13 – Creating Competitive Advantage

Introduction

Since the late 1980s, we have seen increased awareness and impact of competition in practically all product categories, including many types of services, in India. Every business wishes to obtain an advantage over its competition. A competitive advantage is obtained over competitors by delivering more excellent value to consumers through lower pricing or by providing greater benefits and services that justify higher prices.

Competitive forces encourage new ideas and developments in all areas of corporate activity. Companies must carefully and continuously examine their competitiveness in a highly competitive global environment with changing consumer needs, lifestyles, and preferences. Businesses generally observe and analyse competition from an industry and a marketing standpoint. This section will teach you how businesses analyse their competition and what techniques they employ to acquire a competitive advantage.

13.1 Competitive Forces

Michael Porter identified five interactive competitive dynamics that impact the long-term desirability of an industry:

1. Current competitors
2. Prospective competitors
3. Suppliers’ bargaining power
4. Buyers’ negotiating power
5. Substitute products pose a threat

13.1.1 Rivalry among Present Competitors

Rivalry occurs between companies that provide similar products and when competitors attempt to improve or preserve their position. Whatever move one corporation takes has an impact on others. The more competitive an industry is, the less appealing it is to present or potential newcomers. As the degree of rivalry increases, profitability begins to decline. This occurs when the industry has many strong or aggressive competitors, the investment required in fixed and working capital to produce sales is significant, or the exit barriers are high. This will almost certainly lead to price and promotional wars. Competitors operate as close to capacity as feasible. Rivalry is considerable when several small enterprises are in an industry with no dominating player. Competition is also heightened when there is little or no product differentiation, like television sets or car and motorcycle tyres.

13.1.2 Threat of New Entrants

New arrivals can be a source of competition, especially if they are more extensive. According to Michael Porter, the degree of attractiveness of an industry fluctuates according to its entry and exit barriers. Obtaining the volume and understanding required to achieve a low relative cost per unit takes time for new entrants. If the companies in the market are vertically integrated, or if the incumbent firms share their production with their other linked enterprises, entry becomes even more expensive, raising the problem of cost disadvantage.

The most appealing industry would be one with high admission barriers and simple leave without paying significant fees. The issue is more complicated in businesses with substantial entrance and exit barriers, as well as tremendous profit potential. Still, even low-performing enterprises are driven to stay and fight it out. When both entry and exit barriers are low and returns are low but stable, the scenario does not pose a significant concern. The worst-case scenario is when an industry’s entry barrier is low, but its exit barrier is high. Aside from favourable market conditions when firms enter the industry, there is substantial overcapacity during bad times, and every player must cope with depressed returns.

13.1.3 Bargaining Power of Suppliers

Generally, suppliers use higher pricing or restricted supply to exert negotiation pressure. The effect could be pretty considerable, especially if the sector has a specified number of suppliers, if the supplied product is a vital input, switching costs and alternative prices are high, or if the suppliers are organised and can legitimately threaten forward integration. With the emergence of just-in-time supplier relationships, bargaining leverage is changing in many industries. This connection with suppliers has evolved into a collaborative collaboration, resulting in decreased transaction and inventory costs and increased quality.

When significant suppliers in an industry have much negotiating power, the industry’s general attractiveness suffers.

Entry and Exit Barriers

13.1.4 Bargaining Power of Buyers

It should be no surprise that buyers in any industry want more for less. They seek higher product quality and extra services at reduced costs. As a result, they can have an impact on industry rivalry. When

(1) the number of large buyers is quite limited, concentrated, or organised,

(2) switching costs are favourably low,

(3) the threat of backward integration is low,

(4) the product represents only a tiny part of the buyer’s cost, and

(5) buyers earn low profits, and the product involved product cost is an integral part of their costs; buyers will bargain more tenaciously. The increased purchasing power of huge volume purchasers in a sector makes it less appealing.

13.1.5 Threat of Substitute Products

Substitutes, such as different cooking oils, washing products, pain cures, or postal and courier services, serve the same purpose. When supply exceeds demand, the availability of replacements limits enterprises’ prices and significantly restricts profit margins.

For example, we have just witnessed this in the case of cellular phone services in our nation. This is also possible with Internet services. When there are numerous existing or possible substitutes, industries of this sort are undesirable. Increasing competition and technological advancements may hurt prices and profitability.

The analysis of competition reveals a collection of critical competitors and possible competitors. The study must determine their features, emphasising their methods, goals, and strengths and weaknesses.

