Accounting Research Report, Strategic Marketing programs for Pioneer and Followers
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Subject: Marketing
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September 2, 2013
Strategic Marketing:
Introduction:
Present strategic planners, having established as much value as they possibly could by reducing costs, are now seeking to expand domestic markets, generate revenues and develop new markets in countries such as South Africa, Malaysia, India, China and Brazil. Though, before they strike out, they should be able to provide answers to some important questions. Whether or not it pays to be the pioneer with a service or product? Is it desirable to kill time and learn from the pioneers’ market experiences? What would be best balance between the rewards and risks? What strategies pioneer can implement to avoid market share erosion when followers enter? What strategies followers can implement to ensure a successful entry?
Strategic Marketing programs for Pioneer and Followers:
In most cases, according to Aaker (1998) studies indicate that being a pioneer to the market offers sustained and considerable market-share leverage over the followers. However, followers can succeed by implementing distinctive marketing and positioning strategies. In most industries generally, once pioneers have acquired incumbent status, they remain powerful. However, sometimes they become complacent or are not in a position to manage the shifting or growing marketplace demands. Followers can take advantage of failures of the products or services of these aging companies or devise innovative methods to market their service or product.
Pioneers that have a distinctive presence within the market should be in a position to react or better still, expect potential followers and improve their entry barriers. For instance, pioneer may be in position to lower its price and lower the business value for the follower or it can entirely obstruct entrance by controlling important distribution channels. Whether a pioneer or follower it seeking to frustrate newcomers, it is important to have a clear understanding of the defensive and entry strategies available, a game plan and good.
Strategies for pioneers
Typically, competitive strategies rely on the market environment and product portfolio and positioning of the existing companies and the basics regarding the study business include:
Lowering the price to enable penetration of the existing market: (Mass-Market Penetration): According to Leslie (2010) through the introduction of a low price product than the pioneer’s, a follower would attract new consumers who otherwise would have not bought the burger thus, growing the total market. Low prices can also motivate the existing customers of the pioneer to switch. This strategy however, would result in reduced profits for the follower in comparison to other market players, unless the cost of production of the follower is relatively lower. This can be implemented by both the pioneers and incumbents as well (Barnhart et al, 2007).
Improve service or product targeting niche market (Niche Penetration). Wansink (2006) argues that corporations can compete by becoming innovative within the marketplace and the innovation processes can be incremental or radical. Incremental innovation can be achieved through improving the version of the already existing product. The improved product can then directly compete within the existing offering, or it can be positioned to in such a way that it attracts a minor segment of the existing market.
Targeting new geographical markets with the already existing offering: With maturing home base markets, firms usually seek outside for more rewarding markets. A number of consumer goods companies such as McDonald, are seeking to ventures in China.
Establishing new distribution channels: McDonald can establish new distribution channels to effectively penetrate existing markets or access new ones. Going international cannot be the sole solution. In some instances the investment needed and the risk involved to penetrate the global markets may not have good return of investment. Concentrating on the existing markets where McDonald has proper understanding of the market environment, can bring rapid successes and may prove to be less risky. McDonald has achieved this through repositioning of its services and products through advertising and marketing (McDonald, 2013).
Apart from choosing the best marketing program, it is important to establish the timing of the introduction of the new offering. This is particularly true for the fast food companies, whose product life cycles are relatively short and it is hard for the followers to match them or draw reasonable returns. In a number of instances, when one is entering later or second in such a market, it is important to act so right away after the pioneer (Callaghan, Mc Coll, Palmer, 2008).
Strategies for followers:
The later entrant can implement a number of strategies to effectively compete within the market. Later entrant needs to substantially differentiate itself in the consumers’ mind. It can achieve such positioning through extensive changes in either its promotional activities or product.
The second strategy for followers is to determine creative means to improve product trail. According to Jagdish (2005) market-share leverage for the pioneers originates from greater trial penetration. If the follower can establish higher trial market share, then it can overcome its disadvantage. Trials of sample product can be an effective strategy. For instance in fast food business, consumer can be given a sample product for their trial.
