remedy) place of distribution (L'eggs in supermarkets) quantity (Schaefer . Repositioning the Competition Sometimes there are no unique positions to carve out. they quickly gained market share. In such cases. Salt. A product that seeks to be everything to everyone will end up being nothing to everyone. were made in the U. At a time when larger cars were popular. Russia.
as do "fair trade" laws. The Power of a Name A brand's name is perhaps the most important factor affecting perceptions of it. a promotional campaign could be developed to emphasize a sort of "pride of origin" for soy butter. Ries and Trout argue that is usually is a lost cause to try to bring a brand back into favor once it has gained a bad image. Ries and Trout believe that in the long run it is worth the effort and risk. The problem is that it sounds artificial and hides the true origin of the product. While some people might see soy in a negative light. Even a person's name impacts his or her success in life. positioning it as an alternative to cane sugar or beet sugar. . before there was a wide range of brands available. which is viewed by consumers as an inferior alternative to sugar. not just products. one supplier began calling it "corn sugar". however. it is necessary to have a memorable name that conjures up images that help to position the product. Head & Shoulders for a shampoo. in which case the name is not so important. Another everyday is example is that of corn syrup. People for a gossip magazine. Ries and Trout favor descriptive names rather than coined ones like Kodak or Xerox. Ries and Trout propose that "soy butter" would have been a much better name for positioning the product as an alternative to the more common type of butter that is made from milk. Close-Up for a toothpaste.about all those unnatural ingredients. coined names may be appropriate for new products in which a company is first to market with a soughtafter product. One study showed that on average. For example. and that in such situations it is better to introduce an entirely new brand. Names like DieHard for a battery. Repositioning a competitor is different from comparative advertising. These days. Ries and Trout propose that selecting the right name is important for positioning just about anything. Margarine is a name that does not very well position the product it is describing. schoolteachers grade essays written by children with names like David and Michael a full letter grade higher than those written by children with names like Hubert and Elmer. To improve the perceptions of corn syrup. Comparative advertising seeks to convince the consumer that one brand is simply better than another. a company could name a product just about anything. While it is more difficult to protect a generic name under trademark law. Consumers are not likely to be receptive to such a tactic. the Clean Air Act has a name that is difficult to oppose. In the past. In their opinion.
However. lesser known companies tend to lose their identity when they use such abbreviations. Goodrich with Goodyear. Ries and Trout advise managers who aspire for name recognition to use an actual name rather then first and middle initials. Few people confidently can say which makes cans and which sells insurance. they favored truncating it simply to Trans World instead removing all words and using the letters TWA.S. Ries and Trout argue that such changes usually are unwise. Air travel passengers always viewed it as a regional airline that served the eastern U. Inc. The same applies to people's names as well.F. The reason that initials do not lead to recognition is that the human mind works by sounds. (Eastern Airlines ceased operations in 1991. Goodrich eventually sold its tire business to Uniroyal. Take for instance The Continental Group. it is only after they become famous that they begin using their initials. Ries and Trout advise companies seeking more general names to select a shorter name made of words.) Another problem that some companies face is confusion with another company that has a similar name.. not individual letters. and as a result create confusion with other similar-sounding companies. For example.F. not by spellings. even though it served a much wider area.Eastern Airlines was an example of a company limited by its name. Most people don't know the types of business in which companies named USM or AMP are engaged. and Goodyear frequently received credit by consumers for tire products that B. GE is often used instead of General Electric. Consumers frequently confused the tire manufacturer B. (B. their original names became limiting.F. including the west coast. Most companies began selling a single product. for Trans World Airlines. they think "General Motors". The Goodyear blimp had made Goodyear tires well-known. As the successful firms grew in to conglomerates. many corporations have changed their legal names to a series of two or three letters. . and the name of the company usually reflected that product. Airlines such as American and United did not have such a perception problem. The No-Name Trap People tend use abbreviations when they have fewer syllables than the original term. and The Continental Corporation. While some famous people are known by their initials (such as FDR and JFK).) Other companies have changed their names to something more general. In order to make their company names more general and easier to say. Companies having a broad recognition may be able to use the abbreviated names and consumers will make the translation in their minds. When they hear "GM". IBM instead of International Business Machines. Goodrich has pioneered.