13.2 Competitive Strategies and PLC Stages

Companies establish three main performance objectives based on the competition: share position, revenue growth, and profit performance. Depending on the current and predicted market conditions, some organisations will pursue offensive strategies while others will pursue defensive methods to achieve their goals. Before making a strategic decision, businesses assess market attractiveness and competitive advantage.

Market Attractiveness: Market size, market growth, competition intensity, profit potential, market accessibility, and fit with a company’s core strengths are all aspects that make a market appealing. These factors can be classified into market forces, competition, and market access.

Elements Shaping Market Attractiveness

competitive advantage: According to L. W. Philips, D. R. Chang, and R. D. Buzzell, other pressures shape a corporation’s competitive advantage characteristics. The three dimensions of competitive advantage depicted contain three forces underpinning each element of competitive advantage: product-related elements, cost-related variables, and competencies in various marketing roles.

Factors Influencing Competitive Advantage

13.2.1 Offensive Strategies

Competing enterprises are more likely to pursue offensive strategies during the growth stages of the product-market life cycle (early growth and rapid growth stages), to increase sales, market share, and future profit position.

Defensive strategies are more likely to be implemented at later stages of the product-market life cycle (late growth, early and late maturity) and often aim to protect market share while increasing short-term sales returns and profitability.

Strategy Choice Based on Portfolio Analysis

Adopting an aggressive strategy is determined by market attractiveness and competitive advantage. When a company’s competitive advantage is average or below average, it is more inclined to pursue offensive methods to achieve a competitive edge and market share. The corporation may gain a competitive edge and market share in existing product markets and/or enter new markets where no market share is recognised. Another strategic goal that lends itself to offensive strategy is when a marketer seeks to cultivate a nascent or underdeveloped market in which it has acquired a solid competitive advantage.

The fundamental offensive strategies include investing in existing markets to increase sales, enhancing competitive position, or investing in and entering new markets. Each strategy will have unique objectives and sub-plans to accomplish the required results.

13.2.2 Defensive Strategies

Businesses having a significant market share in either growing or mature markets would typically choose defensive strategies to retain cash flow and short-term profitability. Companies would face short-term profitability challenges and a lack of resources to capitalise on chances by entering growing markets with offensive strategies if they did not protect their position and profitability.

The primary goal of a defensive strategy is to protect the company’s profit position and critical share positions that justify investment. A defensive approach is also suited for a secondary goal: to manage a corporation’s profitability that has lost its potential for high growth profitability.

13.3 Choosing Competitors

There are likely to be multiple competitors in an industry, each with a unique profile based on their size, resources, objectives, strategies, and areas of strength and weakness. The chosen competitor could be either strong or weak. Some of these rivals may be classified as “good” or “bad.” Good ones obey industry regulations, make reasonable assumptions about the industry’s future growth, price their offers sensibly based on lower costs and urge others to do the same, favour product differentiation, focus on a segment of the industry, and favour a healthy sector. Bad actors disregard these good standards and embrace practices that disrupt the industry’s healthy balance.

Customer Perceptions of Value: Customers are said to select a brand from a range of accessible alternatives based on their views of its value. Quality, advantages (functional and image), prices, and service all contribute to this value. The brand outperforming all others on the selected criterion is assumed to be purchased. The stages involved in measuring consumers’ value perception are as follows:

• Identify essential traits and their relative relevance in the eyes of customers. Consumer impressions of the company’s and competitors’ performance on these criteria should be evaluated. On these criteria, assess the company’s one or two key competitors in a market.
• Provide value to customers and undertake value perception assessments regularly.

The study will uncover four competitors in an industry, including the company itself. Some of the key differences between a market leader, a market follower, a market challenger, and a niche marketer are explored briefly below:

Market Leader: The company with the highest market shares generally leads others in new technology introduction or upgrade, new product launch, general pricing changes, promotional techniques, and level of distribution coverage. Such a company will likely devise offensive or defensive plans to battle tooth and nail to keep its position and remain at the top. Airtel, for example, is the market leader in India’s mobile network services sector.

Market Follower: Many corporations in capital-intensive industries that deal with inhomogeneous products, such as cement, steel, and chemicals, want to be market followers. They frequently imitate the leader and supply customers with identical quality, pricing, and service offers. There are few opportunities to develop substantial uniqueness in their offering, and price sensitivity is high. Any attempt to challenge the boss necessitates significant investments. Those who seek to challenge the leader frequently pursue expansion through acquisitions. For instance, according to a news item in the Hindustan Times, Mittal Steel Co. became the world’s largest steel producer by acquiring certain other steel enterprises in the industry.

