What kind of Business Are You?

What is your state of readiness to supply your market?  Do you anticipate what consumers need or want? Are you prepared to move your customers to the next stage of the market e.g. electric cars or 5G?

To answer these questions you need to know what type of business you are and what is the position of the market life span.

Only with that information at hand can you adopt a market strategy that is appropriate and get that strategy applied with the correct timing.

You need to forecast your environment: Decide at what point you want to grab the market. Do you want to intercept the market at a certain stage of its life span or do you want to lead and direct the market?

This means that there are several types of company in a market. It also destroys the myth that ‘First in is best dressed’. take the early 80’s home video market: Betamax was first to market, and some still consider it a superior quality option, but VHS was able to intercept the market with a cheaper, better distributed product.  VHS won the home video format battle and Betamax was consigned to the history books.

Being the prime mover in a market is not always an advantage.

In every market there will be a number of companies and as the market life cycle progresses different businesses will rise to prominence as others decline. Like everything else, markets have entropy.

Businesses in a market can be classified under one of four categories:

  1. Market Scopers:  These are the innovators who create new markets and who operate at the start of the market life cycle.  they create new product, services and distribution channels. They have a go to attitude and scope out a market rather than aiming to satisfy it. the following lessons can be taken from Market Scopers:
    1. Know the state of readiness of consumers for the market, the product or the innovation.  Sir Clive Sinclair scoped the market for home computers and had extraordinary success. He tried to scope the market for electric vehicles but did so on false assumptions and the C5 was a disaster.
    2. Know how big the market is or could become.  Focus on realised demand not latent demand.
    3. Know how the market wants to buy the product.  For example, who buys carpets over the internet?
    4. Know what price the market will bear, so as to maximise returns.
  2. Market Makers:  These businesses operate in the early growth stage of the market.  They are the creators of a mass market e.g. Henry Ford with his aim to make motoring a practice for the masses.  These businesses generally garner the largest market share and become market leaders.  They create ‘best value’ but are often insufficiently agile to withstand the pressure as a market segments.  Often these businesses are driven by product development rather than market change. These are growth stage market leaders.
  3. Market Changers:  These businesses aim to move the market elsewhere by forcing their competitors to modify their offer.  Market changers are companies like Tesla which has pushed established car manufacturers into the development of electric vehicles.  These companies focus on technology and price/quality analysis.  They look to provide services unavailable elsewhere. They can force the existing market into decline.
  4. Market Exploiters:  These companies are fast followers of technology.  Many ‘market disruptors’ are market exploiters.  They take advantage of market fragmentation as disparate segments emerge.  They develop ‘new best value’ through branding and new service functionality.  Exploiters follow a market follower or market challenger strategy.

Different types of company need to target different market stages for market entry.  timing into the market is critical where consumer needs and market segments are continually changing.  A major factor is the rate of market progress and its taxonomy. This is how quickly consumers adapt to changing market technology: Do you target early adopters or laggards?  You also need to be aware of how quickly consumers change their definition of best value in a market.  For example, how many consumers would now buy a car that doesn’t have Wi-Fi or an iPod dock?

The Life Cycle and Arthur D. Little

Every business owner should be aware of the product life cycle. They should be aware of the standard model of the PLC and where each of their products exist in their life cycle. they should also know if products in their mix have the ability to deviate from the standard model.

In the standard model of the product life cycle, there are four stages:

  1.  Introduction:  It takes time for a new product to be accepted by consumers. When a product is first introduced sales may be slow and the costs of promotion and distribution may be high. It is highly likely that new products will be loss-making.  The role of marketing is to increase sales and build the market. Price skimming or penetration strategies predominate.
  2.  Growth:  Sales rise. The rise in sales may be rapid; which may cause issues with having sufficient manufacturing capacity to meet demand. This is currently an issue with Elon Musk’s Tesla model 3.  Marketing’s focus shifts to brand building and creating offers which result in customer retention and brand loyalty. The business looks to new customer acquisition and expanding its base.
  3. Maturity:  This is the longest stage of the product life cycle.  Sales plateau. Profits may fall as efforts are made to defending and maintaining your market position. Products are innovated and reformulated.
  4. Decline:  At this stage sales fall.  It could be that a product is no longer seen as fashionable. New products in the market may be seen as a better option. Advances in technology may make existing products obsolete. Marketing activity on products at this stage may be minimal. Products may be abandoned, replaced or harvested for cash.

