Strategies for the Growth Stage of the PLC (Final Exam) Flashcards
What’s the difference in continuous and discontinuous innovation?
The classification of an innovation along the above lines is done on the basis of the extent to which the innovation causes change in existing customer habits.
Therefore, the type of innovation depends on the type of customer towards which it is aimed at. The same innovation may be continuous for one segment of customers and dynamically continuous for another. The discontinuous innovation causes a drastic change in customers’ existing habits.
Continuous innovation is the other extreme where an existing product undergoes marginal changes, without altering customer habits. Sometimes the customer may not even perceive these products to be new though the company may invested a lot of money to improve its existing products. For instance, a shampoo which is different from existing products only in its brand name, fragrance, color, packaging is also a new product, though it is a continuous innovation.
The continuous innovation should be above the perceptual threshold of the customer i.e. there should be a ‘Just Noticeable Difference’ (jnd) between the continuous innovation and the existing options for the customer to perceive this innovation as an improvement. Put simply, the customer should find the new product different from the existing options that he is aware of.
Dynamically continuous innovation falls between the discontinuous and continuous innovation. The changes in customer habits caused by such an innovation are not as large as in a discontinuous innovation, and not as negligible as in a continuous innovation. The progression from a manual to an electronic typewriter, and the advent of cable and satellite television are examples.
Discontinuous Innovations
Discontinuous innovations by their very nature are discontinuous to every customer segment, since they comprise new-to-the-world products only. These new products are so fundamentally different from products that already exist that they reshape markets and competition. For instance, mobile phone technology and the Internet drastically changed the way people communicate.
How Does the Target Market Change in the Growth Stage?
Early Adopters: Is likely to pay more for the new product and accepts premium price if using it elevates their social status/increases efficiency in their life. Early adopters help cover the costs of the research and development required when deficiencies are found in the product.
Early Majority: A little more cautious. After they see the enthusiastic adoption of the innovators and early adopters and see the product’s success, THEN they’re willing to take the risk.
Note:
- Governments and other public leaders start to get involved during the growth stage.
- More competition starts to come onto the scene during the growth stage.•More improvement also comes up during the growth stage.
- Firms are also trying to establish their competitive advantage during the growth stage. You have to develop your brand and reach the segments as you promote your brand in the growth stage.
- Sales are now increasing, market share is increasing, industry benchmarks are being established, and continuous innovation is occurring.
Expected Characteristics and Responses by Major Life Cycle Stages
There is low rivalry in the introduction and early growth
stages of the PLC.
Opportunities and Risks in Growth Markets
- Gaining share is easier
- Share gains are worth more
- Price competition is less intense
- Early entry helps maintain expertise
Gaining share in the intro and growth stage is relatively easy, because there’s so much moving around a jockeying for position.
Gaining share:
- There may be many potential new users who have no established brand loyalties and who may have different needs or preferences than earlier adopters.
- To take full advantage, the new entrant must be able to develop a product offering that new customers see as more attractive than the alternatives, and it must have necessary marketing resources and competencies to effectively persuade them of that fact.
- The notion that established competitors are less likely to react aggressively to market-share erosion as long as their sales continue to grow (at or above industry levels), is a tenuous one.
- It overlooks that fact that those competitors may have higher expectations for increased revenues when the market itself is growing.•Industry leaders often react forcefully when their sales growth falls below industry levels or when industry growth rates slow.
There is an impression that gaining share is worth more than maintenance.
The implicit assumption is that the business can hold its relative share as the market grows. The validity of this assumption depends on:
- The existence of positive network effects
- Future changes in technology or other key success factors
- Future competitive structure of the industry
- Future fragmentation of the market
If a firm captures share through short-term promotions or price cuts that competitors can easily match and that may tarnish its image among customers, its gains may be short-lived.
C. Price Competition is Likely to be Less Intense
In some rapidly growing markets, demand exceeds supply.
However, this does not hold true in every developing product-market.
If there are few barriers to entry or the adoption process is protracted and new customers enter the market slowly, demand may not exceed supply—at least not for very long.
D. Early Entry is Necessary to Maintain Technical Expertise
Later entrants, lacking customer contact and production and R&D experience, are at a disadvantage.
Sometimes, however, an early commitment to a specific technology can turn out to be a liability.
This is particularly true when multiple unrelated technologies might serve a market or when a newly emerging technology might replace the current one.
Strategic Challenges in the Growth Stage of the PLC
Maintain/keep Market Share:
Tactic 1: Use defensive strategies.
•
Increase Market Share:
Tactic 1: Taking market share away from competitors.
Tactic 2: Develop new markets.
Rules of Battle for the Growth Stage
- Try not to go into battle – it wastes resources.
- Try to be proactive, rather than reactive.
- Outwit the competitor so that they voluntarily retreat.
- Develop an “Intelligence System.” (spies)
Strategic Choices for Market Followers in Growth Markets
Decide Among the Following Choices to Attack
- Market-share leader within its primary target market or
- Another follower who has an established position within a major market segment, or
- One or more smaller competitors who have only limited resources.
Note: Avoid direct attacks on any established competitor
Best Growth Strategies According to Current Market Share
Fortress/Position Strategy: used by a leader who wants to maintain their current position. A Fortress Strategy is a defensive strategy which involves protecting and strengthening a strongly held current position. The objective is to develop an impregnable fortress capable of repelling attacks.
Fortress Tactics
- Preventing new competitors from entering your market space
- Fortress tactics involve anything that prevents your customers from going to your competitors
- improve satisfaction and loyalty
- Promote repeat purchasing
Customer Tactics
- Establish customer contracts that prevent them from going elsewhere.
- Improve customer service/service quality•Develop customer loyalty programs.
- Offer volume discounts.
- Positioning
- Create fan clubs (Jeep Cherokee Jamboree/Harley Riders Club/Big Rock).
Competitor Tactics
- Tie-up distribution channels
- Use distribution and territory exclusivity contracts.
- Price wars
- Lobby for government protection (tariffs, regional exclusivity permits)
- Price fixing (illegal in Canada)
- Collusion (illegal Canada)
Flanker Strategy
- A Flanker Strategy tries to capture a territory or a market segment where the leader has not established a strong presence.
- A Flanker Strategy is most likely to work when a market segment patronizes a competitor company only because there are no other alternatives.
- The objective of a Flanker Strategy is to attack the weak spots of the market leader.
Flanker Brand
A Flanker brand is a product or product line that is intended to weaken the competitor financially…
- A flanker brand strategy is usually used in conjunction with a defensive/fortress strategy
- A flanker brand may not be intended to be a money maker.
- It’s purpose is to deplete their resources of a competitor and knock them out of the market (at least in your trading zone).
- The tactic is always to attack where the competitor is weak.
- Brand extensions are often flanker brands.
Confrontation Strategy
- A Confrontation Strategy tries to steal customers away from the competitor.•A Confrontation Strategy tends to be a reactive strategy.
- Tactics often involve price wars (which is usually a losing strategy in prolonged battles).
- *Also called a “Full Frontal Attack” or “Head-to-head” competition
Contraction/Withdrawal Strategy
“He who retreats lives to fight another day”
