Market maturity is defined by a flattening of the growth rate. In some instances growth slows for structural reasons, such as the emergence of substitute products or a shift in customer preferences. Marketers can do little to revitalize the market under such conditions. But in some cases a market only appears to be mature because of the limitations of current marketing programs, such as target segments that are too narrowly defined or limited product offerings. Here, more innovative or aggressive marketing strategies might successfully extend the market’s life cycle into a period of renewed growth. Thus, stimulating additional volume growth can be an important secondary objective under such circumstances, particularly for industry share leaders because they often can capture a relatively large share of any additional volume generated.
A firm might pursue several different marketing strategies—either singly or in combination—to squeeze additional volume from a mature market. These include an increased penetration strategy, an extended use strategy, and a Market Expansion strategy. Exhibit 16.6 summarizes the Environmental Situation where each of these strategies is most appropriate and the objectives each is best suited for accomplishing. Exhibit 16.7 then outlines specific marketing actions a firm might employ to implement each of the strategies, as discussed in more detail in the following paragraphs.
Increased Penetration Strategy The total sales volume produced by a target segment of customers is a function of (1) the number of potential customers in the segment; (2) the product’s penetration of that segment, that is, the proportion of potential customers who actually use the product; and (3) the average frequency with which customers consume the product and make another purchase. Where usage frequency is quite high among current customers but only a relatively small portion of all potential users actually buy the product, a firm might aim at increasing market penetration. It is an appropriate strategy for an industry’s share leader because such firms can more likely gain and retain a substantial share of new customers than smaller firms with less-well-known brands.
The secret to a successful increased-penetration strategy lies in discovering why non- users are uninterested in the product. Very often the product does not offer sufficient value from the potential customer’s view to justify the effort or expense involved in buying and using it. One obvious solution to such a problem is to enhance the product’s value to potential customers by adding features or benefits, usually via line extensions.
Another way to add value to a product is to develop and sell integrated systems that help improve the basic product’s performance or ease of use. For instance, instead of simply selling control mechanisms for heating and cooling systems, Johnson Controls offers integrated facilities management programs designed to lower the total costs of operating a commercial building.
A firm may also enhance a product’s value by offering services that improve its performance or ease of use for the potential customer. Since it is unlikely that people who do not know how to knit will ever buy yarn or knitting needles, for example, most yarn shops offer free knitting lessons.
Product modifications or line extensions will not, however, attract nonusers unless the enhanced benefits are effectively promoted. For industrial goods, this may mean redirecting some sales efforts toward nonusers. The firm may offer additional incentives for new account sales or assign specific salespeople to call on targeted nonusers and convert them into new customers. For consumer goods, some combination of advertising to stimulate primary demand in the target segment and sales promotions to encourage trial, such as free samples or tie-in promotions with complementary products that nonusers currently buy, can be effective.
Finally, some potential customers may be having trouble finding the product due to limited distribution, or the product’s benefits may simply be too modest to justify much purchasing effort. In such cases, expanding distribution or developing more convenient and accessible channels may help expand market penetration. For example, few travelers are so leery of flying that they would go through the effort of calling an insurance agent to buy an accident policy for a single flight. But the sales of such policies are greatly increased by making them conveniently available as an optional purchase through the credit-card companies travelers use to pay for their flights.
Extended Use Strategy Some years ago, the manager of General Foods’ Cool Whip frozen dessert topping discovered through marketing research that nearly three-fourths of all U.S. households used the product, but the average consumer used it only four times per year and served it on only 7 percent of all toppable desserts. In situations of good market penetration but low frequency of use, an extended use strategy may increase volume. This was particularly true in the Cool Whip case; the relatively large and homogeneous target market consisted for the most part of a single mass-market segment. Also, General Foods held nearly a two-thirds share of the frozen topping market, and it had the marketing resources and competencies to capture most of the additional volume that an extended use strategy might generate.
One effective approach for stimulating increased frequency of use is to move product inventories closer to the point of use. This approach works particularly well with low- involvement consumer goods. Marketers know that most consumers are unlikely to expend any additional time or effort to obtain such products when they are ready to use them. If there is no Cool Whip in the refrigerator when the consumer is preparing dessert, for instance, he or she is unlikely to run to the store immediately and will probably serve the dessert without topping.
