Creating Competitive

Advantage in Mature
Markets

Chapter 8
 Generic Marketing Strategies
Broad market

Commodity Outstanding
Supplier Success

Low price High price

Low High
differentiation differentiation
Market Niche
Trader Player

Focused market
 Economies of Scale

Average
cost per
unit

Technological
innovation

Big firm
minimum
cost
output

Output volume
 Economies of Small Scale

Average
cost per
unit

Technological
innovation

Small firm
minimum Big firm
cost minimum
output cost
output

Output volume
 Growth for a Market Trader

Average
cost per
unit And how do you
compete at these
levels of output?

Small firm
minimum Big firm
cost minimum
output cost
output

Output volume
 Cost Advantage:
Implications for Strategy
• Achieve high sales volume
• Dominate market through effective pricing
policies
• Pursue cost efficiencies:
– through plant design & investment
– through plant location (or outsourcing),
depending upon importance of materials
or labour costs
– through day-to-day cost controls
 The Pricing Range

Variable Average
cost per cost per Value to the
unit unit customer

‘Too-low’ ‘Going-rate’ ‘Too-high’

price price price

Pricing Range
Layers of Differentiation

Functional
core

Design

Emotion
Customer Loyalty Ladder

Advocate

Supporter

Regular Increasing
Customer Loyalty

Customer

Prospect
 Differentiation:
Implications for Strategy
• Identify & reinforce through marketing,
particularly branding, elements of
differentiation that are important to
customers
• Build product/service development &
innovation on differential advantages
• If part of a niche strategy, have a clear
understanding of customer needs & react
quickly to changes
 The Value Chain

PRIMARY ACTIVITIES

Inbound Outbound Marketing

Operations Service
logistics logistics & sales

Firm infrastructure
Human resource management
Technology development
Procurement

SUPPORT ACTIVITIES
 Successful Strategies

• Strategy should emphasise something that

makes you as unique as possible and
delivers as much value as possible to the
customer
• The best chance of doing this comes from
differentiation with the aim of dominating
your market and to do this effectively and
quickly
• Then to continue to innovate based
upon your differential advantage
 But Also….

• Strategy should be clear and focused

• Supported by
- culture that aims high
- structure that is flexible &
responsive
• A good strategy is important but
effective strategy execution is vital
(and often ignored)
 The Product Life Cycle

Sales
Introduction Growth Maturity Decline
value
Low sales Increasing sales Static but high sales Declining
sales
Low growth Rapid growth Static but high profits
Declining
Low profits or High profits as Focus on cost reduction
profits or
losses as costs costs come Fight for market share losses
are high down
Established competitors Competitors
Few Competitors exiting
competitors emerging &
competition
intensifying

Time
 Elements of Marketing Strategy

Introduction
• Basic product
• Price low for repeat purchase where trial
is important or price high where novelty
or uniqueness is valued, particularly if
repeat purchase is infrequent
• Promote aggressively
• Explain product benefits
• Build awareness, encourage early
adoption
• Selective distribution
 Elements of Marketing Strategy

Growth
• Develop product extensions & service
levels
• Price competitively to combat
competition & penetrate market
• Promote aggressively
• Build brand
• Intensive push on distribution
• Limited trade discounts
 Elements of Marketing Strategy

Maturity
• Wide range of products but expansion
slows
• Modify & differentiate product
• Develop next generation of product
• Price defensively – meeting or beating
competition – to ensure maximum return
• Promotion emphasises brand
• Promote selectively, based on special
offers or promotions and trade discounts
• Intensive push on distribution
 Elements of Marketing Strategy

Decline
• Product range narrows, drop weak
products
• Price high if fewer competitors means high
demand, price low when demand dips so
as to dispose of stocks
• Minimum promotion required to maintain
loyalty, emphasising low price
• Selective distribution phasing out weak
outlets
 Life Cycle & Competitive Position
Dominant
Grow fast Defend position Defend posn.
Grow fast Attain cost Attain cost Renew Grow
leadership leadshp. Review with industry
Grow fast Reduce costs Hold niche
Strong

Differentiate
Catch up Differentiate Grow with ind.
Grow fast
Differentiate Grow with ind. Harvest profit
Competitive
Position

Differentiate Differentiate Harvest profit

Consolidate
OK

Focus Focus Grow Find niche

Cut costs
Grow fast with industry Grow with ind.
Focus Harvest profit
Harvest
Weak

Grow with Turn around

Catch-up Divest
industry Find niche
Hold niche
Consolidate
Find niche Withdraw
weak

Turn-around
Very

Grow with Withdraw

Consolidate Divest
industry
Start-up Growth Maturity Decline
 The Boston Matrix

High Star Problem Child

Service launch
Introduction

Product /
Attractiveness

Growth
Market

Failure

Maturity
Decline

Low Cash Cow Dog

High Low
Market Strength
 The Boston Matrix

Star Problem Child

Niche
Commodity

Commodity

Cash Cow Dog

 Product Life Cycle Management

Star Problem Child

Product expansions Product extensions

Product
modifications

Cash Cow Dog

 Strategy Implications

Problem Child
INVEST FOR GROWTH DEVELOP
• Penetrate market OPPORTUNITIES
• Accept moderate short-term • Be critical of prospects
profits • Invest heavily in selective
Star

• Sell and promote aggressively products/services

• Expand geographically • Specialise in strengths
• Extend product range • Shore up weaknesses
• Differentiate product/ service

MANAGE FOR EARNINGS GENERATE CASH

• Monitor carefully and
Cash Cow

• Maintain market position with

Cash Dog
successful products/services judge when to
• Differentiate products/ services discontinue
to keep share of key segments • Live with low growth
• Prune less successful products/ • Improve productivity
services • Reduce costs
• Stabilise prices, except where a • Look for ‘easy’
temporarily aggressive stance
is required to deter competitors growth segments
 The Boston Matrix – Cash Flow

Star Problem Child

Revenue +++ Revenue +
Expenditure - - - Expenditure - - -
_________ _________
Cash flow neutral Cash flow - -

Cash Cow Dog

Revenue ++++ Revenue +

Expenditure - - Expenditure -
_________ _________
Cash flow ++ Cash flow neutral
 ABC Analysis

Class A High value

High
to the
Class B
   business
 
Sales


  Low value to the
Low   business
Class C

Low High

Contribution
 Porter’s 5 Forces
Barriers to Entry:
Economies of scale
Product differentiation
Capital requirements
Legal agreements
Switch costs

Power of Suppliers: Competitive rivalry: Power of Buyers:

Concentration Number & size Numbers & concentration
Extent of substitutes Industry growth Extent of differentiation
Importance of supplier Extent of differentiation Switch costs
Extent of differentiation Capacity increments Margin they earn
Forward integration Exit barriers Backward integration

Threat of substitutes:
Changing technology
Changing market
Changing tastes
Switch costs
Extent of differentiation
Export Entry & Exit Barriers

A B
High, stable High, risky
High
returns returns

Entry
barriers
C D
Low Low, stable Low, risky
returns returns

Low High

Exit barriers
 Foreign Markets

License or Joint Wholly

Export venture owned
franchise
subsidiary

Increasing resource commitment

 Industry Life Cycles

Phase 4
Size Phase 3 90% concentration
e.g. tobacco,
70% concentration automobiles
e.g. steel, toys, tyres

Increasing alliance,
Phase 2 acquisition &
merger activity
30-45% concentration
e.g. chemicals, drugs, hotels, pulp
Phase 1 & paper, fast foods, breweries

Low concentration
e.g. railways, telecoms, utilities, insurance

Time