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Managing Through the Life Cycle:

Imperative 3


Marketing Roadmap: Market Strategy

Selectivity & Concentration

Customer Value

MARKETS

OFFER3. Set Strategic

Direction

4. Design the Marketing Offer

2. Identify & Target Market Segments

1. Determine & Recommend Which Markets to Address

5. Secure Support From Other Functions

6. Monitor & Control Execution & Performance

CO

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OL

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GM

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DIR

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UP

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Differential Advantage

External Orientation

INSIGHT

Customer

Co

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etitor

Mar

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Integration


Underlying Rationale

Preemptive Strategy Making gives the Firm a Competitive Advantage

Basis for preemption is multiple scenarios

Scenarios based on the Product Life Cycle framework

Each scenario generates several strategic options


Managing Through the Life Cycle: A Changing Pattern

Shareholder value discipline applied rigorouslyAccept low returns and cross-subsidise

Merger and consolidation viewed as legitimate strategies in shareholders’ interest

Competition to the death

Industry structure viewed as variableIndustry structure viewed as fixed

Aggressive government efforts to increase competition

Firms hide behind regulatory barriers, often supported by government

New business models, distribution methods and technologies to increase efficiencies and add value

Tied to traditional distribution systems and business models

Concurrent product developmentSequential product development

Use innovation to rejuvenate market growthMinimize investment in mature markets to maximise cash flow

Monitor cost efficiency -- cut costs continuallyCut costs when times are bad

Innovation a major strategic weaponCommoditisation viewed as inevitable

Pre-emptive strategies commonplacePre-emptive strategies rare

Proactively planned change of management approach

Evolutionary change of management approach

Rapid market development with simultaneous new product launches in multiple countries

Slow market development with sequential product introductions worldwide

Entry strategies driven by sophisticated under-standing of market development

Entry strategies uninformed

New WayOld Way


Life Cycle Scenarios

Introduction EarlyGrowth

LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time

Scenario 1: Introduction:

Pioneers

Scenario 3:Early-Growth Followers

Scenario 2: Early-Growth Leaders

Scenario 4: Late Growth

Scenario 9:Decline

Scenario 8:Maturity - Fragmented Markets

Scenario 6: Maturity – Concentrated Market Leaders

Scenario 5: Maturity -- But Not Really!

Scenario 7: Maturity – Concentrated Market Followers


The Shortening of Product Life Cycles

Years Since Product Invented

Per

cen

tag

e o

f H

ou

seh

old

s w

ith

Th

ese

Pro

du

cts

00

10

10

20

30

40

50

60

70

80

90

100

100 110 12090807020 30 40 50 60

Web Access

Mobile Phone

PC

Television

Radio

Electricity

Air Travel

Telephone

Automobile

1

2

3

4

5

6

7

8

9

1 2 3 4 5 6 7 8 9


Key Ideas: Life Cycle-based Scenarios

Scenarios help the firm generate competitive strategic options.

The main building block for these scenarios is product life cycle stage.

Successful strategies should have a strong creative element.

Lifecycles are shortening for many products.


Life Cycle Scenarios 1: Introduction


LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time

Scenario 1: Introduction:

Pioneers


Scenario 1: Introduction Stage — Pioneer

• Objectives and Challenge

– Lay foundation for achieving market leadership and profitability

– Slow competitors’ progress by understanding and using barriers

• Government-imposed

• Product-specific

• Firm-driven

– low cost -- penetration pricing

– first-mover advantage


Pioneer: Penetration Pricing and Skim Pricing

Skim Pricing

Penetration pricing

Cost

Log (accumulated experience)

Lo

g (

un

it

cost

)


Key Ideas: Introduction — Scenario 1

• Pioneers must be prepared tap other resources to fund losses early in the life cycle.

• The most common government-imposed barriers are patents.

• Firms sometimes lobby governments to impose regulations on their competitors, so as to reduce or curtail the competition.

• When the firm executes a low-price penetration strategy, it must accept low profit margins for a substantial time period. Continual cost reductions are essential to sustain low prices.

• A pioneer can sustain first-mover advantages by producing high-quality products. The firm earns a leading reputation, and sets the stage for creating a strong brand.


Life Cycle Scenarios 2 and 3: Early Growth


LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time

Scenario 3:Early-Growth Followers

Scenario 2: Early-Growth Leaders


Scenario 2: Early Growth — Leader

Strategic Options

Continue to be the leader – enhance its position

Continue to be the leader – maintain its position

Surrender leadership – retreat to a particular market segment or segments

Surrender leadership – exit the market


Scenario 3: Early Growth — Follower

Strategic Options

Seek market leadership

• Imitation

• Leapfrog

Settle for second place

Focus on a particular market segment or segments

Exit the market


Key Ideas: Early Growth — Scenarios 2 and 3

• By the early growth stage, customers accept the product, and the market leader should be profitable.

• Generally, followers in growth markets are unprofitable and have negative cash flows

• The follower’s goal is to learn from others and minimise cost and risk

• Imitation means copying the leader but being more effective in execution.