and the Life Savers chewing gum brand failed. However. However. it is a resource. Others. The company later introduced the first brand of soft bubble gum and gave it a new name: Bubble Yum. and the sales of Alka-Seltzer Plus came at the expense of AlkaSeltzer. Nonetheless. This product was very successful because it not only had a name different from the hard candy. consumers viewed Alka-Seltzer Plus simply as a better Alka-Seltzer. This moment of fame is a one-shot event and once it has passed. some companies do not want their new products to be anonymous with an unrecognized name. Ries and Trout generally do not believe that a line extension is a good idea. The consistent pattern in these cases is that either the new product does not succeed. either the new product will not be successful or the original product bearing the name will lose its leadership position. carefully positioning the product in a different part of the consumer's mind. This use of the Life Savers name was not consistent with the consumer's view of it. The Line Extension Trap Line extensions are tempting for companies as a way to leverage an existing popular brand. such as Procter & Gamble have selected new names for each new product. if the brand name has become near generic so that consumers consider the name and the product to be one and the same. in fact. For example. the company introduced a Life Savers chewing gum. Some firms have built a wide range of products on a single brand name. Nonetheless. To consumers. the product will not have a second chance to be fresh and new. Consider the case of Life Savers candy. it also had the the advantage of being the first soft bubble gum. When the product eventually catches the attention of the media. Alka-Seltzer named a new product Alka-Seltzer Plus. Ries and Trout cite many examples of failures due to line extensions. . or the original successful product loses market share as a result of its position being weakened by a diluted brand name. Ries and Trout propose that anonymity is not so bad. once under the spotlight the carefully designed positioning can be communicated exactly as intended. not from the market share of the competition. it will have the advantage of being seen without any previous bias. avoiding the need to build the brand from scratch.The Free-Ride Trap A company introducing a new product often is tempted to use the brand name of an existing product. and if a firm prepares for this event well. the brand name is synonymous with the hard round candy that has a hole in the middle. In fact. Ries and Trout do not favor this strategy since the original name already in positioned in the consumer's mind. Ries and Trout maintain that a single brand name cannot hold multiple positions.
Small ad budget . When developing a new product. Commodity product . Crowded market . Those sold on store shelves benefit more from their own name. What is Brand Equity? Brand equity is an intangible asset that depends on associations made by the consumer.When Line Extensions Can Work Despite the disadvantages of line extensions.without strong advertising support. However. this premium provides important information about the value of the brand. it might make sense to use the house name. The brand can add significant value when it is well recognized and has positive associations in the mind of the consumer. There are at least three perspectives from which to view brand equity: • Financial . Some of the cases provided by Ries and Trout include: • • • • • Low volume product .if the sales volume is not expected to be high. there are some cases in which it is not economically feasible to create a new brand and in which a line extension might work. branding is an important decision. Distribution by sales reps . countries. For example.products distributed through reps may not need a separate brand name. if consumers are willing to pay $100 more for a branded television over the same unbranded television. and even careers can benefit from a welldeveloped positioning strategy that focuses on a niche that is unoccupied in the mind of the consumer or decision-maker.One way to measure brand equity is to determine the price premium that a brand commands over a generic product. Positioning Has Broad Applications The concept of positioning applies to products in the broadest sense. Brand Equity A brand is a name or symbol used to identify the source of a product. This concept is referred to as brand equity. . expenses such as promotional costs must be taken into account when using this method to measure brand equity. tourist destinations.an undifferentiated commodity product has less need of its own name than does a breakthrough product. Services.if there is no unique position that the product can occupy.
This importance of actual experience by the customer implies that trial samples are more effective than advertising in the early stages of building a strong brand. Consumer-based . Managing Brand Equity. the value of brand extensions is more difficult to quantify than are direct financial measures of brand equity. 3.• • Brand extensions . appropriate brand extensions can enhance the core brand. the consumer should easily remember his or her positive evaluation of the brand. inferred attributes. The consumer's awareness and associations lead to perceived quality.make the brand easy to remember and develop repeat usage. Furthermore. brand loyalty. but only with related products having a perceived fit in the mind of the consumer. There should be accessible brand attitude. Alternative Means to Brand Equity . However. Some brands acquire a bad reputation that results in negative brand equity. A positive evaluation by the consumer is important. Negative brand equity can be measured by surveys in which consumers indicate that a discount is needed to purchase the brand over a generic product. The benefits of brand extensions are the leveraging of existing brand awareness thus reducing advertising expenditures. However.the brand should carry a consistent image over time to reinforce its place in the consumer's mind and develop a special relationship with the consumer. Peter H. Increases cash flow by increasing market share. Strong brand equity provides the following benefits: • • • Facilitates a more predictable income stream. Brand extensions can further fortify the brand. reducing promotional costs.A successful brand can be used as a platform to launch related products. Attitude strength is built by experience with a product. Building and Managing Brand Equity In his 1989 paper. 2.introduce a quality product with the strategy of using the brand as a platform from which to launch future products. and eventually. Fortification .A strong brand increases the consumer's attitude strength toward the product associated with the brand. brand equity is not always positive in value. Introduction . that is. Brand equity is an asset that can be sold or leased. and a lower risk from the perspective of the consumer. Farquhar outlined the following three stages that are required in order to build a strong brand: 1. and allowing premium pricing. Elaboration .
the extensions are unsuccessful and can dilute the original brand equity. Protecting Brand Equity The marketing mix should focus on building and protecting brand equity. Bold. and the promotional campaign should build consistent associations. For example. In other cases. Multi-brand categories . Nesquik. Managing Multiple Brands Different companies have opted for different brand strategies for multiple products. the distribution channels should be consistent with what is expected of a premium brand. potentially dilutive extensions that are inconsistent with the consumer's perception of the brand should be avoided. Sony offers many different product categories under its brand. Umbrella . and Nestea for beverages. in laundry detergents Procter & Gamble offers uniquely positioned brands such as Tide. and V8 for juices. the success of brand licensing is not guaranteed and must be analyzed carefully for appropriateness. For example. the product quality should be consistent with what consumers expect of the brand. Pepperidge Farm for baked goods.Building brand equity requires a significant effort. In some cases. Finally. These strategies are: • • • • Single brand identity . etc. Extensions also should be avoided if the core brand is not yet sufficiently strong. if the brand is positioned as a premium product. Campbell Soup Company uses Campbell's for soups.a separate brand for each product. For example. For example. especially when there is a perceptual connection between the products. .Different brands having a common name stem. Cheer. Brand equity also can be "bought" by licensing the use of a strong brand for a new product. brand equity can be borrowed by extending the brand name to a line of products in the same product category or even to other categories. and some companies use alternative means of achieving the benefits of a strong brand. As in line extensions by the same company. such extensions are successful.all products under the same brand.Different brands for different product categories. Brand equity is an important factor in multi-product branding strategies. Family of names . low sale prices should not be used compete. Nestle uses Nescafe.