Market Challenger: Any other competitive firm in the same product market, whether second, third, or lower in rank, may decide to become the challenger. Much depends on how the individual company evaluates the leader’s aims, plans, strengths, and weaknesses and how the firm evaluates its resources, strengths, weaknesses, and objectives to challenge the leader. For example, market rivals in the mobile network services sector include Vodafone, Idea, and others.

Niche Marketer: A niche market is a small sub-section of a more significant segment in which customers want a particular set of characteristics, resulting in the most desired benefits. A niche marketer concentrates on the demands of clients in this small sub-segment and tailors its marketing to that set of target customers. These customers are willing to pay a premium for the specialised marketer who best meets their needs. Typically, the niche does not attract competition. Rolls Royce, Louis Vuitton, Tag Heuer, and other luxury brands are examples of niche marketers.

13.4 Strategic Options for Growth Markets

 13.4.1 Market Leader Strategies

Market leaders are pioneers or among the first few entrants who built the product market. In general, the leader’s goal is to maintain its market share advantage despite the emergence of new players. Maintaining an early market share lead in developing markets is difficult due to an increasing number of competitors, market segment fragmentation, and the possibility of competitor product innovation. In the presence of competition, a company can only keep its market share if its sales rise at the same rate as the whole market.

To obtain and maintain a dominant market share, a company must retain its existing customers by cultivating brand loyalty and encouraging them to make repeat or replenishment purchases. The company should drive selective demand among later product adopter groups to capture a more significant product-market share of the expanding market.

Expansion of Market Share: Growing a market leader’s market share is frequently one of the most appealing strategic options. Coca-Cola has managed to increase its volume by 7-8% annually. In major sectors, a one-point increase in market share is often worth millions of dollars.

According to David Zymanski, Sunder Bhardwaj, and Rajan Verdarajan, numerous factors influence a company’s capacity to increase market share and earn profits.

For example, the expense of increasing share growth may greatly outweigh the revenue gains. It is easy to become engrossed in share conflicts without considering the unprofitable potential of winning the market share but losing the fight for income. A business should consider four critical things:

1. Possibility of Competition Act 2002, or equivalent statutes such as Anti-trust Action in the United States of America: The combination of Jet Airways and Sahara Airlines has sparked scrutiny. Similarly, Microsoft’s protracted investigation is well-known. The risk decreases the allure of higher share gains.
2. The cost of gaining market share may rise and exceed revenues: According to Robert D. Buzzell and Bradly T. Gale, 31% of the 877 market-share leaders in the PIMS database experienced relative share losses, and leaders were especially likely to face losses when their market share was quite significant. This may occur due to additional expenses incurred in public relations activities, unattractive market segments, customers’ refusal to accept what is offered, resulting in disliking the business and loyalty to competitors, and customers’ unique product feature preferences, among other factors. Market leaders may find it more suitable to reduce their market share by taking it easy in less profitable categories and reducing their focus on retaining market share.
3. Choosing and implementing an ineffective marketing mix strategy: Apple Computers debuted the Cube, but it did not sell well despite advertising and other communications. Avanti Garralli Moped did not sell because its advertising targeted the incorrect demographic. To acquire a successful, increasing market share, Robert D. Buzzell and Frederick D. Wiersema identified three areas to succeed:

•  New Product Development,
•  Product Quality, and
•  Marketing Expenditure.

4. Increasing the number of consumers may strain the company’s resources, reducing service delivery and product value. Linda Hellofs and Robert Jacobson discovered that increased share growth may impair customer views of product quality.

A business leader can employ defensive or aggressive techniques to retain a share position, grow market share, or expand the product market. The following strategic moves are available to a market leader, depending on the situation:

Position Defence Strategy: The market share leader almost always employs a position defence strategy. This strategy focuses on fortifying an existing position like a fortress and repelling attacks from current or potential competitors. The share leader must not expose any areas to a flank assault and must decide which areas are most critical to defend. By spending to support and sustain existing leading positions, the company may increase customer satisfaction and make the service more appealing to new customers.

The most critical move a market leader can make is to keep changing its product and adding new features. Hindustan Lever Limited debuted their top-of-the-line Dove Gentle Exfoliating Bar, which has a pH range of 6.5 to 7.5, which is practically neutral compared to other alkaline toilet soaps with a pH of 9 or more. This can stymie efforts by competitors to differentiate their offerings by integrating features or performance enhancements not available in the leader’s products. It would strengthen the leader’s competitive advantage if the leader also reduced costs to discourage price competition.

