MARKETING FINANCE Introduction

After

successful test marketing of a new

product, the company introduces the
product in the market with full- scale
marketing programme. The introductory
stage is viewed as fairly risky and quite
expensive because large amounts of
money is spent on advertising and other
tools of marketing communications to
create consumer awareness in sufficiently
large numbers, and encourage trial.

MARKETING FINANCE
Introduction
For

truly new products, any direct

competition may be very little or
non-existent and the companys
primary objective is demand
stimulation for the category rather
than its brand. Profits are mostly
negative in this stage, or in some
exceptional cases they may be very
little.

Marketing Mix
Elements

during Introductory Stage :

There is a vast difference between pioneering a

product and category and a sub-category.
Introducing a product category is relatively
challenging, expensive, time consuming and quite
risky. The introduction phase is likely to be long even
for relatively simple product categories such as
packaged goods. Generally, product sub-category
and brands appear in the market during late growth
and maturity period and are likely to have a shorter
introductory as well as growth periods.

Marketing Mix

contd

The aim of every company is to move quickly

through the introduction stage and for this
research., engineering, production, are critically
important to ensure the availability of quality
products. The company must be able to provide
promptly post-purchase service and availability
of spares, if required. To encourage trial and
repeat purchase, consumer goods companies use
a combination of demonstrations on TV, samples,
special introductory prices, and coupons. The
company also tries to gain distribution and shelf
space with retailers.

Companies
.adopted strategy elements
These

Companies Successful
Pioneer
Adopted One or More of
following Strategy Elements
Large entry scale.
Broad product line
High product quality
Substantial promotion expenditure.

Companies
.adopted strategy elements
The

Successful Follower Fast

companies

Adopted the following Strategy

Elements Large

entry scale than pioneer

Leapfrogging the pioneer with superior:
1. Product technology
2. Product quality
3. Customer service

Companies
.adopted strategy elements
The

Successful Follower Slow

companies

Adopted the following Strategy

ElementsFocus on peripheral target markets
or niches.

3) Strategy Elements Adopted by Successful

Pioneers

Fast

and Late followers.

The product line at this stage is almost
always limited to one or a few to
minimize production and inventory
costs. During this stage, the company
attempts to differentiate and position its
new product to gain competitive
advantage over solutions that customers
were buying previously to satisfy target
need and want.

Strategy elements
contd.
Various

factors affect pricing

decisions of a new product, such as
new products perceived value to
consumer; how fast competitors can
copy it; the availability of close
substitutes; the effect of price on
sales volume, and costs. Generally,
for a pioneering product, or a
significantly improved new product:
Skimming pricing strategy, or

4) Skimming Pricing
For

this strategy decision to be effective the

product awareness is viewed as low, those
who are aware or become aware are willing
to pay a high price to own the product. This
strategy can also be appropriate when the
market size is large and not much time is
available before the competition appears.
Similarly this strategy can also work in niche
markets where customers are relatively
insensitive to price, and owning the product
is important, such as

Skimming Pricing
contd
Apple

computers keeps the prices

high when it introduces a new
product. Typically, this has been the
case with computers, printers,
Internet, new software, and cell
phone etc. Initially, these durables
and Internet services were priced
quite high. The companys objective
is to gain as much margin per unit as
possible. This helps company to

5) Penetration Pricing
This

strategy allows the company to strive for

fast market development and the focus is on
long-term objectives of market share and
profit maximization. Price is kept low and
promotion is high. The market is seen as large
and characterized by intense competition,
and consumers who are aware or become
aware are very willing to buy the product at
an affordable price. In fact, the market is
viewed as price sensitive. Nirma and some
other companies used this strategy in India.

Penetration Pricing contd

The

importance of distribution set up is

particularly significant for a consumer
product companies. The availability of
consumer products at convenient locations
where consumers generally shop for such
products is quite important, keeping in view
the large amounts spent on promotion to
make consumers in the target market aware
and induce new-product trial among
customers. Most firms use their established
distribution network for a new product.

Penetration Pricing
contd

Most Japanese and Korean companies use this

strategy. This strategy can also work when
market is large and any serious threat from
competition is not anticipated. In this stage of
rapid strides in science and technology, the
competition is almost always around the corner
and it is rare to have such an opportunity. This
can work with me too product launches, but for
a company that has invested millions in the
development of a new product, probably it would
prefer to recover its investment to earn profits
early.

Penetration Pricing
contd
During

introduction, particularly for massmarket, small-value products, promotion

expenses for advertising, sales promotion, and
sales force are high in terms of percentage of
total sales. The foremost communication task at
this stage is to build awareness about the
unique features and benefits and ensure product
availability. This is expensive but necessary to
convince customers to try the product.

Penetration Pricing
contd
The

importance of distribution set up is

particularly significant for a consumer
product companies. The availability of
consumer products at convenient locations
where consumers generally shop for such
products is quite important, keeping in view
the large amounts spent on promotion to
make consumers in the target market aware
and induce new-product trial among
customers. Most firms use their established
distribution network for a new product.

6) Growth Stage
The

growth stage of life cycle is characterized by

a sharp rise in sales. Only a small percentage of
new products introduced survive to reach the
growth. Important improvements in the product
continue, but at reduced rate. Increased brand
differentiation is attempted primarily by adding
new features. Product line expands to attract
new customer segments. The intensity of
competition increases and competitors offer
increased choices of customers in terms of
features, packaging and price.