using information collected in the above steps. the following is a general sequence of steps that might be followed for developing the pricing of a new product: 1. etc. and promotion. Because of inherent tradeoffs between marketing mix elements.evaluate likely competitor actions. Calculate cost . channel decisions. 5. segmentation. the marketing strategy is formulated. pricing affects other marketing mix elements such as product features. Pricing is an important strategic issue because it is related to product positioning. There usually is a tradeoff between product quality and price. it is important to understand the impact of pricing on sales by estimating the demand curve for the product. distribution. and promotion decisions.include fixed and variable costs associated with the product. so price is an important variable in positioning. pricing will depend on other product. Make marketing mix decisions . While there is no single recipe to determine pricing. Determine pricing . understand legal constraints. 3. Estimate the demand curve . revenue maximization.perform marketing analysis. select a pricing method. Understand environmental factors . develop the pricing structure. . and promotional tactics. distribution. Furthermore. the above list serves to present a starting framework. These steps are interrelated and are not necessarily performed in the above order.define the product. 4.understand how quantity demanded varies with price. Nonetheless. targeting. and positioning. and define discounts. Develop marketing strategy . 6. including target market selection and product positioning. 2. Estimate the Demand Curve Because there is a relationship between price and quantity demanded.Pricing Strategy One of the four major elements of the marketing mix is price. 7.for example. or price stabilization (status quo). Set pricing objectives . Marketing Strategy and the Marketing Mix Before the product is developed. profit maximization.
Pricing Objectives The firm's pricing objectives must be identified in order to determine the optimal pricing. Setting the price too high may attract a large number of competitors who want to share in the profits. From a competitive standpoint. Offering a different price for different consumers may violate laws against price discrimination. From a legal standpoint. Current revenue maximization . Maximize quantity . The unit cost of the product sets the lower limit of what the firm might charge. For example. Finally. a firm is not free to price its products at any level it chooses. there might be no profit to be made. Common objectives include the following: • • • Current profit maximization . The pricing policy should consider both types of costs. experiments can be performed at prices above and below the current price in order to determine the price elasticity of demand. The total unit cost of a producing a product is composed of the variable cost of producing each additional unit and fixed costs that are incurred regardless of the quantity produced. The underlying objective often is to maximize long-term profits by increasing market share and lowering costs. For example.seeks to maximize current profit. . Inelastic demand indicates that price increases might be feasible. and determines the profit margin at higher prices. otherwise.For existing products.seeks to maximize the number of units sold or the number of customers served in order to decrease long-term costs as predicted by the experience curve.seeks to maximize current revenue with no regard to profit margins. Pricing it too low may be considered predatory pricing or "dumping" in the case of international trade. Environmental Factors Pricing must take into account the competitive and legal environment in which the company operates. there likely is at least a basic understanding of the costs involved. the firm must consider the implications of its pricing on the pricing decisions of competitors. there may be price controls that prohibit pricing a product too high. Calculate Costs If the firm has decided to launch the product. taking into account revenue and costs. setting the price too low may risk a price war that may not be in the best interest of either side. collusion with competitors to fix prices at an agreed level is illegal in many countries. Current profit maximization may not be the best objective if it results in lower long-term profits.
customers are price sensitive and the quantity demanded will increase significantly as price declines. that is.use price to signal high quality in an attempt to position the product as the quality leader. Partial cost recovery . that is. Status quo . Skimming is a strategy used to pursue the objective of profit margin maximization. Large cost savings are not expected at high volumes. skim pricing and penetration pricing strategies often are employed. Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and selling to those customers who are less price sensitive. To meet these objectives. the customers are not highly price sensitive. Skimming is most appropriate when: • • • Demand is expected to be relatively inelastic.the firm may seek price stabilization in order to avoid price wars and maintain a moderate but stable level of profit. Joel Dean discussed these pricing policies in his classic HBR article entitled. In this case. The company does not have the resources to finance the large capital expenditures necessary for high volume production with initially low profit margins. For new products. It is most appropriate when: • • • • Demand is expected to be highly elastic. or it is difficult to predict the cost savings that would be achieved at high volume. survival may take a priority over profits. the goal may be to select a price that will cover costs and permit the firm to remain in the market.an organization that has other revenue sources may seek only partial cost recovery. . Penetration pricing pursues the objective of quantity maximization by means of a low price. As such. so this objective is considered temporary. the pricing objective often is either to maximize profit margin or to maximize quantity (market share). Pricing Policies for New Products. recognizing that quantities will be low.• • • • • Maximize profit margin . Quality leadership . The product is of the nature of something that can gain mass appeal fairly quickly. the pricing policy should be reevaluated over time. There is a threat of impending competition. Large decreases in cost are expected as cumulative volume increases.in situations such as market decline and overcapacity. there likely will be changes in the demand curve and costs. As the product lifecycle progresses.attempts to maximize the unit profit margin. Survival .
