Unfortunately, there has been little discussion of either the problems of market-share management facing the high market-share company or of the actions it should consider. Much has been written about how a company should go about attaining increases in its market share, but little about what it should do once it has attained a large share. That is the question we shall consider here, but first we shall discuss the way in which a business decides on its optimal market share.
This third step calls for top management to compare the changes in profitability and risk that it expects in seeking other levels of market share. Starting with its current share, management can analyze:
Management should also examine a specified lower share level, taking into consideration the cost, profitability, and decrease in risk at each level. If a lower level of risk does not compensate for the reduced profitability (which may or may not exist, since prices may be higher or marketing costs lower and profitability unchanged) and for transitional costs, then the specified lower market share is not optimal. If the company uses this technique for a number of alternative market-share levels and cannot find one that offers a more satisfying balance of profitability and risk, then it is at its optimal level.
Share reduction calls for the application of general or selective demarketing principles.5Demarketing is the attempt to reduce, temporarily or permanently, the level of customer demand. It may be directed at the market or selected market segments. It calls for reversing the normal direction of marketing moves: raising price, cutting back advertising and promotion, reducing service. It may involve more extreme measures such as reducing product quality or convenience features. In a period of prolonged shortages, these steps may be especially necessary.
An example of a company that has used demarketing more selectively is Kellogg in its delay in entering the natural cereal market. The company may have decided to allow others to dominate this segment of the market to improve its chances of emerging from current antitrust difficulties without too many scars.8
Finally, the demarketing experience of ReaLemon Foods, a subsidiary of Borden, deserves comment. ReaLemon implemented a selective demarketing strategy to avoid antitrust problems, but it reversed its strategy too soon and paid a price. Until 1970, ReaLemon held about 90% of the reconstituted lemon juice market. According to industry sources, ReaLemon at that time began to allow companies on the West Coast and in the Chicago area to make inroads into its share through fear of antitrust attack. By 1972, however, a Chicago competitor, Golden Crown Citrus Corporation, had captured a share that ReaLemon considered too large. ReaLemon retaliated. As a result, the Federal Trade Commission filed a complaint in 1974 charging ReaLemon with predatory pricing and sales tactics.10 The lesson to be learned from ReaLemons experience is that once a high market-share company allows its share to fall, it must be careful if it decides to reverse itself.
More often than not, the high market-share organization will find that it must use share-reduction or risk-reduction strategies to align these two shares. Unfortunately, the use of many share- and risk-reduction strategies can have undesirable social consequences. Demarketing strategies of a highly discriminatory nature, certain public relations strategies, competitive pacification strategies, dependency strategies, and legislative strategies can all produce outcomes that are not in the best long-term interests of major portions of society. Therefore, the high market-share company should give serious consideration to those strategies that not only fill its coffers but also respond to consumer and social needs.
Chapter 1: Basic concepts of marketingChapter 2: Strategic marketing partnersChapter 3: The marketing environmentChapter 4: Customer insightsChapter 5: Consumer buyer behaviourChapter 6: Business marketsChapter 7: Customer-driven strategy Chapter 8: Building customer valueChapter 9: The product life cycleChapter 10: Pricing strategiesChapter 11: Pricing considerationsChapter 12: Marketing channelsChapter 13: Retailing and wholesalingChapter 14: Communications strategyChapter 15: Advertising and PRChapter 16: Personal sellingChapter 17: Direct customer relationshipsChapter 18: Competitive advantageChapter 19: Global marketplaceChapter 20: Sustainable marketingBack to topChapter 1: Basic concepts of marketingSimply put, marketing is managing profitable relationships, by attracting new customers by superior value and keeping current customers by delivering satisfaction. Marketing must be understood in the sense of satisfying customer needs. Marketing can be defined as the process by which companies create value for customers and build strong customer relationships to capture value from customers in return. A five-step model of the marketing process will provide the structure of this chapter.
Marketing management is the art and science of choosing target markets and building profitable relationships with them. The aim is to find, attract, keep and grow the targeted customers by creating and delivering superior customer value. The target audience can be selected by dividing the market into customer segments (market segmentation) and selecting which segments to go after (target marketing). A company must also decide how to serve the targeted audience, by offering a value proposition. A value proposition is the set of benefits or values a company promises to deliver.
A marketing strategy outlines which customers it will serve and how it will create value. The marketer develops an integrated marketing plan that will deliver value to customers. It contains the marketing mix: the tools used to implement the strategy, which are the four Ps: product, price, place and promotion.
Web 1.0 connects people with information, Web 2.0 connected people with people and the upcoming Web 3.0 puts information and people connections together into a more usable Internet experience. Because of globalisation, companies are now globally connected with their customers. Current times also involve more sustainable marketing practices, involving corporate ethics and social responsibility.
Based on this, the management must plan the business portfolio: the collection of businesses and products that make up the company. Portfolio analysis is the process by which management evaluates the products and businesses that make up the company. The first step is identifying the strategic business units (SBU) that are vital to the company. The well-known model of the Boston Consulting Group (BCG) sorts the SBUs into a growth-share matrix, leading to four types of SBUs:
Marketing strategy is the marketing logic by which the company hopes to create customer value and achieve profitable customer relationships. The company must choose which customers to serve and how to serve them. This process involves four steps:
Market segmentation: dividing a market into distinct groups of buyers who have different, needs, characteristics or behaviour and who might require separate products or marketing programmes. A market segment is a group of consumers who respond in a similar way to a given set of marketing efforts.
The marketing mix is the set of tactical marketing tools: product, price, place and promotion, that the firm blends to produce the response it wants in the target market. Product refers to the combination of goods and service the firm offers. Price is the amount the customer pays to obtain the product. Place refers to the availability of the product. Promotion relates to the activities that communicate the benefits of the product.
Nowadays, marketers need to back up their spending by measurable results. The return on marketing investment (marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. The marketing ROI measures the profits generated by investments in marketing activities and can be a helpful tool, but is also difficult to measure.
But also of marketing intermediaries, which are firms that help the company to promote, sell and distribute its goods to final buyers. Resellers are distribution channel firms. Physical distribution firms help the company stock goods, while marketing service agencies are marketing research firms. Financial intermediaries include banks and credit companies.
Changes can also be found in the family structure. The traditional western household (husband, wife and children) is no longer typical. People marry later and divorce more. There is an increased number of working women and youngsters tend to stay at home longer. The workforce is also aging, because people need to work beyond the previous retirement age. There are also geographic shifts, such as migration. These movements in population lead to opportunities for marketing niche products and services. There are also migration movements within countries, namely from the rural to urban areas, also called urbanisation.
The economic environment consists of economic factors that affect consumer purchasing power and spending patterns. Countries vary in characteristics, some can be considered industrial economies, while others can be subsistence economies, consuming most of their own output. In between are developing economies that offer marketing opportunities. The BRIC (Brazil, Russia, India, China) countries are a leading group of fast expanding nations.
The natural environment involves natural resources that are needed as inputs by marketers or that are affected by marketing activities. Changes in this environment involve an increase in shortage of raw materials, increased pollution and increased governmental intervention. Environmental sustainability involves developing strategies and practices that create a world economy that the planet can support indefinitely. 2b1af7f3a8