The follower can as well adopt market segmentation through focusing on a specific target market. By offering desirable value, the follower can extract extra rents. A follower can also position itself as variety enhancer as opposed to a substitute or replacement for the early entrants.
Follower can also succeed through attacking high-growth marketplaces, especially when there industry is experiencing a significant shift. Those shifts can be as a result of technological breakthroughs or changes in regulations that enhance the product or breakthroughs which enhance the process of product production and delivery.
The other strategic option for followers can be micro-segmenting the clientele base, which implies targeting high-value consumers who are willing and able to pay premium price for service or product relative to the expenses accrued while providing to that segment (Sally & Robin, 2002).
Even as followers try to establish niche programs or redefine the business to attack established market segments and profitable businesses, pioneers can retaliate to regain their competitive edge. The fundamental marketing programs for the pioneers include; 1) enhancing the barriers for followers, 2) faster innovation than followers, and 3) develop flexible and market responsive company.
Growth-Market Strategies for the Market Leaders:
In most instances the strategic objective of the leading firm such as McDonald is to uphold its lead share position even as it faces growing competition with the expansion of the market. The marketing objective of McDonald who is share leader is to maintain its current customers, excite selective demand among afterward consumers.
Mainly, there are five consistent internal strategies that a company can adopt to ensure it has a leading share position and they include; position or fortress Defense strategy, confrontation strategy, flanker strategy, strategic withdrawal or contraction strategy, and market expansion strategy. The best strategy combination or most apt strategy is based on; the characteristic of customers and the size of the market, relative strength and number of competitors, and the leader’s competencies and resources (Bartol and Margaret, 2011).
Position or Fortress Defense Strategy
McDonalds continually makes stronger its already strongly seized current position. The company continues to improve the satisfaction of the existing clientele and enhances the attractiveness of its products. In improving customer loyalty and satisfaction, the company particularly pays focuses on quality control. It continues to improve and modify its offering, and this is not just the physical product but also the perception of customers regarding the company as well. This entails shifting of promotion focus from rousing primary demand to establishing selective demand, as this promotes repeat purchases among the current consumers and provide improved focus to post-sale services. Some of the actions that McDonald uses to simplify and encourage repeat customers include, reducing stock-outs within the store shelves. The more proactive processes comprise properly integrated supply-chain relations (Reid & Bojanic, 2009).
Flanker Strategy
This strategy involves developing another brand that will compete against the rival’s offering or products and defend against an attack that would be aimed at weaknesses in its present offering (Sutton, 1990). McDonald does this through trading up, for instance developing high quality product that is offered at premium price. In some cases, it entails a low quality brand to protect the primary brand of the leader from direct price wars and normally used in combination with position defense approach. This strategy is more effective when a company has enough resources to support and develop multiple entries.
Confrontational Strategy
This tactic involves beating or meeting the attractive features of the rival’s product after the success of the competitor has become apparent (a reactive approach). Confrontation approach largely based on reducing price renders more problem of reducing profits for all the parties concerned. McDonald avoids s the confrontation strategy problem by reestablishing the competitive edge (Westwood, 2010).
Market Expansion Approach
This is a more proactive and aggressive version of the flanker approach. Market Expansion approach shields market share through expansion into a several market segments and is especially appropriate within the fragmented markets. McDonald implements this through new brands, line extensions, alternative offering forms applying the same processes, and maintaining basic offering however, vary other aspects of marketing program (Reid & Bojanic, 2009).
Strategic Withdrawal or Contraction Strategy
This is the process of abandoning or reducing efforts in certain segments to concentrate in areas where the company enjoys the greatest growth potential or greatest advantage. Therefore, a company needs to consider this strategy in highly fragmented segments where it might to be capable of defending itself in all the market segments.
Followers’ Share Growth Strategies:
The main marketing aim for followers is seeking to establish profitable venture within a small segment whereas escaping direct competition from huge rivals (niche strategy). They may also seek to become a major competitor or displace the major competitor/leader (enhance growth share). The marketing strategies and action for followers to attain share growth include, when the market leader has penetrated a huge market portion, the follower can steal some repeat customers or replace the demand from the rival’s existing clientele. If it’s a fragmented or heterogeneous market or if the market is at the growth phase, the follower can attract a huge portion of new potential clients.