The seller will therefore charge 99p instead £1 or $199 instead of $200. Competition pricing: Setting a price in comparison with competitors. . Once market share has been captured the firm may well then increase their price. Common methods are buy one and get one free promotions or BOGOF's as they are now known. price the same or price higher. first class airline services. Penetration pricing: Here the organisation sets a low price to increase sales and market share. My favourite pricing strategy. and the product's anticipated price elasticity of demand. rate of product diffusion. existence of economies of scale. the firm's resources. Skimming pricing: The organisation sets an initial high price and then slowly lowers the price to make the product available to a wider market. An example of products using this strategy would be Harrods. Really a firm has three options and these are to price lower. This form of price discrimination assists the company in maximising turnover and profits.The pricing objective depends on many factors including production cost. product differentiation. barriers to entry. An example would be a DVD manufacturer offering different DVD recorders with different features at different prices eg A HD and non HD version. Within the UK some firms are now moving into the realms of buy one get two free can we call this BOGTF i wonder? Psychological pricing: The seller here will consider the psychology of price and the positioning of price within the market place. Premium pricing: The price set is high to reflect the exclusiveness of the product. The pricing strategies are based much on what objectives the company has set itself to achieve. even thought it was a pound or dollar away. Porsche etc. The objective is to skim profits of the market layer by layer. The reason why this methods work. is because buyers will still say they purchased their product under £200 pounds or dollars. Types of Pricing Strategies An organisation can adopt a number of pricing strategies. Bundle Pricing: The organisation bundles a group of products at a reduced price.. The greater the features and the benefit obtained the greater the consumer will pay. Product Line Pricing: Pricing different products within the same product range at different price points.
software traditionally was purchased as a product in which customers made a one-time payment and then owned a perpetual license to the software.set the price at the production cost plus a certain profit margin.base the price on the effective value to the customer relative to alternative products. managers may make use of several pricing methods. In addition to setting the price level.set the price to achieve a target return-oninvestment. This strategy is used commonly within the car industry as i found out when purchasing my car. • Quantity discount . These methods include: • • • • Cost-plus pricing . There are several types of discounts. and what the consumer perceives to be fair. Cost Plus Pricing: Here the firm add a percentage to costs as profit margin to come to their final pricing decisions. This price usually is discounted for distribution channel members and some end users. Afterwards.00 Pricing Methods To set the specific price level that achieves their pricing objectives. Value-based pricing . Price Discounts The normally quoted price to end users is known as the list price. For example it may cost £100 to produce a widget and the firm add 20% as a profit margin so the selling price would be £120. Cost Based Pricing: The firms takes into account the cost of production and distribution. managers have the opportunity to design innovative pricing models that better meet the needs of both the firm and its customers. For example.Optional pricing: The organisation sells optional extras along with the product to maximise its turnover. they then decide on a mark up which they would like for profit to come to their final pricing decision. Psychological pricing . as outlined below. such as one year. Target return pricing . popular price points.offered to customers who purchase in large quantities. . the subscription must be renewed or the software no longer will function. This model offers stability to both the supplier and the customer since it reduces the large swings in software investment cycles.base the price on factors such as signals of product quality. Many software suppliers have changed their pricing to a subscription model in which the customer subscribes for a set period of time.
Cash discount . such as pricing offered by long distance and wireless service providers.a discount that increases as the cumulative quantity increases.a short-term discounted price offered to stimulate sales. In the construction of any business strategy.a functional discount offered to channel members for performing their roles. 3Cs model (Ohmae) Three key factors to create a successful business strategy. a trade discount may be offered to a small retailer who may not purchase in quantity but nonetheless performs the important retail function. Corporate. The competition. 2. Promotional discount . 3. three main players must be taken into account: 1.extended to customers who pay their bill before a specified date. Ohmae refers to these key factors as the three C's or the strategic triangle. a sustained competitive advantage can exist. The customer. Explanation of 3C's Model of Ohmae The 3C's model of Kenichi Ohmae.based on the time that the purchase is made and designed to reduce seasonal variation in sales. Trade discount . the travel industry offers much lower off-season rates. 1: Corporate-based strategies These strategies aim to maximize the corporation's strengths relative to the competition in the functional areas that are critical to achieve success in the industry: . The corporation itself.• • • • • Cumulative quantity discount . Such discounts do not have to be based on time of the year. For example. they also can be based on day of the week or time of the day. stresses that a strategist should focus on three key factors for success. The Strategic triangle Only by integrating the three C's (Customer. Cumulative discounts may be offered to resellers who purchase large quantities over time but who do not wish to place large individual orders. a famous Japanese strategy guru. Seasonal discount . and Competitor) in a strategic triangle. For example.
