The Characteristics of a Growing and a Mature Product Market - Essay Example

?A Growing and Mature Product Market The main thrust of this paper is “to compare and contrast the characteristics of a growing and a mature product market” through extended examples. In addition, this paper will discuss “how different product market phases affect a company’s cost recovery.” The product life cycle “suggests that a market evolves through several key stages: introduction, growth, maturity and decline” (Young, 2008, p.12). 1.0 Characteristics of a Growing and Mature Product Market Table 1: Summary of Product Life Cycle Characteristics (Growing & Matured) Characteristics Growing Product Market Matured Product Market Sales Rapidly rising sales Peak sales Costs Average cost Low cost Profits Rising profits High profits Customers Early adopters Middle majority Competitors Growing number Stable number beginning to decline Source: Kotler (2002, p.172) 1.1 Growing Product Market The second phase of product life cycle is the growing stage. Under this phase, there are rapidly rising sales volume and profit, and the overall-growth is at a very fast-paced manner (Kotler, 2002, p.173). For example, consumer electronic markets, particularly entertainment devices, are in the growing product market. Portable DVD player is the hottest, trending category and “derives its popularity from its portability and compact size” (Atico International, n.d.). It also constitutes an annual growth rate of 25% in the hi-fi product market together with turntable, amplifier and digital radio tuner, MP3 players, four-unit speaker and wi-fi capability. During this stage, the average production cost of portable DVD player is being assessed as to what the company could sustain. Samsung Electronics is one of the prominent manufacturers of consumer electronic devices, but because it is not the first-mover, it needs to do extensive research to enhance the quality and features of its product. It has launched the world’s smallest portable DVD with a tiniest DVD format, quality screen format and a good battery life. In addition, the high production cost during the introduction stage is initially recovered in the growth phase because of scale economies or increased output. Customers at this stage are early adopters and old-users because the former will become aware of product benefits and participate while the latter will increase their consumption level or usage rate. This phase is very attractive to new entrants because profitability and market share are certain; thus, the business must expect a growing competition. A higher sales volume and profits that Samsung have gained from its portable DVD players make competitors such as Sony, Philips and LG to emerge. For the product to compete and obtain superior sales rate and market share, its product features should be unique and different, and the cost of promotion should be increased. Strategies. Sales and marketing strategies should be strengthened by providing the market segment with the necessary information about the product. The product quality, feature, style, and design should be improved to increase the usage rate and brand identity. It is also an advantage if the business will involve in new market segments such as first-time buyers or non-users to widen its distribution coverage as demand increases. Furthermore, the original price should be maintained because the demand is rising, and it should use an informative promotion to attract a wide market audience. 1.2 Mature Product Market The mature product market is the third product life cycle phase. During this level, the rate of sales and profits is high, but starting to level-off because the overall growth is at a very slow manner (Kotler, 2002, p.174). For instance, Coca-Cola and Pepsi-Cola are the two well-known competitors in carbonated soft drinks (CSDs) market wherein the former is the leading sales and market shareholder in the early years of competition. However, in the most recent soft-drink sales, Pepsi has total sales of $43.23 billion while Coca-Cola has $30.99 billion (Dlugosch, 2010). The characteristics found in the growing stage are starting to decline during the maturity stage because it is the saturation point of a product life cycle. In most cases, the maturity stage has the most intense competition and existing competitors are powerful; thus, the product barriers against new entrants are high. Under this phase is a total market share protection mode and this can be done by making the product affordable or inexpensive. For instance, Coke and Pepsi are offering affordable and desirable prices to retain profitability (Howard, 2008). Pepsi and Coke are now in an equal position; thus, the latter is adapting new market segment such as functional-drink that caters health-conscious consumers (e.g., Diet Coke & Enviga). Cost in this phase is at a lower level compared to the growing phase because of expansion and increase in output. However, promotion needs a lot of effort because customers are becoming more knowledgeable and sophisticated; thus, their responses to advertising