• Leapfrogging goes one better than the leader by developing innovative and superior products, and/or targeting emerging market segments.


Life Cycle Scenario 4: Late Growth


LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time




Key Issues

How can we segment the market?

How many segments can we identify?

How many, and which, segments should we target?


Key Ideas: Late Growth — Scenario 4

• By late growth, basic customer values are still important, but do not enter into customers’ choices. Customers are more likely to base their purchase decisions on add-on benefits like value-added services.

• In late growth, the firm must decide whether to target many segments, or just a few.


Life Cycle Scenarios 5, 6, 7 and 8: Maturity


LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time

Scenario 8:Maturity - Fragmented Markets

Scenario 6: Maturity – Concentrated Market Leaders

Scenario 5: Maturity -- But Not Really!

Scenario 7: Maturity – Concentrated Market Followers


Scenario 5: Maturity — But Not Really

Critical Questions:

Are we sure the market is mature?

What are the possible barriers to growth:

• technological

• economic

• behavioural

• government-imposed


Scenario 5: Maturity — But Not Really

Growth Options– Increase Customers’ use of the product

• increase quantity per use occasion

• make the product easier to use

• design the product to expire

• change the model

• improve packaging for better ease of use

• develop new uses for the product

– Improve the product or service

– Improve physical distribution

– Reduce price

– Reposition the brand

– Enter new markets


Scenario 6: Maturity — Concentrated Markets — Leader

Leader’s Options– Maintain leadership

– Harvest

Leaders often Over-Invest in Mature Products– Few alternative opportunities

– Internally focused funding criteria

– Political power of mature-product champions

Some Reasons that Firms Under-Invest in Mature Products– Limited view of the competition

– Misunderstanding the challenger’s strategy

– Fear of Cannibalisation

– Inertia


Scenario 6: Maturity — Concentrated Markets — Leader

Reasons to Harvest– New technology– Government regulations– Change in the Firm’s strategy– Investment requirements are too high– Desire to avoid specific competitors

Critical Question for Harvesting– Fast or Slow?

Fast Harvesting– Find someone to acquire the product

Slow Harvesting– Cut costs– Minimise investment– Raise prices


Scenario 7: Maturity — Concentrated Markets — Follower

Follower’s Options

• Improve market position by growing sales

– Market segmentation

– Kenneling

– Direct Attack

• Keep on truckin’

– Maintain current position

– Rationalise current position

• Exit

– Divest

– Liquidate


Scenario 8: Maturity — Fragmented Markets

Strategic Options

• Acquisition

• Standardisation and branding


Key Ideas: Maturity — Scenarios 5, 6, 7 and 8

• Markets that seem mature may have growth potential waiting to be unlocked via creative approaches.

• Marker leaders in mature, concentrated markets should have low costs, decent profits, and positive cash flows.

• Market leaders in concentrated markets have two major alternatives – long-run leadership or harvesting.

• Followers in mature concentrated markets typically have higher costs, lower profits, and are financially weaker than market leaders. But, they may rejuvenate to become a major threat

• In mature fragmented markets, no firm has a large market share.


Life Cycle Scenario 9: Decline


LateGrowth

Maturity Decline

Sa

les

Vo

lum

e

Time

Scenario 9:Decline


Profitability Distribution for Decline Businesses*

60%55%35%15%0%--10%Return on Investment (ROI)

100%9%5%25%38%13%8%Percent of Businesses

Total

* To be read as: 38% of sample business had an average ROI of 15%.


Scenario 9: Decline

ALeadership

DHarvest

BHarvest or Segment

CDivest

High Low

Yes

No

Business Strengths

Mar

ket

Ho

spit

able

?

Strategic Options


Key Ideas: Decline — Scenario 9

Firms can make considerable profits in declining markets.

In a declining market, the firm’s options depend on market hospitality and its business strengths.


Key Messages

Pre-emption is an important dimension of strategy-making; acting before competitors can put the firm in good competitive position. Using the product life-cycle framework, we developed nine scenarios for use in developing a pre-emptive strategy:

IntroductionEarly growth – LeaderEarly growth - -FollowerLate growthMaturity – But not reallyMaturity – Concentrated markets – LeaderMaturity – Concentrated markets – FollowerMaturity – Fragmented marketsDecline

These scenarios can help the firm think through its strategy by anticipating change and striving to influence change. To that end, for each scenario, we developed a family of strategic options. However, notwithstanding the value of identifying these options, we believe that the best competitive strategies are often contrarian. When the firm acts in a way that competitors do not expect, it can gain significantly.


Marketing Roadmap: Market Strategy

Selectivity & Concentration

Customer Value

MARKETS

OFFER3. Set Strategic

Direction

4. Design the Marketing Offer

2. Identify & Target Market Segments

1. Determine & Recommend Which Markets to Address

5. Secure Support From Other Functions

6. Monitor & Control Execution & Performance

CO

NTR

OL

SE

GM

EN

TS

DIR

ECTIO

N S

UP

PO

RT

Differential Advantage

External Orientation

INSIGHT

Customer

Co

mp

etitor

Mar

ket

Integration

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