One obvious way to move inventory closer to the point of consumption is to offer larger package sizes. The more customers buy at one time, the less likely they are to be out of stock when a usage opportunity arises. This approach can backfire, though, for a perishable product or one that consumers perceive to be an impulse indulgence. Thus, most superpremium ice creams, such as Häagen-Dazs, are sold in small pint containers; most consumers want to avoid the temptation of having large quantities of such a high-calorie indulgence too readily available.
The design of a package can also help increase use frequency by making the product more convenient or easy to use. Examples include single-serving packages of pudding or salad to pack in lunches, packages of paper cups that include a convenient dispenser, and frozen-food packages that can go directly into a microwave oven.
Various sales promotion programs also help move inventories of a product closer to the point of use by encouraging larger volume purchases. Marketers commonly offer quantity discounts for this purpose in selling industrial goods. For consumer products, multi- item discounts or two-for-one deals serve the same purpose. Promotional programs also encourage greater frequency of use and increase customer loyalty in many service industries. Consider, for instance, the frequent-flier programs offered by major airlines or the “rewards” programs offered by credit-card providers.
Sometimes the product’s characteristics inhibit customers from using it more frequently. If marketers can change those characteristics, such as difficulty of preparation or high calories, a new line extension might encourage customers to use more of the product or to use it more often. Microwave waffles and low-calorie salad dressings are examples of such line extensions. For industrial goods, however, firms may have to develop new tech- nology to overcome a product’s limitations for some applications. For instance, Johnson Controls recently acquired Prince Automotive to gain the expertise necessary to develop instrument panels and consoles incorporating the sophisticated electronics desired by top- end manufacturers such as BMW and Mercedes-Benz.
Finally, advertising can sometimes effectively increase use frequency by simply reminding customers to use the product more often. For instance, General Foods conducted a reminder campaign for Jell-O pudding that featured Bill Cosby asking, “When was the last time you served pudding, Mom?”
Another approach for extending use among current customers involves finding and promoting new functional uses for the product. Jell-O gelatin is a classic example, having generated substantial new sales volume over the years by promoting the use of Jell-O as an ingredient in salads, pie fillings, and other dishes.
Firms promote new ways to use a product through a variety of methods. For industrial products, firms send technical advisories about new applications to the salesforce to present to their customers during regular sales calls. For consumer products, new use suggestions or recipes may be included on the package, in an advertising campaign, or on the firm’s Web site. Sales promotions, such as including cents-off coupons in ads featuring a new recipe, encourage customers to try a new application.
In some cases, slightly modified line extensions might encourage customers to use more of the product or use it in different ways. For example, Australian, French, Chilean, and even a few large U.S. winemakers have attempted to attract more young consumers and broaden the variety of occasions at which they drink wine rather than beer or other beverages. They have pursued these objectives by blending fruitier, less tannic wines, designing whimsical labels and logos—such as the Yellow Tail wallaby from Australia and Fat Bastard from France—and lowering prices to between $3 and $9 a bottle. Consequently, U.S. consumers drank a record 278 million cases of wine in 2005, and consumption has been grow- ing at a brisk 3 percent annual rate.
Market Expansion Strategy In a mature industry with a fragmented and heterogeneous market where some segments are less well developed than others, a market expan- sion strategy may generate substantial additional volume growth. Such a strategy aims at gaining new customers by targeting new or underdeveloped geographic markets (either regional or foreign) or new customer segments. Once again, share leaders tend to be best suited for implementing this strategy. But even smaller competitors can employ such a strategy successfully if they focus on relatively small or specialized market niches. Pursuing market expansion by strengthening a firm’s position in new or underdeveloped domestic geographic markets can lead to experience-curve benefits and operating synergies. The firm can rely on largely the same expertise and technology, and perhaps even the same production and distribution facilities, it has already developed. Unfortunately, domestic geographic expansion is often not viable in a mature industry because the share leaders usually have attained national market coverage. Smaller regional competitors, on the other hand, might consider domestic geographic expansion a means for improving their volume and share position. However, such a move risks retaliation from the large national brands as well as from entrenched regional competitors in the prospective new territory.