Aside from providing new features, the market leader should work to improve customer perceptions of the product. Marketing communications should focus on generating selected demand for the company’s brand. Sales marketing activities should entice late adopters to try the product and return customers to buy again.

Another crucial consideration for the leader is to focus on more excellent pot-purchase service for durable products to strengthen its position.

Flanker Strategy: This approach is used by the market leader to outwit a rival who decides to bypass the leader’s stronghold and attempt to acquire an area where the leader has not yet established a firm foothold. This may occur when the product market is fractured into various segments, and the leader’s product brand fails to match the demands and desires of some of those appealing divisions. This may occur when a competitor with adequate resources and strengths differentiates its offer that appeals to one or more groups where the leader has not yet established himself. In this case, the rival takes a sizable portion of the market.

To defend an exposed flank from the challenger’s onslaught, a leader may create a fighting brand (also known as a Flanker brand) to contend with the challenger’s brand. This is what Hindustan Lever did when Nirma detergent began to eat into HLL Surf’s market share.

Depending on where the rival focuses, the leader can offer a higher-quality brand at a higher price or a lower-quality brand at a lower cost than the challenger to appeal to the segment and defend the leader’s core brand.

A market leader initially assures position defence before implementing a flanker strategy. This necessitates investments, and the organisation should have adequate resources to fully commit to implementing both methods concurrently.

Confrontation Strategy: IBM was the market leader in the commercial PC market until the mid-1980s, when it lost market share to competitors such as Compaq. Compaq machines, for example, cost about the same as IBM computers but provide users with more incredible features or higher performance levels. Dell computers later adopted direct distribution and began offering customised PCs at reduced prices. Customers could select components and submit orders online.

When a market leader is directly assaulted, it may have to employ a confrontation strategy. Confrontation strategies are frequently reactive. It is unusual to obtain reliable intelligence in sufficient time to be proactive and build a viable marketing approach before an issue develops. The leader often decides to match or outperform the competition by providing more attractive product features than the competitors. The leader incorporates product enhancements, boosts advertising efforts, and occasionally cuts pricing. In the event of items with high purchase rates or the product diffusion process being lengthy, the leader should consider implementing a penetration pricing plan from the start. This would prevent lower-cost competitors from entering the market, ensure the leader’s competitive advantage, and eliminate the need for confrontation.

This strategy necessitates investment in process improvements to minimise unit costs, improve product quality and customer service, or develop more advanced versions that provide more value to customers. For example, Maruti suffered competition from other manufacturers and share loss in the hatchback car sector. The company has produced a more modern automobile in this sector, the Maruti Swift, which provides customers more value.

Market Expansion Strategy: The primary goal of this approach is to grab a significant share of new client groups with different wants and preferences than the segment in which the company has been operating with its first product. This is a more proactive and aggressive flanker method for defending the leader’s market share by increasing the overall market. This safeguards the company against future competition threats. When a company has abundant resources and competencies, a market expansion strategy is especially appropriate in a fragmented market.

This strategy calls for product line extensions, new brands, or alternative items with varying price-quality ratios.

For example, Intel offers processors at various price-quality points in its four brands, Pentium D, Xeon, Pentium, and Celeron, for distinct market segments in a fragmented market with diverse demands and preferences. Intel leads the global processor market with the highest share. Similarly, Nike has maintained a dominant position in the athletic shoe business. It has created several line extensions providing technical, design, and stylistic elements to meet customers’ needs across all sports.

A market leader may also establish a specialised sales team to cope with particular customer groups in specific product categories. Another option a leader can use to maintain different consumer groups is to keep the fundamental product but change other aspects of the marketing programme to make the offer more enticing.

Pre-emptive Strategy: This strategy defends a market-share leader’s position before a challenger attacks. A company can employ a pre-emptive strategy in various ways. For example, it can introduce and announce several new products before its market debut. According to R. J. Calantone and K. E. Schatzel, a market leader’s pre-announcement intentionally discourages competitors from attacking. Bayes, Jain, and Rao have coined the term “Vaporware” to describe such new-product pre-announcements by high-tech companies that occur many months before their actual release.

Contraction or Withdrawal Strategy: If the market is highly fragmented and new entrants have more resources than the market leader, it may be difficult for the market leader to defend adequately in all market segments. If the company does not have enough resources, it may be forced to reduce or eliminate its presence in specific market segments. The company concentrates on segments with the most significant competitive advantage or extraordinary segment attractiveness and growth potential.

