Product and market strategies - Marketing Strategy

Nature of Product and Market Strategy

Product And Market Strategies :

Product/market strategies are detailed in nature. They address the specific market impact of a product or product line. This section examines three concepts useful in formulating such strategies: the product/market matrix, PIMS (product impact of market strategy) analysis and the product lifecycle (PLC).

Product/market matrix :

Ans off (1975) developed a policy/market matrix (or ‘Ans off matrix’) which provides a useful linkage between products and markets. The matrix(Figure ) considers four combinations of product and market. Each combination suggests a growth strategy. The organization’s potential is determined by the combination of current and new products within current and new markets. Additionally, the element of risk must be considered. As organizations move away from existing markets and products the potential risk factors increase.

Product/market matrix

Product/market matrix

  • Market penetration :The aim is to increase sales of existing products in current markets. An aggressive marketing drive, via factors such as competitive pricing, sales promotion or advertising, can expand the share of an existing market. Dealing with familiar customers and products is low risk and provides a starting point to planned growth. However, the potential for market penetration is often limited and strategic plans may require additional options to be pursued.
  • Market development :Market development aims to find new markets for existing products. This could involve new geographic markets (e.g. exporting), adding distribution channels or finding new market segments. For example, a manufacturer of sports clothing may try to position its products as fashion items and target a different set of retailers.
  • Product development :Organizations must update their product portfolio to remain competitive. Ideally, a balanced product portfolio should exist, with established products generating funds for product development.
  • Diversification :This involves moving beyond existing areas of operation and actively seeking involvement in unfamiliar activities. Diversification can be related – having linkages to existing activities – or unrelated –venturing into totally new activities. While unrelated diversification may spread risk, it can be difficult to achieve.

The product/market matrix can be expanded to consider the degree to which new activities are related or unrelated (Figure below) to the core business. As previously stated, it is more difficult to achieve success in unrelated activities. Hence, unrelated diversification of product and/or markets is often tackled via joint ventures,mergers and acquisitions.

Expanded product/market matrix

Expanded product/market matrix

PIMS analysis :

Many influential marketing studies have examined the link between profit and marketing strategy. These PIMS (profit impact of market strategy)studies aimed to identify the key drivers of profitability and have recognized the importance of market share as such a driver. Generally speaking, profits will increase in line with relative market share. This relationship (Figure below) has influenced marketing thinking, promoting actions aimed at increasing market share as a route to profitability. While such a relationship is often true, it is not universal, and some industries display a ‘V-shaped’ relationship. Here, profitability

Profit related to market share

Profit related to market share

can initially fall until a critical mass, in terms of market share, is reached. The effect of the ‘V-curve’ is polarization – industries with small niche players and large dominant companies. Medium-sized firms see profits fall until critical mass is reached. This makes it very difficult for small/ medium companies to grow. Figure below shows the relationship. Clearly, the marketing strategist must consider the nature of these relationships and not blindly pursue market share. It should be possible to determine the optimum market share/profitability position.

‘V-shaped’ profit/market share relationship

‘V-shaped’ profit/market share relationship

The product life cycle :

The product life cycle (PLC) has been described as the most quoted but least understood concept in marketing. Any strategy considering products and markets will be influenced by the PLC. Organizations are advised to ensure that they fully understand the product life cycle for their products and industry segments. The basic concept (Figure below) can be summarized as products passing through four stages: introduction, growth, maturity and decline. Sales will vary with each phase of the life cycle.

Product life cycle

Product life cycle

  • Introduction : It takes time for sales to grow and the introductory phase sees awareness and distribution of the product increasing. Some organizations will specialize in innovation and aim to consistently introduce new products to the market place. Common strategies include:
    1. skimming, where a high price level is set initially, in order to capitalize on the product’s introduction and optimize financial benefit in the short term or
    2. penetration, with pricing being used to encourage use and build market share over time.
  • Growth :This phase sees a rapid increase in sales. Additionally,competition begins to increase and it is likely that prices will be static, or fall, in real terms. The growth stage sees the product being offered to more market segments, increasing distribution and the development of product variations.
  • Maturity :Here product sales peak and settle at a stable level. This is normally the longest phase of the PLC, with organizations experiencing some reduction in profit level. This is due to the intense competition common in mature markets. As no natural growth exists, market share is keenly contested and marketing expenditure is increased. Marketers may try to expand their potential customer base by encouraging more use or finding new market segments.
  • Decline :The decline stage can be gradual or rapid. It is possible to turn around declining products and move them back into the mature phase of the cycle. The alternative is replacement. A residual demand will exist, with current users needing parts, services and ongoing support. Often the decline phase offers a choice: reinvesting (turn around/replace) or ‘harvesting’ (maximizing financial returns from the product and limiting expenditure). To utilize the PLC fully, managers need a detailed understanding of the concept and the following points merit consideration.
  • Industry and product line :The product life cycle concept can also apply to overall industry sales. Clearly, the PLC for individual product lines needs to be considered in relation to this. For example, if an industry is entering the decline phase of its PLC, it may be unwise to launch new product lines. Currently, high technology industries, such as telecommunications, are in the growth phase. However, individual product lines have very short PLCs as they are rapidly replaced by more advanced technology. Make sure you understand where the industry is in terms of overall PLC and how your portfolio of products fits into this overall pattern.
  • Shape of the PLC :While the PLC normally conforms to the classic ‘S-shaped’ curve (see Figure below),it is not always the case. Product life cycles can take different forms. They can display:
    1. cyclical/ seasonal trends;
    2. constant demand, where a steady level of sales is reached, or
    3. rapid growth and fall, common to fashion or fad products (see Figure below).
  • Volatility :Any sales person will tell you that sales levels will fluctuate over time. The reality of the PLC is that sales will vary and the smooth graph shown in most textbooks will in fact display considerable volatility. This makes predicting your exact position in the life cycle difficult. Does a fall in sales mean we have reached the point of decline or is it a temporary blip? Only time will tell.
  • Duration of stages :Some would argue that the length of each PLC phase is closely related to marketing decisions and not simply a natural cycle. Effective marketing should be able to extend and sustain the growth or maturity of a product offering. Equally, ineffective marketing would hasten its decline.

Variation in product life cycle shape

Variation in product life cycle shape


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