the corporation that is genuinely interested in its customers will be interesting for its investors. The corporation's task.• • • Selectivity and sequencing. If it can gain a decisive edge in one key function. Improving cost-effectiveness. functional costs will drop faster than sales revenues. Segmentation is advisable: • • Segmenting by objectives. There appears always to be a point of diminishing returns in the cost-versus-coverage relationship. it will eventually be able to improve its other functions which are now mediocre. This can be done in three basic ways: 1. Take coffee. The products that are offered. A case of make or buy. the resulting difference in cost structure and/or in the company's ability to cope with demand fluctuations may have significant strategic implications. Simply to exercise greater selectivity in terms of: The orders that are accepted. it becomes a critical decision for a company to subcontract a major share of its assembly operations. for example. To share a certain key function with the corporation's other businesses or even with other companies. Here. 2: Customer-based strategies Clients are the basis of any strategy according to Ohmae. Some people drink it for waking up or staying alert. is to optimize its range of market coverage. therefore. 2. The functions that are performed. Reducing basic costs much more effectively than the competition. while others view coffee as a way to relax or socialize (coffee breaks). This means cherry-picking operations with a high impact. So that its cost of marketing will be advantageous relative to the competition. . The corporation does not have to lead in every function to win. Experience indicates that there are many situations in which sharing resources in one or more basic sub-functions of marketing can be advantageous. In case of rapidly rising wage costs. There is no doubt that a corporation's foremost concern ought to be the interests of its customers rather than that of its stockholders and other parties. If its competitors are unable to shift production so rapidly to subcontractors and vendors. Segmenting by customer coverage. Be it geographical or channel. 3. This type of strategic segmentation normally emerges from a trade-off study of marketing costs versus market coverage. so that when other operations are eliminated. In the long run. the differentiation is done in terms of the different ways that different customers use the product.
If such a company chooses to compete in massmedia advertising or massive R&D efforts. Both Sony and Honda sell more than their competitors as they invested more heavily in public relations and advertising. engineering. 3: Competitor-based strategies According to Kenichi Ohmae. design. distribution channels. customer size.and cost-structure differences. For profit from new product sales. the big three market players cannot afford to offer such high percentages across the board to their respective franchised shops. And they managed these functions more carefully than did their competitors. In a fiercely competitive market. these strategies can be constructed by looking at possible sources of differentiation in functions such as: purchasing. It could however calculate its incentives on a gradual percentage basis.• Segmenting the market once more. Changes in customer mix: Such a market segment change occurs where the market forces are altering the distribution of the user-mix over time by influencing demography. the additional fixed costs will absorb a large portion of its revenue. the difference in source of profit might be exploited. image may be the only source of positive differentiation. But the case of the Swiss watch industry shows that a strategy built on image can be risky and must be monitored constantly. . In such a situation it is useful to pick a small group of key customers and reexamine what it is that they are really looking for. rather than on absolute volume. When product performance and mode of distribution are very difficult to differentiate. etc. sales and servicing. Because a company with a lower fixed cost ratio can lower prices in a sluggish market. Firstly. Tactics for flyweights. Secondly. This kind of change means that the allocation of corporate resources must be shifted and/or the absolute level of resources committed in the business must be changed. Of course. therefore the effectiveness of a given initial strategic segmentation will tend to decline. This hurts the company with a higher fixed cost ratio. Over an extended period of time. Its giant competitors will inevitably win. a difference in the ratio of fixed cost and variable cost might also be exploited strategically. the corporation and its head-on competitors are likely to be dissecting the market in similar ways. Ways to do this: • • • The power of an image. Capitalizing on profit. The market price is too low to justify its high fixed cost and low volume operation. their profitability would soon be eroded. In this way it can win market share. profit from services etcetera. thus making the incentives variable by guaranteeing the dealer a larger percentage of each extra unit sold.
process know-how. Cosumer Behaviour: Research suggests that customers go through a five-stage decision-making process in any purchase. However. The corporation should first allocate management talent. machinery. funds should be allocated last. Of the three critical resources. and functional strengths.Hito-Kane-Mono. should be allocated to the specific ideas and programs generated by individual managers. skipping information search and evaluation. This is summarised in the diagram below: This model is important for anyone making marketing decisions. customers often skip or reverse some of the stages. technology. money. a student buying a favourite hamburger would recognise the need (hunger) and go right to the purchase decision. It forces the marketer to consider the whole buying process rather than just the purchase decision (when it may be too late for a business to influence the choice!) The model implies that customers pass through all stages in every purchase. and things (fixed assets). or people. based on the available mono: plant. For example: cash over and beyond what competent people can intelligently expend is wasted. Once these hito have developed creative and imaginative ideas to capture the business's upward potential. in more routine purchases. or money. However. For example. . They believe that streamlined corporate management is achieved when these three critical resources are in balance without any surplus or waste. the kane. Too many managers without enough money will exhaust their energies and involve their colleagues in a time-wasting warfare over the allocation of the limited funds. the model is very useful when it comes to understanding any purchase that requires some thought and deliberation. A favorite phrase of Japanese business planners is hito-kanemono.