Share growth has five major strategies and what strategy to be deployed relies on the current strengths or position of the existing competitor, market characteristics, as well as the challenger’s own competencies and resources.
Frontal Attack
This involves head-on attack on your major competitor. Frontal attack has high chances of succeeding if the existing clientele does not have strong brand preferences, the target rival offering does not gain from the positive network effects and followers’ resources and competencies are stronger than that of the target rival. To effectively adopt this strategy, a company should differentiate its offerings in a manner that better meet the preferences and needs of the consumers within the mass market.
Leapfrog Approach
This strategy is designed to gain a considerable advantage through the introduction of a new generation of offerings that considerably outperform or offer greater attractive benefits compared to the existing products. It can be adopted to prevent rapid retaliation by huge competitors. To succeed, the brand should have a superior marketing resources and process engineering capabilities.
Encirclement and Flanking Strategies
This strategy focuses on weakness aspects of the product. Flank attack captures a considerable portion of the total market by focusing on a single huge untapped segment. The strategy meets the special needs of the untapped market segment through the provision of meticulously designed distribution channels or customer services. Encirclement targets underdeveloped or smaller untapped segments simultaneously. Followers achieve this through developing a number of line products with features and benefits tailored to meet the needs of various market segments.
Gorilla Attack
This tactic can be deployed when a huge well-grounded leader already covers the main segments and the follower has limited resources. It entails launching varies shocker raids against the main rivals and it is desirable to do it sporadically, within a limited geographical zone. A company can implement gorilla attach through, local advertisement blitzes, sales promotion activities, as well as short-term reduction of prices through sales promotions (Mark, 2013).
The core objective of this strategy is to stop a strong leader from expanding further its share or pursuing aggressive measures that would be expensive for the followers to react to.
Maintaining Competitive Edge in Declining, Mature and Shakeout markets:
Shakeout Markets:
This stage is characterized by decline in the overall rate of growth and manifested by price reductions (Wansink, 2006). There are also significant changes regarding competitive structure of the industry. The company should rationalize its offering line by getting rid of weaker items, improve channel relationships and focus on ingenious promotional pricing.
Mature Stage:
In mature stage, there is stability in respect to competition, technology and demand. Any considerable breakthrough in engineering or Research and Development, which can assist in differentiating the product or reducing its costs would have a significant payout. In this regard McDonald’s unique services become a mean of differentiation from its competitors. In overall, the prices and promotional expenditure seem to remain stable (Shukla, 2008).
Decline Phase:
A company or a product can get into this phase because of shifts in consumer beliefs, values and tastes or due to technologically advanced substitutes. As sales decrease and expenses raises, efforts are required to lower costs and asset base. In this stage, prices can stay stable when the decline rate is slow, however when the rate of decline is erratic and fast, aggressive pricing should be considered. For companies that offer consumer goods such as McDonalds, marketing activities should focus on distribution (Mark, 2013).
The Strategic Implications of Maintaining Competitive Edge in Declining, Mature and Shakeout markets is that it helps a company to better predict change in the brand’s strategic market objective, its marketing program and its strategy.
Relevance of New-Economy Markets:
According to Walters & Derek (2009) new-economy markets refer to those industries which significantly participate in the Internet or electronic commerce. Increasing market acceptance of electronic commerce as well as other new-economy processes and the inherent leverage that they create imply that McDonalds and other companies need to assess how it will have impact on their business and take advantage of such new technologies. The results of such assessment should be the establishment of individual’s new-economy process.
Opportunities of New Economy for business:
The possible attractive features which characterize a number of new-economy strategies include:
Information syndication: This entails selling the same product to several customers, who then may mix it with information from other areas and distribute it. Information syndication is relevant because it supplies informational products as opposed to tangibles, McDonald can syndicate the same informational services or goods to unlimited number of consumers with least incremental cost. The technique can be digitized or automated, allowing the creation and expansion of the syndication networks, and the flexibly is quickly adapted than could possibly be in the physical world (Shukla, 2008).
