Module 15 - Marketing Strategies for New Market Entries

Question 1

1 Innovative products which are new to the company and which create an entirely new market for consumers are known as what type of new products?
A.Improvements in existing products.
B.Additions to existing product lines.
C.Repositionings.
D.Cost reductions.
E.New-to-the-world products.

Answer 1

E

Question 2

2 If a company creates new advertising which describes a new application of one of its existing products, what type of new product activity does this represent?
A A line extension.
B.A brand extension.
C.A product improvement.
D.An added feature.

Answer 2

E

Question 3

3 Which entails more risk to the firm, a product’s degree of:
A.newness to the market.
B.newness to the firm.
C.newness to the brand.
D.all of the above are about equal.
E.A or B above depending on specific factors

Answer 3

E

Question 4

4 When Apple introduced its Macintosh computer, one of the most important sources of advantage to the company in pioneering this product was probably:
A.high switching costs for early adopters.
B.that the pioneer defines the ‘rules of the game’.
C.influence on consumer choice criteria.
D.its famous 1984 Superbowl ad.
E.both B and D above.

Answer 4

A

Question 5

5 Pioneers who follow a large-scale entry strategy are usually hoping for ____ to assist them in being successful.
A.learning-curve benefits.
B.vertical integration.
C.horizontal integration.
D.barriers to entry.
E.none of the above

Answer 5

A

Question 6

6 Some successful fast followers are characterised by utilising which of the following?
A.A focus on peripheral markets.
B.Leapfrogging the pioneer’s product technology.
C.A focus on personal selling.
D.Pre-empting the pioneer’s raw materials.
E.Spending more money on market research.

Answer 6

B

Question 7

7 Which type of marketing strategy has as its primary objective to maximise the number of triers and adopters in the target market segment?
A.Mass-market penetration.
B.Defender strategy.
C.Niche penetration.
D.Skimming and early-withdrawal strategy.
E.Harvesting strategy.

Answer 7

C

Question 8

8 Which type of marketing strategy has as its primary objective to maintain the leading market share position in the total market?
A.Niche penetration.
B.Harvesting strategy.
C.Defender strategy.
D.Skimming and early-withdrawal strategy.
E.Mass-market penetration.

Answer 8

E

Question 9

9 The key to a new product’s success is:
A.pre-empting the market leader’s scarce resources.
B.developing a newer technology.
C.increasing product awareness.
D.increasing potential users’ willingness and ability to buy.
E.both C and D are correct.

Answer 9

E

Question 10

10 Successful pioneers who initially spend heavily on promotion hope to ____ while those who continue to spend heavily on promotion hope to ____.
A.stimulate awareness / stimulate trial
B.stimulate awareness / reinforce loyalty
C.build selective demand / build primary demand
D.erect entry barriers / build primary demand
E.reduce costs / increase awareness

Answer 10

B

Question 11

1 According to the Booz, Allen & Hamilton study, most product introductions fall into two categories: ____ and ____.
A. new-to-the-world products; new product lines.
B. repositionings; cost reductions.
C. new-to-the-world products; cost reductions.
D. additions to existing product lines; improvements in or revisions to existing products.
E. additions to existing product lines; repositionings.

Answer 11

D

Question 12

2 A product category which is new to the company and new to customers is classified as what type of new product?
A. Cost reduction.
B. New product line.
C. Addition to existing product line.
D. New to the world.
E. Improvement to existing product.

Answer 12

D

Question 13

3 Which source of advantage to a pioneer is represented by the idea that the pioneer’s actions set standards for quality, price and post-sale service which subsequent entrants must either meet or beat?
A. Economies of scale.
B. High switching costs.
C. First choice of positioning strategy.
D. Distribution advantage.
E. Defining the rules of the game.

Answer 13

E

Question 14

4 Potential sources of advantage available to pioneers in product markets include all of the following EXCEPT:
A. economies of scale and experience.
B. high switching costs for early adopters.
C. that the pioneer defines the ‘rules of the game’.
D. distribution advantages.
E. limited resources

Answer 14

E

Question 15

5 When computer software manufacturers virtually give away their new products to computer hardware manufacturers and to universities in the hope of getting more profitable sales of upgrade products in the future, they are counting on:
A. creating better upgrade products to maintain these customers.
B. consumers remembering the good deal they were given.
C. pre-empting their competitors from selling to these consumers.
D. structuring these consumers’ perceptions and future expectations.
E. retaining these customers because of the product’s high learning costs.