television. using the product The usefulness and influence of these sources of information will vary by product and by customer. A customer can obtain information from several sources: • Personal sources: family. the customer must choose between the alternative brands. At this stage. then the process of information search begins.g. dealers. packaging. I am hungry. friends. point-of-sale displays • Public sources: newspapers. radio.The buying process starts with need recognition. If not. the buyer recognises a problem or need (e. I have a headache) or responds to a marketing stimulus (e. Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”). Low involvement purchases (e. examining. the customer is likely to carry out extensive evaluation. products and services. buying a soft drink. In the evaluation stage. If the need is strong and there is a product or service that meets the need close to hand. An “aroused” customer then needs to decide how much information (if any) is required. choosing some breakfast cereals in the supermarket) have very simple evaluation processes. High-involvement purchases include those involving high expenditure or personal risk – for example buying a house. By involvement. How does the customer use the information obtained? An important determinant of the extent of evaluation is whether the customer feels “involved” in the product. neighbours etc • Commercial sources: advertising. specialist magazines • Experiential sources: handling.g. salespeople. we mean the degree of perceived relevance and personal importance that accompanies the choice. Where a purchase is “highly involving”. retailers. we need a new sofa. a car or making investments. then a purchase decision is likely to be made there and then. you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins). consumer organisations. The challenge for the marketing team is to identify which information sources are most influential in their target markets.g. Why should a marketer need to understand the customer evaluation process? .
Then after having made a purchase.The answer lies in the kind of information that the marketing team needs to provide customers in different buying situations. It is common for customers to experience concerns after making a purchase decision. For example. Post-purchase evaluation . and maybe even encourage “trial” or “sampling” of the product in the hope of securing the sale. These customers often buy on price alone. In high-involvement decisions. they will look around and will likely buy other products at regular or higher prices (you can make up the loss on the low pricing with higher pricing on other items). you might offer a below cost price on the website banner design and then expect to receive a higher price for some of your other services. you might sell one of your mature or declining products (in your product life cycle) at a loss leader price and expect that customers will buy other products or services. if you are a graphic designer specializing in web site design. the advantages compared with the competition. such as special interactive form design. . but is likely to switch brands next time. This arises from a concept that is known as “cognitive dissonance”. may feel that an alternative would have been preferable. The sales force may need to stress the important attributes of the product. The customer. To manage the post-purchase stage. having bought a product. For a business-to-business product. it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs.Cognitive Dissonance The final stage is the post-purchase evaluation of the decision. In these circumstances that customer will not repurchase immediately. the marketer needs to provide a good deal of information about the positive consequences of buying. the customer should be encouraged that he or she has made the right decision. Loss Leader Pricing Strategies What it is: Low pricing (often pricing at cost or below cost) on a product or number of products to bring customers to the storefront (physical or digital). The pricing strategy assumption is that while the customer is in the store to buy the very low-priced product.
). Characteristics of loss leaders • • • • • A loss leader may be placed in an inconvenient part of the store. or it's a seasonal product.customers will expect that that low price is where that product should be priced and they will not want to buy at a higher price.Why and When to use it: Use this strategy when you have products in the mature or declining stage of their product life cycle and when you want to stimulate a renewed interest in that product. etc.at least don't do this unless you have made it very clear in all of your promotional efforts that this is a very special low price (because you have excess inventory. POISE Profits (desire for) Offensive (stay) instead of defense Integrate (with other business functions) Strategic (be) Effective (be result oriented) Selling Vs Marketing: Many people mistakenly think that selling and marketing are the same . This strategy can also be used if you have high inventory of a product that you want to move quickly. so that purchasers must walk past other goods which have higher profit margins. eggs.they aren't. and thus can't be stockpiled Some examples of typical loss leaders include milk. the product has a short shelf life (e. vegetables. When NOT to use it: Do not use this strategy if the product will go dramatically up in price next week or next month . Some loss leader items are perishable.g. A loss leader is usually a product that customers purchase frequently— thus they are aware of its usual price and that a lower price is a bargain. Do not use this strategy if you are in the introductory or growth stages of your product's life-cycle. to discourage stockpiling.)or will be discontinuing the product. and other inexpensive items that grocers wouldn't want to sell without other purchases. Why: because by selling at a low price you are setting a new low expectation . You might already know that the marketing process is broad and includes all of the following: . etc. The seller must use this technique regularly if he expects his customers to come back. Loss leaders are often scarce. The retailer will often limit how much a customer can buy. fresh fruits. rice.
that sales people aren't restricted to the use of the sales concept. Selling is one activity of the entire marketing process. 2. they aren't rewarded for spending time listening to the customer's desires unless they have a product to match their desires that will result in a sale. Contrasting the Sales Concept with the Marketing Concept The concepts surrounding both selling and marketing also differ. Promoting the product. Selling and delivering the product into the hands of the customer. service or idea customers want. Furthermore. In a marketing approach. Selling is the act of persuading or influencing a customer to buy (actually exchange something of value for) a product or service. however. they sometimes follow the sale as well. on the other hand. 3. but the emphasis is ordinarily upon helping the customer determine if they want the product. 4. Producing a product with the appropriate features and quality. that is already being offered by the company. more listening to and eventual accommodation of the target market occurs. they are usually the most significant force in stimulating sales. A salesperson using the sales concept.it depends upon the particular situation. Oftentimes. Two-way communication (sometimes between a salesperson and a customer) is emphasized in marketing so learning can take place and product offerings can be improved. however. 5. (Note. When viewed through the marketing concept lens. Marketing activities support sales efforts. or a variation on it. marketing activities (like the production of marketing materials and catchy packaging) must occur before a sale can be made. Pricing the product correctly. Actually. In the sales approach. There is a need for both selling and marketing approaches in different situations. businesses must first and foremost . oftentimes they use the marketing concept instead. not much time is spent learning what the customer's ideal product would be because the salesperson has little say in seeing that their company's product is modified. spreading the word about why customers should buy it.1. to pave the way for future sales and referrals. Discovering what product.) At the heart of the sales concept is the desire to sell a product that the business has made as quickly as possible to fulfill sales volume objectives. sometimes has the ability to individualize components of a sale. One approach is not always right and the other always wrong .
