C

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EIGHT

Marketing Strategies
for
New Market Entries
McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Stages in a Product Life Cycle

o Introductory
o Product often lacks easy availability

o Growth
o Sales increase at a progressively faster rate

o Shakeout
o Growth rate decreases resulting in strong price
competition

o Mature
o Net adoption rate holds steady

o Decline
o Sales rate declines

8-2

Exhibit 8.1

Profit per unit

(real dollars)

Product category sales

(real dollars)

Generalized Product Life Cycle

Life cycle
extension
Profit/unit

Introduction

Sales

Maturity

Decline or
extension

Competitive
Growth turbulence

Time (years)
8-3

Exhibit 8.3

Relationship of Strategic Market Position Objective, Investment Levels,

Profits, and Cash Flow
Stages in the Product Life Cycle
Stage

Strategic Market
Objective

Investments

Profits

Cash Flow

Introduction

For both innovators

and followers,
accelerate overall
market growth and
product
acceptance through
awareness, trial, and
product availability

Moderate to
high for
R&D, capacity,
working
capital, and
marketing
(sales and
advertising)

Highly
negative

Highly
negative

Growth

Increase competitive
position

High to very
high

High

Negative

Shakeout

Improve/solidify
competitive
position

Moderate

Low to
moderate

Low to
moderate

Mature

Maintain position

Low

Low

Moderate
8-4

Limitations of the Product Life Cycle

o Normative approach to prescribing
strategies
o Strategies are based on assumptions
about the features of each stage

8-5

New Market Entries

o Six categories of new products:
o New-to-the-world products
o New product lines
o Additions to existing product lines
o Improvements in existing products
o Repositionings
o Cost reductions

8-6

Exhibit 8.4

Categories of New Products Defined According to their Degree of

Newness
High
10%

Newness to the company

20%

New-to-the world
products

New product lines

26%

26%

Revisions/
Improvements to
existing products

Additions to existing
product lines

11%

7%

Repositionings

Cost reductions

Low
Low

High
Newness to the market

Source: New Products Management for the 1980s (New York: Booz, Allen & Hamilton, 1982). Reprinted by permission.

8-7

Objectives of New Product and Market Development

o
o
o
o
o
o
o
o

Maintain position as a product innovator

Defend a current market-share position
Establish a foothold in a future new market
Exploit technology in a new way
Capitalize on distribution strengths
Provide a cash generator
Use excess or off-season capacity
Preempt market segment
8-8

Pioneer Strategy
o Potential sources of competitive advantage
o
o
o
o
o
o
o

First choice of market segments and positions

Defining the rules of the game
Distribution advantages
Economies of scale and experience
High switching costs for early adopters
Possibility of positive network effects
Possibility of preempting scarce resources

8-9

Follower Strategy
o Possible advantages:
o Ability to take advantage of:
o Pioneers positioning mistakes
o Pioneers product mistakes
o Pioneers marketing mistakes
o Latest technology
o Pioneers limited resources

8-10

Exhibit 8.8

Marketing Strategy Elements Pursued by Successful Pioneers, Fast

Followers, and Late Entrants

Successful
pioneers

Large entry scale

Broad product line
High product quality
Heavy promotional expenditures

Successful fast
followers

Larger entry scale than the pioneer

Leapfrogging the pioneer with
superior:
Product technology
Product quality
Customer service

Successful late
entrants

Focus on peripheral target markets

or niches

8-11

Strategic Marketing Programs for Pioneers

o Mass-market penetration
o Niche penetration
o Skimming and early withdrawal

8-12

Marketing Program Components for Pioneers

o Increase customers awareness and
willingness to buy
o Increase customers ability to buy

8-13

Mechanisms for Entering Foreign Market

o Exporting through agents
o Contractual agreements
o Direct investment

8-14

Exporting
o Simplest way to enter foreign market
o Export merchants
o Buy and sell products overseas for their
own account

o Export agents
o Sell on a commission basis

o Cooperative organizations
o Export for several producers
8-15

Contractual Agreements
o Nonequity arrangements involving
transfer of technology to an entity in a
foreign country
o Licensing
o Firm offers the right to use its intangible
assets in exchange for royalties

o Franchising
o Grants the right to use the companys
name, trademarks, and technology
8-16

Contractual Agreements (continued)

o Contract manufacturing
o Sourcing a product from a manufacturer located
in a foreign country for sale there or elsewhere
o Turnkey construction contract
o Requires the contractor to have the project up and
operating before releasing it to the owner

o Coproduction
o Involves a companys providing technical know-how
and components

o Countertrade
o Includes barter, compensation packages,
counterpurchase, and a buyback arrangement
8-17

Direct Investment
o Allows the parent organization to
retain total control of the overseas
operation
o Joint ventures
o Involve a joint ownership arrangement to
produce or market goods in a foreign
country

o Sole ownership
o Involves setting up a production facility in
a foreign country

8-18