Of course not all products follow the standard model of the product life cycle. Some products become staples. Others may have cyclical or seasonal appeal. Often new uses can be found for old products. Lucozade was a brand of soft drink for invalids but it was reformulated and is now sold as a sports energy drink. Listerine began life as a household detergent but is now sold as mouth wash. Lyle’s Golden Syrup has been sold under the same branding for over 200 years.

The product life cycle is a critical analytical tool for product portfolio and product mix management.

It isn’t just individual products that have a life cycle. Brands have a lifespan and so do industries.

In 1973, Arthur D. Little created his Strategic Condition Matrix.  This measured industry maturity and a companies position in its chosen market.

Little defined four stages of industry maturity:

  1. Embryonic
  2. Growth
  3. Mature
  4.  Ageing.

Note that these stages mirror those of the product life cycle.

Little also defined five categories of competitive position:

  1.  Dominant:  It is rare for a company to find itself in this position.  It often relies on having a monopoly or having protected technological leadership.  A firm in a dominant industry position can exert significant influence on the behaviour of others in the industry and therefore has a vast range of strategic options.
  2.  Strong:   A firm is not as dominant but still has a significant level of strategic choice. A firm can act without its market position being unduly threatened by competitors.
  3.  Favourable:  The industry is fragmented but there is a clear market leader. Firms can exploit particular strengths through the use of appropriate strategies.
  4. Tenable:  Firms are vulnerable to increased competition in the market. Few options exist for a firm to strengthen its position.  Profitability is driven through specialisation.
  5. Weak:  Firms struggle to compete and possibly have unsatisfactory performance.  If you cannot improve your situation, you will be forced out of the market.  This position may be the home of inefficient firms and small traders who fight every day to make ends meet.

Other academics have added a further category of competitive position, Non-viable, where withdrawal from the industry sector is the only strategic option.

For each combination of competitive position and industry life stage, Little suggests the following strategy options:

  1.  Dominant Market Position: 
    1. Embryonic: Here the aim is to grow fast and to build barriers to market entry by potential competitors. Firms should act with offensive strategies in mind.
    2. Growth:  Again you look to grow fast through cost leadership.  You balance strategies between defence and attack.
    3.  Mature:  The aim is to defend your existing market position.  Cost minimisation is increasingly important. You attack weaker competitors.
    4.  Ageing: You again defend your market position and focus on profitable sectors. You consider abandoning unprofitable parts of the market.
  2.  Strong Market Position:
    1. Embryonic:   Grow fast and differentiate you offer from those of competitors.
    2. Growth:   Lower costs and differentiate your offer. Attack smaller and weaker firms
    3.  Mature:  Lower your cost base, differentiate or focus your offer.  Note these are Porter’s generic marketing strategies.
    4.  Ageing:  Harvest the market for cash.
  3.   Favourable Market Position:  
    1.  Embryonic:  You grow fast through differentiation
    2.  Growth:  Lower your cost base, differentiate your offer, attack smaller and weaker firms.
    3.  Mature:  Focus on particular market sectors and differentiate your offer. Hit smaller and weaker firms hard.  Create barriers to entry.
    4.  Ageing:  Harvest the market for cash
  4.  Tenable:
    1.  Embryonic:  Look to grow the industry and focus on profitable sectors
    2.  Growth:  This position is that of a problem child in the BCG matrix. You have the choice of holding onto your existing market position, you can look to a profitable niche or you can aim to grow the market. You may want to harvest the market for cash.
    3.  Mature:  You either hold on to your existing position in the market of you withdraw from the industry
    4.  Ageing: A managed withdrawal from the market is required.
  5.  Weak:
    1.  Embryonic:  Search for a profitable niche and attempt to catch others in the market.
    2.  Growth: Find a profitable niche or withdraw from the market
    3.  Mature:  A managed withdrawal from the market
    4.  Ageing:  Withdraw from the industry

Most western economies, USA, Europe, etc. are mature.  As a result, for many small firms, the most profitable strategy is one of niche marketing.