Answer 15

E

Question 16

6 Pre-empting scarce resources leads to:
A. economies of scale.
B. vertical integration.
C. horizontal integration.
D. barriers to entry.
E. economies of scope.

Answer 16

D

Question 17

7 Current research now suggests that with regard to being a pioneer:
A. it is the best strategy for firms with ample resources.
B. it is clearly not the best strategy for firms with ample resources.
C. success is not a function of resources, but of skill.
D. it is merely an opportunity for success, not a guarantee.
E. fast followers can sometimes become the pioneer.

Answer 17

D

Question 18

8 The most direct way to take advantage of a pioneer’s product mistake is to:
A. add a new product line.
B. reposition a product.
C. reduce the cost of production.
D. add the missing feature.
E. increase advertising.

Answer 18

D

Question 19

9 Which source of advantage to a pioneer is represented by the idea that the pioneer can gain a production advantage in terms of volume which might help it to lower its per-unit production costs at a faster rate than followers?
A. Distribution advantage.
B. Economies of scale and experience.
C. Defining the rules of the game.
D. First choice of market segments.
E. High switching costs.

Answer 19

B

Question 20

10 Which type of marketing strategy has as its primary objective to recoup development and commercialisation costs as soon as possible?
A. Niche penetration.
B. Harvesting strategy.
C. Defender strategy.
D. Skimming and early withdrawal strategy.
E. Mass-market penetration strategy

Answer 20

D

Question 21

Describe the subcategories of new products based on their degree of newness.

Answer 21

six categories of new products:

• new to world (10%)
• new product lines – entering into existing markets (20%)
• additions to existing product lines (26%)
• improvements in or revisions of existing products (26%)
• repositioning’s – existing products targeted at new segments (7%)
• cost reductions – product modifications providing similar performance at lower cost (11%)

Question 22

What are the potential sources of competitive advantages available to a pioneer?

Answer 22

advantages of pioneer strategy are

• first choice of market segments and positions – develop product offering with attributes most appealing to largest segment of customers i.e. brand becomes standard of reference, competitors may have to target a niche
• pioneer define the rules of the game – if pioneer sets standards high enough, it can raise the cost of entry
• distribution advantages – can design the channel, particularly important for industrial goods where pioneer could create a network of distributors
• economies of scale and experience – especially if product is technically sophisticated or life cycle is short with sales increasing rapidly during early stages
• high switching costs for early adopters – especially for industrial goods, although pioneers could do the hard work of getting consumer to switch only for competition to then enter e.g. CD players
• possibility of positive network effects – some goods increase in value to customer when more people adopt them e.g. email, web sites like eBay
• possibility of preempting scarce resources and suppliers – pioneer may be able to negotiate favorable deal from suppliers eager for new business or who don’t realize the size of the opportunity

Question 23

What are the possible advantages of adopting a follower strategy?

Answer 23

possible advantages of being a follower are

• ability to take advantage of the pioneers early mistakes – e.g. misjudging the purchase criteria of the mass market segment
• ability to take advantage of the pioneers product mistakes e.g. a technical limitation
• ability to take advantage of the pioneers marketing mistakes e.g. distribution not adequate
• ability to take advantage of the latest technology e.g. vhs vs. beta
• ability to take advantage of pioneers limited resources

Question 24

What are the determinants of success for a pioneer strategy?

Answer 24

• pioneer has the best change of success when
  
  • the new product market is insulated from the entry of competitors (at least for a while) by patents, IP, investment requirements or positive network effects or
  • the firm has sufficient size, resources and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries
• a follower will most likely succeed when there are few legal, technical or financial barriers to inhibit entry and when it has more resources than pioneers
• pioneers that maintain their lead well into market growth stage had the following market entry strategies
  
  • large entry scale – had sufficient capacity or could expand quickly enough to peruse mass market strategy
  • broad product line – could quickly add line extensions to initial product to tailor offerings to specific segments
  • high product quality –
  • heavy promotional expenditure – initially to stimulate awareness and later to reinforce loyalty
• successful fast followers
  
  • had larger entry scale than pioneers
  • leapfrog pioneers by better product technology, quality or service
  • late entrants can succeed by focusing on peripheral target markets or niches