13.4.2 Market Follower Strategies

Late entrants in a product market follow the pioneers. Of course, not all followers in a growing market aspire to be the market-share leader, leaving the pioneer behind. Many competing businesses enter the market, particularly those with limited resources and competencies. These businesses may decide to join a distinct segment of the larger market, which has been overlooked by other entrants, and build a successful business. It resembles a niche strategy that avoids direct competition with more prominent players and may be somewhat successful.

Share leaders, followers, and niche marketers know most market structures. A company with the second-largest market share and a close follower has an important strategic decision: whether to challenge the leader with an offensive plan. Another strategy option is to maintain its market share while increasing profitability. Much will depend on the leader’s competitive advantage and vow to protect their position, the follower’s resources, and the follower’s short-term profit requirements.

Market-share followers attempt to retain their client base while recruiting new consumers and avoiding any steps that may elicit competitor retaliation. The following are some regularly used strategies:

Counterfeit Strategy: This type of follower manufactures duplicates of the leader’s items and distributes them at extremely low costs through the grey market and dealers of questionable integrity. Some East Asian operators, for example, duplicate/pirate software, music and movie CDs, Apple Computer, best-selling novels, and some luxury watch brands.

Adapter Strategy: This company adopts or copies a leader’s product, enhances it, and sells it in various markets. The differences are in the features, packaging, pricing, and distribution. Some companies take product ideas from established leaders and modify them for use in a different country.

13.4.3 Market Challenger Strategies

A challenger envisions winning an industry’s market share leadership. Many challengers have surpassed the leader, while others have gained share points.

A challenger must choose between two basic strategic possibilities. In markets where the market leader and others have already monopolised a big piece of the prospective market, a challenger has no alternative except to acquire some demand from competitors’ existing clients. A challenger could try going head-to-head with a chosen competitor by engaging in various marketing activities to give it an advantage. Alternatively, a challenger may decide to surpass the market leader by delivering new generation items with more significant benefits to entice existing customers to switch from their current brand to a new one. This could potentially result in many late adopters in the mainstream market.

The five primary competitive techniques for a challenger can be deployed separately or in combination. The five major strategies are frontal attack, leapfrog, flanking attack, encirclement, and guerrilla attack. The majority of these tactics appear to be maintenance measures in common.

Who Should Be Attacked?

A challenger must first determine which competitor to assault. There are various alternatives available. Choosing whom to attack necessitates rigorous examination and comparison of different competitors’ strengths and weaknesses:

1. Attack the market-share leader
2. Attack another follower
3. Attack one or more smaller competitors
4. Avoid direct attacks on any established competitor

Frontal Attack Strategy: If the market for a product category is relatively homogeneous, with an established market leader and a few untapped but unattractive areas, the competitor has little choice but to launch a frontal assault with comparable products, pricing, promotion, and distribution. This may be successful if most current customers have little or no brand preferences or loyalty. In this case, even better resources are not guaranteed to lead to victory if the challenger imitates the targeted competitor’s offer. For example, when Videocon and Onida were very popular in India, LG and Samsung launched a frontal assault, eventually displacing them to become the top two consumer electronics brands.

Achieving cheaper costs or a differentiated market position can give a challenger a competitive edge. Sustainable cost advantage can help reduce prices to attract the chosen competitor’s target clients, or it can retain pricing and pursue more comprehensive promotion.

Certain conditions must be met for these tactics to be implemented. Price competition may be effective only if the challenger has one or more long-term advantages, such as superior technology, solid and continuous relationships with low-cost suppliers, or some form of synergy with the company’s other business divisions. Before conducting a promotional blitz, a challenger should also examine the target competitor’s resources. If the chosen competition has unlimited resources, it can retaliate forcefully. In specific industries where the sales force plays a crucial role in a company’s marketing campaign, a more significant and trained sales force can provide a competitive edge to a challenger.

Leapfrog Strategy: This strategy is used to obtain a significant advantage over the competition. A competitor introduces a new generation of significantly differentiated items that are far more advanced and provide customers with more desirable features and benefits than existing alternatives. Digital watches, portable music players, and digital cameras are a few examples. Citizens introduced timepieces that do not require battery replacement. The leapfrog method effectively attracts recurrent or replacement sales from competitors’ existing customer groups and new purchases from other adopter groups of customers.