The network externality or positive network effect implies that a product increasingly gets more valuable as its users increase in numbers (Wortzel, 2007). Firms which can exploit and identify opportunities where they can take advantage of the increasing returns to scale, which comes as a result of positive network effects sometimes, can quickly grow on reserved capital investment.
It has the ability to efficiently customize and personalize market products: New-economy markets allow comparing purchases, tracking purchases, and collaborative filtering with others for product recommendation and companies that does this satisfactorily record increase in customer purchases. Users can also specify the nature of what is provided to them through customization techniques and helps establish customer loyalty and renders less possible that customers will switch to another provider.
It enables the restructuring and disintermediation of channels of distribution. In terms of disintermediation, the internet renders it possible for business to directly reach their customers without the complication or expense of the distribution channel/s. However, it is important for companies to establish how the functions performed normally by the channels would be performed and has to determine whether doing so would be more efficient and effective as opposed to using intermediaries.
New-economy markets allows instantaneous delivery, 24/7 access and global reach. Service and access of this nature is ideally a massive value to customers.
The Relevance of designing marketing plans and organizational structures for the implementation of various competitive strategies:
Within fast food industry, standardization and quality control are very critical (Walters & Derek, 2009). However, as McDonalds expanded, its founder Ray Kroc deployed extensive use of behavior control and output control to standardize both employee behaviors and outputs at the company’s numerous franchises. Kroc developed a comprehensive system of procedures and rules, and then trained the management how to use them. He used the franchising process itself as a control form, because the managers are the business owners, most agency issues are resolved and they are quite inspired to quality control. Moreover, employees are taught the company values and norms are firmly enforced by the management. McDonald’s even goes a further step to incorporate customers within its culture through offering friendly-family services and products. This case examines how a company culture is taught to managers and employees, how the founder’s values influenced it and how it became component of industry culture, so that every customer could virtually describe McDonald’s values (McDonald’s, 2013).
Importance of Organizational Structure with regards to competitive strategies:
Strategy implementation can be defined as the form in which a company should utilize, develop and integrate control systems, organizational culture and structure to follow plans, which lead to better performance and competitive advantage (Fifield, 2006). Organizational structure apportions special value establishing roles and tasks to the workers and outlines how these roles and tasks can be interconnected in order to maximize customer satisfaction, quality and efficiency, (which are the competitive advantage pillars). Nonetheless, organizational structure in itself is not enough to motivate the workers, and therefore organizational control system would be needed. The organizational control system furnishes managers with motivational inducements for workers, and also feedback on organizational performance and employees.
Strategy changes often result in organizational structure changes. Organizational structures should be established in a way that they enable the strategic pursuit of the company and, thus follow a strategy. When a strategy or mission is lacking, firms find it challenging to create an effective structure.
There is no single optimal organizational structure of design for a type of organization or a given strategy. What is effective to a given firm may not be suitable for a similar company; however successful companies within a given sector seem to organize themselves in the same way. For instance, fast food companies such as McDonalds and Burger King Corporation appear to adopt the divisional structure-by-product type of organization. Small companies within the same industry seem to be centrally or functionally structured whereas medium-sized companies seem to be decentralized or divisionally structured. As companies grow and expand, generally their structures shift from simple to multifaceted due to concentration or combination of various basic strategies.
Importance of Marketing Plan with regards to competitive strategies implementation:
Due to the fact the strategic planning integrates all business functions; it incorporates marketing functions as well. The contribution of marketing is critical give the essential market orientation that the contemporary business need to have, and due to the marketing decisions that tackle product-market combination selections. Marketing plans have moved from sales and production orientation and are now oriented toward the competitors and customers (Adam, Armstrong, Brown, and Kotler, 1998).
