Mature and Decline Market

Mature and decline market

Challenges:

Mature:

1. Surviving the shakeout

P225-226: 3 strategic traps during transaction (shakeout)

a) Failure to recognize the beginning of the shakeout period (different for durable and nondurable markets)

b) During growth: may survive and prosper even thought it as neither differentiated nor attain low-cost position. But in shakeout: not the case

c) Fail to recognize the declining importance of differentiation and increasing importance of price and service

Eg: companies with technological superiority often disdain aggressive pricing → delay meeting aggressive competitors → lose share (computer firm Hewlett-Packard fail to recognize in the wake of Dell's aggressive pricing policy)

Differentiation erodes during mature stage

d) Giving up market share too easily in favour of short-run profit

2. Primary marketing objective: hold their existing customers (maintain brand loyalty)

a) Lower cost

b) Differentiation: I. Perceived product quality; II. Customer-service superiority

Eg.: Adidas: experience sales revivals (复活) in recent years because of creative marketing strategies

So: share leader in mature market: build on cost or differentiation advantage → increase sales volume by promoting new uses of the existing offerings, rather than passively defend the old product.

Generally: Difficult to pursue both: low price make it difficult to cover the costs inherent in maintaining superior quality over time

But: improvements in quality through reduction in defects: actually reduce the cost

However: improving quality in order to increase the value delivered to customers: generate greater financial returns than focused mainly on cost reduction

Low-cost strategy: still improve the quality within the financial constraints

Differentiation strategy: continue to improve efficiency without sacrificing quality

Methods of differentiation:

1. Product quality

a) Performance

b) Durability

c) Conformance with specifications

d) Features

e) Reliability

f) Serviceability

g) Fit and finish

h) Brand name

2. Service quality (more important)

a) Tangibles (less important)

Service system:

b) Reliability

c) Responsiveness

Service personnel:

d) Assurance

e) Empathy

Most critical: reliability (ability to perform the promised service)

As a result: eg: Amazon: build distribution centres geared to (in order to) improving the reliability of its orders.

The key of differentiation strategy: provide service to meet or exceed customer's expectation.

However: gaps where service quality can fail

1. Btw customer's expectations and marketer's expectations

2. Btw management perceptions and service specifications (operating std)

3. Btw specifications (lip service) and delivery

4. Btw delivery and communication (might cause unrealistically high expectations)

5. Btw perceived service and expected service (result from failure to close any of the gaps above)

Achieving and sustaining high levels of service: difficult because it involves coordination of employees from different departments and org. level.

⇒ Firms need to clearly identify target customers' desire and accurately communicate what level of service they intend to deliver in order to narrow down or close the gaps

Methods of maintaining low-cost position

Eg: Dell: achieve costs below those of much larger competitors by logistical alliances with suppliers + innovative, Internet-based distribution channel

1. No-fills product

Remove all frills and extras from product

Easy for a follower: because established firms: difficult to stop offering features and services their customers have come to expect

However: established firms: may lower price in order to drive out no-frills competitors

So: firms considering no-frills strategy: need resources to withstand the price war

2. Innovative product design

Simplified design → low cost

Eg. Japanese copier industry: design extremely simple copiers

3. Cheaper raw materials

Eg: Fort Howard Paper: rely exclusively on recycled pulp to produce toilet paper

Gain CA in price-sensitive commercial market

4. Innovative production processes

For low-cost biz: spend little on product R&D, but devote substantial sums to process R&D.

eg: automated or computer-controlled processes

For labour-intensive biz: gain access to inexpensive labour by outsourcing all or part of production process to countries with low wage rates like China, India, Mexico.

However: easy to emulate → hard to sustain

5. Low-cost distribution

Eliminate or shifting to customers some of the functions performed by traditional