Flanking Attack Strategy: This strategy is appropriate when a market can be substantially divided into additional divisions, and a challenger’s resources cannot be matched in a frontal attack. The target competitor(s) is/are well-established in one or more key segments, and the existing brands fall short of achieving desired consumer satisfaction in one or more segments. To begin, a challenger focuses its resources and capabilities on a single significant untapped segment, attempting to corner a sizable share of the whole market. This strategy may necessitate appealing product features and highly demanded consumer services. In addition, appropriate pricing and effective promotional programmes to entice buyers are required to accelerate brand demand. G-Five, for example, introduced low-cost mobile phones with features such as a music player, camera, dual sim, touch screen, and so on to attract lower-income clients who wish to buy a phone with such capabilities but cannot afford a Nokia or a Samsung due to their high prices.

Encirclement Strategy: A challenger employs a flanker strategy to assault multiple small, untapped, or underdeveloped regions simultaneously. The challenger tries to surround the target competitor’s brand from all sides, giving several alternatives to peripheral market sectors. This method may be effective when a market is fragmented and numerous applications or geographic locations have diverse demands and preferences.

To implement this approach, a challenger must create a diverse line of products with the

required attributes to cater to the interests of many market segments.

Cadbury-Schweppes, for example, sells a wide range of flavoured soft drinks catering to various market segments’ diverse tastes. The corporation has avoided cola drinks to prevent competition from Pepsi and Coke.

Guerrilla Attack Strategy: If other techniques are ineffective, a guerrilla attack strategy may be appropriate for a challenger with few resources. The challenger launches a series of surprise attacks against its established target competition in limited geographic areas. The goal is to demoralise the target rival and establish a secure and long-term foothold.

A challenger can use a variety of strategies. These are examples of sales promotion, local solid advertising, and merchandising efforts. Price-cutting sales campaigns in local geographic areas are an excellent way to encourage brand switching among customers, especially in consumer markets, and it is typically tricky for significant competition to react rapidly. Similarly, correctly targeted direct mail or Internet marketing might help implement this concept. In some circumstances, guerrilla attacks deter a larger competitor from extending its product-market share or engaging in hostile acts. Airlines, for example, utilise short-term specials to target national carriers, particularly when passenger loads on specific routes are low.

13.5 Strategic Alternatives for Mature Markets

Market maturation can last for an extended amount of time. During the early stages of maturity, a company should strive to maximise profit flow across the remaining product-market term. The primary goal is to keep and protect market share. Maintaining the company’s percentage of recurrent or replacement purchases from existing consumers is critical. This is significant because, in a mature product market, the number of new customers is small compared to that of existing customers.

Some defensive or offensive methods described earlier in this section remain essential for customer retention. The best method for a market-share leader is to maintain its position by employing a position defence plan. This necessitates increasing consumer happiness and loyalty while simplifying and encouraging repeat transactions. Such are efforts to enhance product quality, service quality, and cost reduction. If markets are more fragmented, a company may expand product lines and use a flanker strategy to add one or more flanker brands to safeguard the company from competitor threats.

Other small-cap competitors should avoid protracted confrontations with large-cap enterprises. A small business might use a niche strategy to target a more specific consumer segment with particular wants and preferences. A niche strategy may be advantageous when a small sub-segment is less appealing to larger enterprises, or the niche marketer can build a substantial differentiated advantage or brand preference among customers.

Volume Growth Strategies

The rate of growth in mature markets has flattened. It is exceedingly difficult to make a market bouncy when this flattening of development occurs owing to the availability of substitute items, a definitive shift in client tastes, changes in lifestyles, etc. Suppose the current marketing programmes, such as restricted segmentation or limited options, are inadequate. In that case, aggressive marketing methods may successfully extend the product-market life cycle into renewed growth, and more volume growth can be pursued as a target.

To increase volume in a mature market, a company can choose from several tactics, which can be used alone or combined. These volume growth tactics include greater penetration, sustained use, and market expansion.

Greater Penetration Strategy: A market segment’s sales volume is determined by

(a) the number of customers in the segment,

(b) the proportion of customers in that segment who use the product, and

(c) the average rate at which customers use the product and make repeat purchases. Suppose a product has a high usage rate among current users, but only a tiny percentage of potential customers in the segment buy it. In that case, a company may focus on boosting market penetration. This technique is better suited to a market leader than a smaller company with fewer well-known brands.

The company should investigate why potential customers aren’t interested in the product. The company may discover potential customers who know the product, but it does not provide enough value to justify their time and money. The apparent approach is integrating features that provide desired benefits via line extension. For example, many Indian clients cannot access running water to clean their razors. For Indian customers, Gillette created the Vector Plus, a customised twin-blade razor. This razor is simple to clean by immersing it in water in a mug or cup.