Marketing planning is relevant to strategic competition is a number of ways. It is externally oriented process and the future of businesses because it emphasizes on attaining differential competitive edges. Marketing plan also handles decision concerning organizational resource allocation. Lastly, it is an integrative and synthetic process and a therefore, it provides invaluable assistance to the competitive strategies approaches of the whole organization. Concerning McDonalds, its specific contributions comprise the following:
Assessing the competitive position of the company
The definition of corporate mission
Determination of alternative opportunities for investments
It helps in the establishment of the emphasis that need to be put on new products and on market expansion regarding its existing offering
Product mix decisions and diversification and
External resources acquisition and internal development
Westwood (2010) notes that marketing planning process consists of three discrete stages and they include 1) marketing mission statement, 2) marketing objectives drawn from the established mission, and 3) array of strategies to accomplish the objectives. First, the strategies relate to a particular market target, and then the marketing mix programs are established to meet the needs of the target market, such as promotion, service levels and price among others. A number of strategy options can be used by companies, for instance merchandise development (for instance sales through the inclusion of a new product), penetration strategy (for instance market share increase), selectivity strategy, diversification strategy, vertical integration that empathizes on serving identified market segments, market development that deals with appealing to new customers, and merchandise strategy that makes decisions regarding which products to offer and finally pricing strategy.
Functions of marketing Metrics and marketing Audit:
Marketing Metrics
Over the last couple of years, there has been a considerable growth in the type and number of marketing metrics which managers can deploy to assess the effectiveness of marketing and create marketing strategies with the objective of improving organizational performance. The role of such marketing metrics is in two fold (Weiber and Tobias, 1998). One, marketing metrics function to enhance accountability of marketing within the company and to rationalize spending valuable company resources on marketing programs to the executive management. Two, marketing metrics assists retailers and managers to determine future customer drivers and company value and establish linkages between financial outcomes and marketing strategy. When retailers are able to determine store value and customer drivers, their managers would be able to maximize store profits and customer.
According to Walters & Derek (2009) the rise in the different marketing metrics had been due to various factors. To start with, the rise in database technology has enabled companies to gather more information regarding their customers and to some extent information regarding their competitors as well as their customers. Second, the introduction of new distribution channels, for instance the Internet has considerably increased the complexity and availability of marketing metrics for companies. Lastly, the identification of new firm value and customer drivers, for instance referral and word of mouth behavior has resulted to increase in the number of various marketing metrics beyond measurement of simply return on investment and customer value.
Marketing Audit: The role of marketing audit is to determine the most reliable and suitable system of marketing strategy and feasible modification of the present marketing plans methods (Bartol, and Margaret, 2011).
Conclusion:
In a number of markets both pioneers and followers function with incomplete information. Early entrants can take this advantage by implementing appropriate signaling techniques as a deterrent. For instance, early entrants can reduce price, hinting to potential followers that it is a low-cost business and it would be hard for them to succeed. In most nations, it is however illegal to price below the variable cost. Conversely, followers usually concentrate on a few core market segments classically the ones which subsidize the cost to provide to pioneer’s market segment. Therefore, it is critical for early entrants to understand segments of their consumers and implement a differential pricing strategy to draw maximum return from each of the segments.
For McDonald to enhance its market share and corporate performance level, the company should consider the below suggestions. McDonald needs to implement strategies which will advance the differentiation of its offering within the continually growing market trends. The firm should improve the value of its offering though branding and improve on some of its lowly performing fast foods in the market. This would boost the company sales, thus translating to more profits. Since McDonald’s in well known to maintain cooking uniformity and quality across the globe, maintaining such a strategy in new and existing markets will enable the company to maintain and increase its current market share.
Drawing from the public critics that most products from fast food companies fuel obesity, it is critical for McDonald’s management to make sure that they satisfy all the food and health regulations so as to comply with safety regulations. This would motivate more customers to consume its products.
As a matter of reducing operational costs, it would be advisable for the company to continue with franchising strategy in new and existing markets. In respect to marketing strategies, it is essential for McDonalds to maintain its current marketing initiatives but enhance some. McDonalds needs to improve on its media advertisement. Conduction regular market audit is critical for the company to determine its market share extensiveness.
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