To get around the retaliation problem, a regional producer might try to expand through the acquisition of small producers in other regions. This can be a viable option when (1) the low profitability of some regional producers enables the acquiring firm to buy their assets for less than the replacement cost of the capacity involved and (2) synergies gained by combining regional operations and the infusion of resources from the acquiring firm can improve the effectiveness and profitability of the acquired producers. For example, Heileman Brewing Company grew from the 31st largest U.S. brewer of beer in the mid- 1960s to the 4th largest by the mid-1980s through the acquisition of nearly 30 regional brands. Heileman took control of strong regional brands such as Old Style, Carling, and Rainier, but because it had no dominant national brand it avoided antitrust opposition to its acquisition program. After acquisition, Heileman maintained the identity of each brand, increased its advertising budget, and expanded its distribution by incorporating it into the firm’s distribution system in other regions. As a result, Heileman achieved a strong earn- ings record for two decades, until the firm was itself acquired by an Australian brewer.
In a different approach to domestic market expansion, the firm identifies and develops entirely new customer or application segments. Sometimes the firm can effectively reach new customer segments by simply expanding the distribution system without changing the product’s characteristics or the other marketing-mix elements. A sporting goods manufacturer that sells its products to consumers through retail stores, for instance, might expand into the commercial market consisting of schools and amateur and professional sports teams by establishing a direct salesforce. In most instances, though, developing new market segments requires modifying the product to make it more suitable for the application or to provide more of the benefits desired by customers in the new segment.
One final possibility for domestic market expansion is to produce private-label brands for large retailers. Firms whose own brands hold relatively weak positions and who have excess production capacity find this a particularly attractive option. Private labeling allows such firms to gain access to established customer segments without making substantial marketing expenditures, thus increasing the firm’s volume and lowering its per unit costs. However, since private labels typically compete with low prices and their sponsors usually have strong bargaining power, producing private labels is often not a very profitable option unless a manufacturer already has a relatively low-cost position in the industry. It can also be a risky strategy, particularly for the smaller firm, because reliance on one or a few large private-label customers can result in drastic volume reductions and unit-cost increases should those customers decide to switch suppliers.
Global Market Expansion—Sequential Strategies For firms with leading positions in mature domestic markets, less-developed markets in foreign countries often present the most viable opportunities for geographic expansion. Firms can enter foreign markets in a variety of ways, from simply relying on import agents to developing joint ventures to establishing wholly owned subsidiaries—as Johnson Controls has done by acquiring automotive seat and battery manufacturers in Europe.
Regardless of which mode of entry a firm chooses, it can follow a number of different routes when pursuing global expansion. 30 By route we mean the sequence or order in which the firm enters global markets. Japanese companies provide illustrations of different global expansion paths. The most common expansion route involves moving from Japan to developing countries to developed countries. They used this path, for example, with automobiles (Toyota); consumer electronics (National); watches (Seiko); cameras (Minolta); and home appliances, steel, and petrochemicals. This routing reduced manufacturing costs and enabled them to gain marketing experience. In penetrating the U.S. market, the Japanese obtained further economies of scale and gained recognition for their products, which made penetration of European markets easier.
A second type of expansion path has been used primarily for high-tech products such as computers and semiconductors. For the Japanese it consists of first securing their home market and then targeting developed countries. Japan largely ignored developing countries in this strategy because of their small demand for high-tech products. When demand increased to a point where developing countries became “interesting,” Japanese producers quickly entered and established strong market positions using price cuts of up to 50 percent.
A home market—developed markets—developing markets sequence is also usually appropriate for discretionary goods such as soft drinks, convenience foods, or cosmetics. Coca-Cola, for instance, believes that as disposable incomes and discretionary expenditures grow in the countries of South America, Asia, and Africa those markets will drive much of the company’s future growth. Similarly, firms such as the French cosmetics giant L’Oreal have positioned a number of different “world brands”—including Ralph Lauren perfumes, L’Oreal hair products, and Maybelline and Helena Rubinstein cosmetics—to convey the allure of different cultures to developing markets around the world.
Strategies for Declining Markets
Most products eventually enter a decline phase in their life cycles. As sales decline, excess capacity once again develops. As the remaining competitors fight to hold volume in the face of falling sales, industry profits erode. Consequently, conventional wisdom suggests that firms should either divest declining products quickly or harvest them to maximize short- term profits. Not all markets decline in the same way or at the same speed, however; nor do all firms have the same competitive strengths and weaknesses within those markets. Therefore, as in most other situations, the relative attractiveness of the declining product-market and the business’s competitive position within it should dictate the appropriate strategy.