Prolonged Use Strategy: When a market is widely penetrated, but the average use per consumer is less frequent and/or use per occasion is low, a prolonged use strategy makes sense. For example, a shampoo marketing firm determines through market research that market penetration is high. Still, the average consumer only uses shampoo twice a week and only approximately 5ml per occasion. In such cases, extended and/or increased quantity consumption per occasion may enhance sales volume.

A company may persuade customers that using shampoo five times a week provides better dandruff protection or that on each wash occasion, it is best to apply shampoo once, wash, and then apply it again to reap additional advantages. Firms can sometimes successfully push new uses for their products or new market groups. For example, Milkmaid grew its volume by advertising the use of its product in the preparation of sweets and desserts. Johnson & Johnson promoted using infant shampoo and toilet soap for those with sensitive skin and raised the volume of its products.

Market Expansion Strategy: When a mature industry is diverse and fragmented, and some market segments are not well developed, a market expansion strategy makes sense and can generate significant incremental volume growth. The approach is centred on recruiting new clients in these undeveloped or new markets. This strategy is appropriate for leaders and smaller organisations (assuming they have the resources and capabilities to focus on narrow areas) in domestic or international markets.

This strategy needs a firm to strengthen its current presence in various market categories to acquire experience-curve benefits and operating synergies. Because larger firms have already obtained national market penetration, this type of development in a mature industry may not be viable for a leader in increasing volume growth. Small regional enterprises in the domestic market may consider expanding their operations in other regions of the national market to increase share and volume growth. Such a move raises the prospect of retribution from established national or regional competitors. Acquiring smaller businesses in other regions is a good strategy for a regional firm. This can work when

(a) a small, low-profit business sells its assets for less than the cost of capacity involved for the acquiring firm and

(b) the acquiring firm gains synergies by combining regional operations and committing additional resources, thereby improving the acquired business’s profitability.

Another way to grow in the domestic market is to create new clients or application segments. For example, a hand-made paper company that sells its paper in the consumer market may grow into the commercial sector. It may expand its distribution to different geographic sectors in the domestic market without modifying the product or incurring additional promotional costs. A watch manufacturing company that distributes its products through shops may contact chain stores to market its products. Product change may be required in some instances.

Some regional businesses, such as Shoppers’ Stop, Bata, Amway, and Walmart, develop private-label brands for large retailers. This is an appealing but somewhat hazardous strategy for achieving volume growth for small businesses with relatively weak brands and extra installed capacity. The concern is that relying on one or a few private-label customers with high bargaining power will cause them to switch to other low-cost suppliers. Private label brands often fight on price, and this circumstance may suit just a supplier’s low-cost position in an industry.

Large enterprises with dominant market shares in mature domestic product marketplaces can expand geographically into less established but accessible overseas markets. Businesses can enter overseas markets in various ways, from using import agents to forming joint ventures or establishing owned subsidiaries. The process could include entering a country with very low development, then a developing country, and finally, a mature economy. Gradual sequencing may assist in lowering risks and expenses while gaining marketing knowledge. Example: Japanese companies (Seiko, Citizen, National, Canon, Suzuki, Toyota, Honda, and others) are regarded as masters of this game plan, having entered a vast number of developing and developed countries around the world and gaining significant market shares.

As disposable income rises in developing countries, many multinational corporations seek to expand there. This is especially critical for non-essential products like soft drinks, fast food, and cosmetics. Coca-Cola expects future growth in Asia, South America, and Africa.

13.6 Strategic Alternatives for Declining Markets

Most product markets decline at some point in their life cycle, but not all do so simultaneously. Excess capacity is a burden, and rivals compete to maintain volume. They differ in terms of their strengths and limitations. The essential characteristics of product-market attractiveness and competitive strengths also apply here, determining the appropriate strategy choice.

According to Kathryn R. Harrington, the attractiveness of declining markets is determined by three factors:

(1) demand conditions, including the rate and reliability of forecasted future volume decreases,

(2) exit barriers (ease with which weaker competitors can exit the market) and

(3) rivalry and intensity of future competition within the market.

The demand environment has a substantial impact on strategy selection. Demand falls for various reasons, including technical advancements that generate substitute items, demographic trends that can lead to diminishing markets, changes in customer demands, preferences, and lifestyles, and a significant increase in the cost of consumables or complementary products.