Question 25

Discuss each of the three types of pioneer strategy

Answer 25

Mass market penetration

• ultimate objective of this strategy is to capture and maintain a commanding share of the total market for the new product
• critical marketing task is to convince as many people to try product as quickly as possible so you can drive down unit costs and build loyal customer base before competitors arrive
• usually most successful when there are barriers to market entry or when pioneer has competencies or resources that competitors haven’t got
• smaller pioneers can be successful if there is slow initial growth, as this wont attract competitors
• good strategy when the product category is likely to experience positive network effects

Niche penetration

• even when new product market expands quickly a small firm can still be a successful pioneer by capturing and maintaining market share in a single market segment
  
  • good when
  • there is quick growth
  • there are a number different benefit segments to appeal to
  • few barriers to entry
  • pioneer has limited resources
• some pioneers start with a mass market strategy but then end up in niche penetration strategy when the market ends up being more fragmented than they expected

Skimming and early withdrawal

• skimming involves setting a high price and engaging only in limited advertising and promotion to maximize profit
• sometimes firm will use this profit to develop more advanced technology or new uses of existing product
• when competitors enter market and margins fall, firm either moves to new segment or cannibalizes its own product with more advanced one e.g. 3M do this
• for this to work
  
  • critical that company has strong R&D skills
  • few barriers to entry
  • product is expected to diffuse rapidly
  • pioneer lacks capacity or resources to defend share position in the long haul

Question 26

What marketing activities should a firm engage in to increase customers’ awareness and willingness to buy? And to increase the customers’ ability to buy?

See exhibit 15.5

Answer 26

Increasing customers awareness and willingness to buy

• heavy spending on promotional activities can increase awareness
• personal selling more suited to complex products, media ads and sales promotions more suited to consumer products
• firms may also try to reduce risk attached to purchase e.g. money back guarantees
• may broaden its product offering to appeal to as many segments as possible – E.G. line extensions, additional package sizes or modifications targeted at segment

Increasing customers ability to buy

• customers must be aware of the product and motivated to buy, but they also must have the wherewithal to purchase it
• therefore it makes sense to keep prices low (penetration pricing) and perhaps offer low cost finance deals
• pioneers introducing new communications or information technologies tend to be especially aggressive in pricing Because
  
  • such products can often benefit from positive network effects
  • the variable costs are usually quite low
• low price (or free trials) tend to build a large installed base capturing more value from large customers with high prices and maximizing value of customers by upselling them
• lack of product availability is overcome by extensive personal selling and trade promotions
• high switching costs can be avoided by planning compatibility into the product

Question 27

What marketing programme components are important for a skimming strategy?

Answer 27

See exhibit 15.5

Question 28

A product category which is new to the company but not new to customers, because of the existence of competitive brands, is classified as what type of new product?
A. Cost reductions.
B. New product lines.
C. Additions to existing product lines.
D. Repositionings.
E. Improvements in existing products.

Answer 28

B

Question 29

Pillsbury’s entry into the instant breakfast product-market in the USA involves the need to create ____ demand. If Pillsbury decides to enter the Chinese market, where it is the pioneer, it must create ____ demand.
A. selective; primary.
B. primary; selective.
C. selective; selective.
D. primary; primary.
E. selective; primary and selective .

Answer 29

A

Question 30

Which source of advantage to a pioneer is represented by the idea that the pioneer’s brand can become a standard of reference to customers in terms of evaluating brands introduced later by competitors?
A. Distribution advantage.
B. Economies of scale advantage.
C. First choice of positioning strategy.
D. High switching costs.
E. Defining the rules of the game advantage

Answer 30

C

Question 31

The value of some kinds of goods and services to an individual consumer increases as a greater number of people adopt the product. Such products exhibit:
A. economies of scale.
B. vertical integration.
C. horizontal integration.
D. positive network effects.
E. economies of scope

Answer 31

D

Question 32

When it entered the personal computer market Compaq entered as a ____. Its strategy was to take advantage of IBM’s ____.
A. pioneer; positioning.
B. follower; limited resources.
C. slow follower; marketing mistakes.
D. follower; positioning. E. follower; product mistakes.

Answer 32

E

Question 33

A pioneer who follows a broad product line marketing strategy may be attempting to:
A. build share.
B. satisfy emerging wants.
C. develop a quality image.
D. compete on a national basis.
E. both A and B above.