tries to make consumer demand match the products it has produced. a profit will be made. Effective Selling: Attempts to minimize the sales cycle and the number of follow-ups made with a single prospect. It becomes prohibitively . Effective Marketing: Gives something away that is valuable (i. Do you see the difference? The selling concept. Marketing is cost-effective because the advertising medium reaches a large number of people. new concepts. Sandler Insight: Marketing is the role of identifying groups of people or companies that may be a fit with your product/service before person-to-person contact is made. Effective Marketing: Provides generic concepts and solutions to a mass audience. Effective Selling: Uses questioning techniques to uncover compelling reasons to buy in 2-way interactions. coupons. educate tomorrow.e. Effective Marketing: Is more effective when repeated many times to a large prospective audience. radio. allowing the prospect to do most of the talking. Selling is the effort applied to those “possible fits” initiated by person-to-person contact… Effective Marketing: Targets many prospects at a time.e. The belief is that when those wants and needs are fulfilled. Effective Selling: Avoids “unpaid” consulting. Effective Selling: Causes the prospect to make a yes/no decision. Effective Selling: Uncovers the unique benefits that will solve a particular customer’s problem. research studies). Whereas marketing encompasses many research and promotional activities to discover what products are wanted and to make potential customers aware of them.fulfill consumers' wants and needs. Effective Marketing: Causes the prospect to ask for more information. print. There’s nothing wrong with educating customers! The problem arises when salespeople begin educatingprospects. Effective Marketing: Generates interest in a product/service with one-way communication (i. or TV). Sandler Rule: Sell today. Effective Selling: Targets a single company or person. instead of focusing on meeting consumer demand.
1 Marketing starts with the buyer and 1 Selling starts with the seller and is focuses constantly on buyer’s needs. ‘products’. 13 Marketing begins much before the 13 Selling comes after production and ends production of goods and services. globalisation. Amity University. 12 Selling involves ‘push’ strategy. 10 Marketing concept takes an outside in 10 Selling concept takes an inside-out perspective perspective. No. with the delivery of the product and with identification of customers’ needs. 2 Seeks to convert “customer needs” into 2 Seeks to convert ‘products’ into “Cash”. 9 Internal company orientation. preoccupied all the time with the seller’s needs. profit. business from the point of view of the customer. Customer consciousness permeates the entire organization – all departments. 11 It is a broad composite and worldwide 11 It is a narrow concept related to product. 9 External market orientation. It sees the in the business. price 6 Cost determines the price. 14 Marketing has a wider connotation and 14 Selling is a part of marketing. 12 Marketing is more ‘pull’ than ‘push’. concept. determines costs. motive. process. continues even after the sale to ensure customer satisfaction through after sales services. all the people and all the time. . DIFFERENCES BETWEEN MARKETING & SELLING Compiled by : Prof. NOIDA. 8 ‘Customer satisfaction’ is the primary 8 ‘Sales’ is the primary motive. i.expensive if it only reaches a small number of prospects.(Dr. more so in this era of seller and sales activity. It collection of payment. Sales Marketing No. S. 5 Marketing communication is looked upon 5 Seller’s motives dominate marketing as a tool for communicating the benefits/ communication (promotions).) Sameer Sharma. satisfactions provided by the product 6 Consumers determine the price. 4 Marketing effort leads to the products that 4 The company makes the product first and the customers actually want to buy in then figures out how to sell it and make a their own interest. 3 Views business as a customer satisfying 3 Views business as a goods producing process. Monitor your sales calls and see if they are turning into marketing to a single prospect. S. 7 Marketing views the customer as the very 7 Selling views the customer as the last link purpose of the business.e.
pricing. Consequently. Conceptual and analytical skills are required. many researchers consider a customer-focus to be the most fundamental aspect of corporate culture (Deshpande. 20 Selling and required. firms may frequently emphasize one external variable in their environmental monitoring at the expense of the other. Marketing generally has a matrix type of organizational structure. selling etc. FIGURE 1 Market Orientation Matrix Customer Focus High Competitor Focus Low High Low Strategically Integrated Marketing Warriors Customer Preoccupied Strategically Inept Customer Preoccupied Firms emphasizing customer-focused intelligence gathering activities at the expense of competitor information may be classified as "customer preoccupied. The mindset is “Hook the customer”. Farley. It concerns itself primarily and truly with the ‘value satisfactions’ that should flow to the customer from the exchange. It assumes: “Let the buyer beware”. product planning & development. without caring for the ‘value satisfactions’ inherent in the exchange. and Webster 1993. By combining these two important external variables. customers and competitors. According to ." Because the marketing concept promotes putting the interests of customers first. p. distribution. It has a functional structure. conversational skills are THE MARKET ORIENTATION MATRIX Although Slater and Narver (1994a) found no main effect for customer versus competitor-focus on market performance. a four-cell market orientation matrix emerges as shown in Figure 1.47). It assumes: “Let the seller beware”. they do recognize that "because businesses have limited resources to generate market intelligence. 15 16 17 18 19 It over emphasizes “the exchange’ aspect. The mindset is “What is that we can make here or source from outside to satisfy the needs of the target customers”. The main job is to find the right products for your customers.15 16 17 18 19 20 includes many activities like marketing research. Lawton and Parasuraman 1980). The main job is to find the customers for your products. trade-offs between customer and competitor monitoring must necessarily be made" (Slater and Narver 1994. leading to a specific market orientation profile. promotion.
