Managing Through the Life

Cycle:
Imperative 3

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Marketing Roadmap: Market Strategy

6. Monitor & Control Selectivity &

Integration Execution & Concentration
MARKETS 1. Determine &
Performance Recommend Which
Markets to Address

SE
L
RO

GM
NT

EN
CO

TS
Customer

Competitor
Market
5. Secure Support From 2. Identify & Target
Other Functions External Market Segments
Orientation
Customer Value
SUP

INSIGHT
PO

N
IO
R

CT
T

RE
DI
4. Design the
Marketing Offer 3. Set Strategic
OFFER Direction

Differential Advantage

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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

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Managing Through the Life Cycle: A Changing Pattern

Old Way New Way

Entry strategies uninformed Entry strategies driven by sophisticated under-
standing of market development
Slow market development with sequential product Rapid market development with simultaneous new
introductions worldwide product launches in multiple countries
Evolutionary change of management approach Proactively planned change of management
approach
Pre-emptive strategies rare Pre-emptive strategies commonplace
Commoditisation viewed as inevitable Innovation a major strategic weapon
Cut costs when times are bad Monitor cost efficiency -- cut costs continually
Minimize investment in mature markets to Use innovation to rejuvenate market growth
maximise cash flow
Sequential product development Concurrent product development
Tied to traditional distribution systems and New business models, distribution methods and
business models technologies to increase efficiencies and add value

Firms hide behind regulatory barriers, often
supported by government
Industry structure viewed as fixed
Competition to the death
Accept low returns and cross-subsidise
Aggressive government efforts to increase
competition
Industry structure viewed as variable
Merger and consolidation viewed as legitimate
strategies in shareholders’ interest
Shareholder value discipline applied rigorously

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Life Cycle Scenarios
Scenario 5:
Maturity -- But Not Really!
Scenario 6:
Maturity – Concentrated Market Leaders

Scenario 7:
Maturity – Concentrated Market Followers

Scenario 4: Scenario 8:
Late Growth Maturity - Fragmented Markets
Scenario 2:
Scenario 9:
Early-Growth Leaders
Decline
Sales Volume

Scenario 3:
Early-Growth Followers

Scenario 1:
Introduction:
Pioneers

Introduction Early Late Maturity Decline

Growth Growth

Time

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The Shortening of Product Life Cycles
1 2 3 4 5 6 7 8 9

Percentage of Households with These Products

100

90

80

70

60

50

40

30

20

10

0
0 10 20 30 40 50 60 70 80 90 100 110 120
Years Since Product Invented
1 Web Access 4 Television 7 Air Travel
2 Mobile Phone 5 Radio 8 Telephone
3 PC 6 Electricity 9 Automobile

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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.

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Life Cycle Scenarios 1: Introduction

Sales Volume

Scenario 1:
Introduction:
Pioneers

Introduction Early Late Maturity Decline

Growth Growth

Time

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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

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Pioneer: Penetration Pricing and Skim Pricing

Skim Pricing
)t s oc ti nu( goL

Penetration pricing

Cost

Log (accumulated experience)

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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.

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Life Cycle Scenarios 2 and 3: Early Growth

Scenario 2:
Early-Growth Leaders
Sales Volume

Scenario 3:
Early-Growth Followers

Introduction Early Late Maturity Decline

Growth Growth

Time

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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

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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

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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.

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Life Cycle Scenario 4: Late Growth

Scenario 4:
Late Growth
Sales Volume

Introduction Early Late Maturity Decline

Growth Growth

Time

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Scenario 4: Late Growth

Key Issues
How can we segment the market?

How many segments can we identify?

How many, and which, segments should we target?

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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.

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Life Cycle Scenarios 5, 6, 7 and 8: Maturity
Scenario 5:
Maturity -- But Not Really!
Scenario 6:
Maturity – Concentrated Market Leaders

Scenario 7:
Maturity – Concentrated Market Followers

Scenario 8:
Maturity - Fragmented Markets
Sales Volume

Introduction Early Late Maturity Decline

Growth Growth

Time

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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

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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

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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

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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

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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

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Scenario 8: Maturity — Fragmented Markets

Strategic Options

• Acquisition

• Standardisation and branding

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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.

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Life Cycle Scenario 9: Decline

Scenario 9:
Decline
Sales Volume

Introduction Early Late Maturity Decline

Growth Growth

Time

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Profitability Distribution for Decline Businesses*

Total

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

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

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

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Scenario 9: Decline

Strategic Options

Yes A D
Leadership Harvest
Market Hospitable?

No B
C
Harvest or
Divest
Segment

High Low
Business Strengths

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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.

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 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:
Introduction
Early growth – Leader
Early growth - -Follower
Late growth
Maturity – But not really
Maturity – Concentrated markets – Leader
Maturity – Concentrated markets – Follower
Maturity – Fragmented markets
Decline

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.

© Copyright, Wessex Inc., 2007 www.mm21c.com

Marketing Roadmap: Market Strategy

6. Monitor & Control Selectivity &

Integration Execution & Concentration
MARKETS 1. Determine &
Performance Recommend Which
Markets to Address

SE
L
RO

GM
NT

EN
CO

TS
Customer

Competitor
Market
5. Secure Support From 2. Identify & Target
Other Functions External Market Segments
Orientation
Customer Value
SUP

INSIGHT
PO

N
IO
R

CT
T

RE
DI
4. Design the
Marketing Offer 3. Set Strategic
OFFER Direction

Differential Advantage

© Copyright, Wessex Inc., 2007 www.mm21c.com