Growth Stage contd..

During the later part of the growth stage,

market share leader particularly endeavours to
lengthen the period of growth stage by
improving product quality, adding new features,
lowering costs, adding new segments, and
trying to increase product usage rate. Due to
combined total efforts of all companies, market
expands and more customers start buying the
product. Selling the trends of increasing
demand, more resellers are willing to carry the
product and generally prices are reduced.

Growth Stage contd..

Near

the end of this stage, there is a

drop in the overall growth rate and
typically the prices are significantly
reduced. Generally, weaker
companies start exiting the market
and strong competitors capture more
market share. This results in major
changes in the industrys
competitive structure.

Growth Stage contd..

Strong

companies evaluate their product

lines and eliminate their weaker items, start
promotional pricing, and strengthen their
product lines and eliminate their weaker
items, start promotional pricing, and
strengthen their reseller relationships. What
happens to a company during this period
depends much on how well the product has
been positioned with respect to target
customers, the state of distribution system,
and relative costs per unit.

7) MATURITY STAGE
Most

products after surviving competitive

battles, winning customer confidence and
successful through phase enter their maturity
stage. The sales plateau, and this flattening of
sales usually lasts for sometime because most
products in the category have reached their
maturity stage, and there is stability in terms
of demand, technology, and competition. Sales
slow down, competition is intense; price and
promotional wars erupt, and profits decline.

Growth Stage

The demand for the category is at its highest

during maturity. Strong market leaders
manage to gain high profits and large
positive cash flows because they have the
advantage of lower-cost and have no need to
expand their facilities. In general, if the
maturity stage is protracted, a company
cannot ignore the possibility of changes in
the marketplace, the product, the
distribution, production processes, and the
nature and structure of competition .

8) Marketing Mix Changes during Maturity

Stages

Different

brands in the product category tend to be more

similar due to technical maturity. Companies use every
trick available either to increase users or rate of usage or
both, to gain volumes. Some companies try to carve out a
niche in a market segment and become a niche specialist
and earn high profits. Attempts to modify product gain
more importance and only a major break through in R&D or
engineering can help in differentiating the product or
reducing cost or reducing product costs can have
significant payout. One option is to add value that benefits
the consumer to make it easier to use the product. For
example Radio- internet connectivity for laptop PCs, or
voice activated dialing for cell phone is convenient for
consumers.

Marketing Mix Changes

during Maturity Stages
Firms

are increasingly using additional services in

an attempt to differentiate the offering. Prices and
expenditures on promotion during the maturity
stage generally remain stable. However, the
promotion emphasis shifts from advertising to
various tools of sales promotion such as discounts,
coupons, premiums, and store promotions etc.
The impact experience on costs and prices
narrows down. Severity of competition to gain
market share leadership position forces prices
down. For consumer goods companies, distribution
and shelf space acquire more importance.

Characteristics/Introduction/G
rowth/Maturity/Decline
Characteristics

Introduction

Market Growth Rate (Rs.)

Moderate

Growth

High

Maturity

Insignificant

Decline

Negative

Characteristics/Introduction/G
rowth/Maturity/Decline
Technical

change

High
Moderate
Limited
Limited

Characteristics/Introduction/G
rowth/Maturity/Decline
Market

Segments

Few
Few

to many
Few to many
Few

Characteristics/Introduction/G
rowth/Maturity/Decline
Competitors
Few
Many
Limited
Few

Characteristics/Introduction/G
rowth/Maturity/Decline
Profitability
Negative
High
High
Low

for market share leaders

Characteristics/Introduction/G
rowth/Maturity/Decline
Companys

standard Responses
Stimulate primary demand
Gain market share
Gain market share
Harvest

Characteristics/Introduction/G
rowth/Maturity/Decline
Product
Improve quality
Continue quality improvements
Concentrate on features
No change

Characteristics/Introduction/G
rowth/Maturity/Decline
Product

Line

Narrow
Broad
Hold Line length
Reduce line length

Characteristics/Introduction/G
rowth/Maturity/Decline
Price
Skimming or Penetration
Reduce
Hold or reduce
Reduce

Characteristics/Introduction/G
rowth/Maturity/Decline
Promotion
High
High
High or
Reduce

Reduce

Characteristics/Introduction/G
rowth/Maturity/Decline
Distribution
Selective
Intensive
Intensive
Selective

9) Decline Stage
Decline

stage sets when customer

preferences change due to the
availability of technologically superior
products and consumers shift in
values, beliefs, and tastes to- Products
offering more value. The number of
competitors dwindles and generally
few product versions are available.

Decline Stage contd.

Those

who stay, may cut their

promotional budgets and further
reduce their prices. The onset of
decline stage may be gradual or fast.
There may still be a small residual
segment that remain loyal to the
product.

Decline Stage contd

Sales

take a nosedive, costs

increase, and profits are almost nonexistent. All these factors create
overcapacity. If the industry has lowexit barriers, many companies leave
the market. This may increase the
sales volume of remaining
companies to the extent that their
exit may be delayed, and for a short
time strong contenders may even

 THANK
CA

YOU

S.P.DESAI.