Slater and Narver (1994a) found little empirical support for the effectiveness of different relative emphases within a market orientation. According to Day and Wensley (1988). firms with a predominant emphasis on competitors in their external market analyses have been labeled "marketing warriors. When markets are growing. Also. Marketing Warriors Borrowing from the famous warfare analogy proposed by Ries and Trout (1986). and Srivastava 1998). dissemination. a customer-focus is mandatory" (p. Moreover. due to the high cost of . 1 Available: http://www. many competitors. and firms should seek to remain sufficiently flexible to shift resources between customer and competitor emphasis as market conditions change in the short run. Day and Wensley (1988) suggest that "in dynamic markets with shifting mobility barriers. the competitive structure is concentrated and stable. Strategically Integrated Firms characterized as strategically integrated assign equal emphasis to the collection. 2). p. focusing primarily on either customers or competitors could lead to "a partial and biased picture of reality.amsreview.Slater and Narver (1994a). Consequently. According to Day and Wensley (1988. the emphasis is necessarily on competitors. and highly segmented end-user markets. customer needs are less well understood. a customer emphasis is most important when the market is growing and when markets are fragmented and buyer power is low. competitor-focused firms seek to identify their own strengths and weaknesses and to keep pace with or stay ahead of the rest of the field (Han." In examining the impact of customer versus competitor-focus. 17). However. when market demand is predictable. when markets are fragmented and buyer power is low. so a customer emphasis should have a greater impact on performance (Slater and Narver 1994a). A focus on both customers and competitors is important because a complete Academy of Marketing Science Review Volume 2000 No. Kim. Slater and Narver (1994a) suggest a balance between the two perspectives is most desirable.pdf Copyright © 2000 – Academy of Marketing Science.org/articles/heiens01-2000. the lesser the degree of competitive hostility. leaving an organization handicapped by a reactive posture (Day and Wensley 1988). the first proposition is suggested. In addition." According to Slater and Narver (1994b). Proposition 2: Increases in competitor-focus lead to increases in market share performance in stable and predictable markets. Heiens / Market Orientation 3 reliance on either customer-focused or competitor-focused decision making can often lead to an incomplete business strategy. Proposition 1: Increases in customer-focus lead to increases in market share performance in growing markets. As such. it is important to focus on lead users because they may serve as reference points for later adopters (Von Hippel 1986). however. and there are few powerful customers. and use of both customer and competitor intelligence. a competitor-focus entails gathering intelligence on three main questions: (1) Who are the competitors? (2) What technologies do they offer? and (3) Do they represent an attractive alternative from the perspective of the target customers? Using target rivals as a frame of reference. the greater the positive impact of competitor emphasis on performance (Slater and Narver 1994a).
Mobile phones have moved from being a business accessory to being a big consumer brand item. Businesses can develop new products based on either a marketing orientated approach or a product orientated approach. Farley. To compete. Slater and Narver 1994a). A product orientated approach means the business develops products based on what it is good at making or doing. such as pictures. Yet. especially products with a very high technological content. these firms may sacrifice ROI for market share." As such. On the other hand some products are argued to create a need or want in the customer. businesses need to be more sensitive to their customers needs otherwise they will lose sales to their rivals. Proposition 3: Increases in both customer-focus and competitor-focus lead to increases in market share performance and decreases in ROI. The decisions taken are based around information about customers’ needs and wants. firms may still succeed by concentrating on internal operations. Strategically Inept The external analysis is an integral part of strategic planning. This approach is usually criticised because it often leads to unsuccessful products particularly in well-established markets. and the establishment of core competencies. with many additional gadgets. firms that fail to orient their strategic decision making to the market environment without any substantial internal strength may appropriately be labeled as "strategically inept. Ruekert 1992. However. technological advantages. Most markets are moving towards a more market-orientated approach because customers have become more knowledgeable and require more variety and better quality.monitoring both customers and competitors. Most successful businesses take a market-orientated approach. in some cases. 13). Jaworski and Kohli 1993. failure to develop an external market orientation may adversely effect business performance (Deshpande. A marketing orientated approach means a business reacts to what customers want. video and Internet access." Proposition 4: Shifting resources from external monitoring to internal operations may lead to increases in ROI in stable and predictable markets. and Webster 1993. According to Kohli and Jaworski (1990. rather than what a customer wants. . Innovations create the need rather than the customer being able to second-guess how new technology is going to develop. p. "a market orientation appears to provide a unifying focus for the efforts and projects of individuals and departments within the organization. rather than what the business thinks is right for the customer.