The causes of demand drop impact both the speed and predictability of that decline. Demographic transitions, for example, are likely to create a slow reduction in demand, whereas a shift owing to a technologically superior alternative can be pretty rapid. A transition to a superior substitute is straightforward to forecast, whereas changing client tastes is challenging to predict.

A slow and gradual fall allows weaker enterprises adequate time to exit the market. Overcapacity is not a problem for those who stay, and aggressive competitive measures are less likely to provide profits, but not if the fall is rapid and irregular. If the collapse is predictable and confident, withdrawing is simple, and overcapacity is not an issue. However, if there is considerable uncertainty about whether demand will fall or rise, overcapacity may lead to predatory competitive actions.

Exit barriers are the second most crucial element influencing strategy selection. If the exit barriers are substantial, it is less likely that a rival will leave the product market. Weaker enterprises find it difficult to exit a product market when demand diminishes, surplus capacity accumulates, and competitors engage in aggressive price reduction and promotional activities to increase volume and keep unit costs low. As a result, organisations’ competitive behaviour becomes volatile.

The third issue to consider when making a strategic decision is rivalry and the degree of future competition. In a decreasing market, there may still be pockets of high demand, but pursuing them in the face of future fierce competitive rivalry may be unwise. Other considerations, such as customer bargaining power, ease of switching to replacements, and diseconomies of scale, may make engaging in solid price competition unfavourable.

Divestment Decision

A firm finds the situation unappealing and has a relatively weak competitive position during the product-market decline stage. The company sees an opportunity to recoup a significant percentage of its investment by selling its firm early in the product-market collapse rather than later. Potential buyers are apprehensive about the future direction of market demand in the early stages of a market downturn. Finding an interested buyer may not be a difficult task. The firm may acquire a more excellent liquidation value by exiting early. If the departure hurdles are substantial, a quick divestiture may be impossible. This decision carries specific hazards as well. The company’s prognosis for the future of the product market could be incorrect.

Marketing Techniques for Competitors Who Remain in a Declining Market

Harvesting, maintenance, survival with profits, and niche strategies are all strategies for diminishing markets.

Harvesting Methodology: This strategy aims to earn cash quickly by maximising cash flow in a short period. The company avoids any extra business expenditure by cutting marketing and other operational costs and, in some cases, boosting prices. The objective is to divest the firm, which means that some revenues and market share will be lost during the implementation period. Efforts should be made to make sales and market share decline as moderately and consistently as possible.

This method works best when the firm is quite strong at the start of the decline stage, and some customers continue to purchase the product despite diminished marketing support. It is also appropriate when the decrease is gradual and consistent, and the competitive intensity is not expected to be severe. The company should aim to improve sales and distribution efficiency while keeping advertising and promotion costs to a bare minimum.

Kodak, for example, chose a harvest strategy for its traditionally most profitable commodity, film. As businesses and consumers shifted away from film photography and toward digital photography, Kodak’s primary products faced a grim future with declining profits. To confront this problem, Kodak executives firmly pushed into digital photography.

Strategy for Maintenance: With high uncertainty about future sales volumes in a falling market, a company with a dominant market share may pursue this strategy. The company will stick to its previous plan, which was successful during the product’s mature period until the future of the falling market becomes apparent. The company must lower prices or boost marketing spending to maintain market share in a diminishing product market. This frequently results in lower short-run margins and profitability. This is a sort of make-do arrangement. When it is certain that the market decline will continue, the company should convert to another strategy to generate cash flows for the remainder of the product’s life cycle.

Profitable Survival Strategy: This strategy may suit a company with a substantial market share and a long-term competitive advantage in a falling product market. The company invests to increase its product-market share and become the market leader for the remainder of its declining term.

Strategies for Niche Marketers: Being a niche marketer means refusing to be a follower. Even though most product-market categories are predicted to shrink, a niche strategy may be feasible. The firm should have a solid competitive position in a target segment and the competencies to maintain a durable competitive advantage to outperform competitors. Avoiding direct competition with larger organisations that target numerous larger market sectors is frequently a prudent strategy.

Apple, for example, is a niche marketer who caters to people with particular wants. TAG Heuer watches cater to the specialised needs of auto race fans. A niche marketer has a low sales volume but high margins per unit of sales, whereas a mass marketer has an extensive sales volume but lower margins.

In many ways, a speciality share firm is a market leader. It is merely the market leader in a more precisely defined and possibly lucrative sub-segment of a broader segment. Niche marketers might use defensive techniques to protect their market share.