are “lower in the later stages of the life cycle” (Tellis & Fornell, 1988, p.64). The necessity of advertising in a mature product market is supported by Coke global advertising expenses in 1999 which is $867 million, but it is surpassed by Pepsi with $1.31 billion advertising costs (Adams, 2005). Some of the customers that enter the market are the late and the laggards or the non-users, hesitant and price-sensitive buyers. Strategies. Under this phase, the market should be modified by finding, attracting and adding a new set of customers or new market segment that offer profitability. Another strategy is product modification, and example of this is the image of a Diet Coke. Design 1 (2009) Design 2 (2011) This strategy is all about enhancement in image, package, design, quality, etc., to raise the level of sales and protect market share. The new Diet Coke design is the next generation design centred on brand identification to attract the next generation of consumers. In addition, marketing strategies need to be modified by offering lower prices, creating extensive distribution and increasing promotional activities. At this level, persuasive promotion is advisable instead of informative promotion to promote the superior quality and value preposition of the brand. “It is worth noting that Coca-Cola and Pepsi together invest more than $3 billion each year in new product development and advertising” (Fosfuri & Giarratana, 2009, p.182). 2.0 How Different Market Phases Affect a Company’s Cost Recovery Figure 1: A Typical Product Life cycle Source: Mind Tools (n.d.) The different product market phases do not only affect market share and profitability, but also the company’s cost recovery. According to Haslam, et al. (2000, p.1), “The cost recovery/cost reduction couplet is a powerful determinant of financial success or failure.” They also added that as the business reached the later phases of product life cycle, costs are lowered because of the presence of scale economies and the reorganization of the product output and the product itself. Thus, they “managed to take cost out of the product” by expanding the long-run average cost (Haslam, et al., 2000, p.7). As shown in figure 1, costs during the introduction phase are high because of the absence of economies of scale, but when the product reached the growth phase, costs started to decline because scale economies are already experienced. During this stage, businesses are using the skimming or penetration strategy depending on the characteristics of the product that will increase value preposition. Thus, the level of sales and profit margin will expand due to the increase in demand which affects a company’s cost recovery. As the product gets into the mature stage, the costs in product continue to fall because expansion and scale economies are effectively working. However, intense competition will encourage the business to modify its market, product, and marketing mix. For instance, Coca-Cola and Pepsi-Cola are now offering functional-drinks to attract health-conscious market segment, and this modification will raise cost that will affect a company’s cost recovery. In the decline phase, costs are rising because the company needs to spend more to prolong its existence in the market. The shifting of lifestyle and emerging of new technologies will decrease product demand, sales and value preposition that will affect a company’s cost recovery. References Adams, M., 2005. Soft drink company marketing tactics: the experts sound off. NaturalNews, [internet] 8 January. Available at: http://www.naturalnews.com/003914.html [Accessed 11 November 2011]. Atico International, n.d. Electronics. [Online] Available at: http://www.aticousa.com/products/electronics.html [Accessed 11 November 2011]. Dlugosch, J., 2010. Coke or Pepsi? which stock to buy? MSN Money, [internet] Available at: http://articles.moneycentral.msn.com/learn-how-to-invest/ coke-or-pepsi-which-stock-to-buy.aspx [Accessed 14 November 2011]. Fosfuri, A. & Giarratana, M.S., 2009. Masters of war: rival’s product innovation and new advertising in mature product markets. Management Science, 55 (2), pp.181-191. Haslam, C. Neale, A. & Johal, S., 2000. Economics in a business context. London: Thomson Learning. Howard, T., 2008. Coke, Pepsi offer smaller drinks for less. USA Today, [internet] 5 May. Available at: http://www.usatoday.com/money/industries/food/2008-05-05-pepsi-coke-99-cents-12-ounce_N.htm [Accessed 14 November 2011]. Kotler, P., 2002. Marketing management, millenium edition. Upper Sandle River, NJ: Prentice-Hall. Mind Tools, n.d. Product life cycle: managing your product to maximize success. [Online] Available at: http://www.mindtools.com/pages/article/newSTR_80.htm [Accessed 11 November 2011]. Tellis, G.J. & Fornell, C., 1988. The relationship between advertising and product quality over the product life cycle: a contingency theory. J. Marketing Res, 25 (1), pp.64-71. Young, L., 2008. From products to services: insights and experience from companies which have embraced the service economy. West Sussex, England: John Wiley & Sons. Read More