Answer 33

B

Question 34

Which element of marketing strategy suggests that the pioneer has sufficient manufacturing capacity to pursue a mass-market strategy on a national basis?
A. Heavy promotional expenditures.
B. Broad product line.
C. High product quality.
D. Large entry scale.
E. Positioning strategy.

Answer 34

D

Question 35

For ‘new to the world’ products, which marketing strategy is most consistent with a low introductory price?
A. Skimming/early withdrawal.
B. Niche penetration.
C. Mass-market penetration.
D. Any of the above.
E. Only A and B above.

Answer 35

C

Question 36

A company that ‘hits fast, prices high, and gets out’ before me-too products enter is practising a ____ strategy.
A. niche penetration.
B. vertical profit maximisation.
C. mass-market penetration.
D. new-to-the-world.
E. skimming with early withdrawal

Answer 36

E

Question 37

____ advertising to generate awareness is most likely to be associated with a ____ strategy.
A. Limited; mass-market penetration.
B. Limited; skimming/early withdrawal.
C. Limited; niche penetration.
D. Extensive; skimming/early withdrawal.
E. Extensive; delayed withdrawal.

Answer 37

B

Question 38

Which type of marketing strategy has as its primary objective to recover R&D and commercialisation costs as soon as possible?
A. Mass-market penetration.
B. Niche penetration.
C. Harvesting strategy.
D. Skimming and early withdrawal strategy.
E. Defender strategy

Answer 38

D

Question 39

Penetration pricing increases customer’s ____ when associated with a ____ strategic marketing programme.
A. willingness to buy; early withdrawal.
B. awareness; early withdrawal.
C. ability to buy; niche.
D. awareness; niche.
E. both B and D .

Answer 39

C

Question 40

Usually, the best market entry strategy for a firm looking to pioneer an international market is:
A. export.
B. franchising.
C. joint venture.
D. direct investment.
E. none of the above

Answer 40

C

Question 41

Minnetonka, Inc., is a relatively small firm that has pioneered the development of consumer health and beauty products – such as Softsoap and Check-Up plaque-fighting toothpaste – over recent years. What potential advantages does being the pioneer in new product-markets provide a firm like Minnetonka in an industry dominated by giants such as Procter & Gamble and Colgate-Palmolive?

Answer 41

The text now identifies seven possible advantages to the pioneer. The new one is possible network externalities or positive network effects. However, Minnetonka’s products are unlikely to benefit from such effects.

Question 42

Not all new market pioneers effectively take advantage of the potential benefits inherent in their early lead. What does the research evidence suggest that Minnetonka should do in relation to major elements of its marketing strategy to gain and maintain a leading share position in the new markets it enters?

Answer 42

Research indicates that followers succeed through a combination of large-scale entry, broad product line, high product quality and heavy promotional expenditures. This suggests Minnetonka should concentrate on introducing high-quality products

Question 43

Research shows that companies that increase profits mostly by cutting the costs of their new product entries have substantially lower profits than those that emphasise revenue growth with their new entries. How do you explain this finding?

Answer 43

This difference in profits results from the fact that cost cutting has a largely short- term affect whereas revenue growth – particularly that derived from innovative new products – has a much longer-term impact. This is especially true if the company’s initial product generates a product line of considerable consequence and the company develops and holds the largest market share.

Question 44

Under what conditions do pioneer and follower strategies each have the greatest probability of long-term success?

Answer 44

A pioneering firm has the best chance for long-term success in market-share leadership and profitability when the new product-market is insulated from the entry of competitors and/or the firm has sufficient size, resources and competencies to take full advantage of its pioneering position and preserve it in the face of later competitive entries. Followers are most likely to succeed when there are few legal, technological or financial barriers to inhibit entry and when it has sufficient re- sources or competencies to overwhelm the pioneer’s early advantage.

Question 45

With the exception of certain core businesses – such as adhesives and information- storage technology – the 3M Company has often followed a strategy of withdrawing from markets in which it was the pioneer after other competitors enter and profit margins start to decline. It typically does this by licensing products to other firms. Under what kinds of market and competitive situations is such a withdrawal strategy most appropriate? What kinds of products do you think 3M is most likely to license to other firms?

Answer 45

Skimming with early withdrawal is most successful when there is limited potential demand, customers are likely to adopt early and pay a premium and when there is substantial potential competition.

3M is most likely to engage in skimming and spinning off when the product technology cannot be effectively protected, when the resources to produce the product are commonly available and when production is relatively simple.