Comparing Growing and a Mature Product Markets - Essay Example

Product Market- growing and mature A market, simply defined, is a place where buyers and sellers meet to exchange goods and services. As economies take shape, the market emerges- growing at first, and when it achieves a higher level of equilibrium, we say that the market is a mature market. W. W. Rostow calls this path the “drive to maturity”. (2008. Page 9). The market acquires certain characteristics, while outgrowing others in the process. While growing up into a mature market, the economy starts with necessities, and moves on to high mass consumption goods. “The factories you own, the policies you follow, the brands you market today-they all determine how you’re going to do business tomorrow.”(Godin. Page 74. 2002). Every economic entity or product market has its own typical variables. As Jack Welch sums it up, “Every job you take is a gamble that could increase your options or shut them down.”(2005. Page 264). On this “drive to maturity” (Rostow.2008.Page 9), the various stages of development are characterized by different features, both qualitative as well as quantitative. When the market is growing, or emerging as the jargon puts it, there is hectic industrial activity, growth rates aim higher, profit margins are low and investment multipliers are in great demand, since there is an increasing need for plough back. There is a high appetite for investment, impacting the rates of interest. Labour costs are low, non renewable natural resources are abundant, and economic activity mainly uses natural resources. Often, a growing market is characterized by a higher degree of inflation than a mature market. The growing market manifests high potential for volume growth since it addresses first time users to a great extent. There is high appetite for products, and entrepreneurs and marketers use the opportunity for test marketing, new product launches, preference- indifference surveys and market research to arrive at optimum product offerings. There is potential to grow both horizontally and vertically- which means that expansion of user base through market penetration and per capita volume growth, both are possible in a growing market. Population grows at a faster rate than in mature markets. Market penetration and development of upcountry markets requires ongoing infrastructural development, which again, is an essential feature of an emerging or growing market. Environmental concerns start to raise their ugly head, but are put on the backburner mostly. It would be interesting to discuss the car industry category while highlighting the characteristics of a growing market. It has been observed that the customer base in a growing market is keen to test the functionality of the vehicle they will buy- many of them are first time users, and need a family car which is a single complete transportation solution- they will go to work in it, as well as drive out in it over the weekends. The customers will also look at the price tag. Car manufacturers and marketers in growing product markets have a formidable challenge on hand while selling cars since: -growing markets are price sensitive and focus on car size is inevitable since in growing markets car size is linked to pricing; to the manufacturer this is a difficult decision. -customers have multiple expectations from a single car- therefore that much more demanding on technology application and research and development. - car makers require after sales service backup, so infrastructure poses occasional challenges -two wheeler proliferation in growing Asian markets prove to be competition for entry level cars- customers graduate from two wheelers to cars in most cases. -often, the mature markets dump their finished goods at low prices in growing countries to find a market for their surplus production, which makes it even more difficult for the local manufacturers. However, some features of the growing market are totally in favour of the car manufacturer or marketer: -population ownership (defined as %age car penetration/1000 people) is low (as low as 13/1000 in China as against the US at 750/1000), so there is great potential for acquiring first time users. -the percentage of first time buyers is as high as 40% in growing markets so volumes are generated easily. - as has been seen during the recent recession, growing markets tend to be more resilient, since the demand for the first car does not go down as dramatically as the demand for replacement cars in mature markets. The mature market is characterized by optimum employment, stable prices, high GDP (Gross Domestic Product), high level and quality of industrial output and increasing profit margins, optimum market capitalization, flexible interest rates inclined towards the lower side, and a general feeling of economic well being. The economy purrs along, taking in its stride the disruptions, unless a major setback like the recession since late 2007 shakes it out of its composure. A stable and steady rate of growth, lower than the rate of growth while growing, characterizes the mature market. Rate of population growth is low. Business strategies to create new customized product offerings, efforts to enhance market depth, marketing initiatives, promotions, offers, are part of the mature market. Research and Development to supplement or find alternatives for the depleting natural resources, or scientific breakthroughs regarding environmental concerns are addressed. Welfare Economics finds a place in a mature product market. However, there is an overriding need to maintain a steady growth rate, since the market is saturated with products and services and each user looks for something new. There is a big base of users, and growth is mainly through acquiring depth, or penetrating hitherto untouched territory, both geographically and with products. Often, a mature market sees growth of some major players and market leaders in each industry category, flanked by numerous small players. The major players form cartels in mature markets, wherein an innovation or new offering by one player in any industry category is replicated by other members of the cartel. Here, we can take the example of the Telecom Industry, which has successfully operated as a cartel in across both growing and mature markets in the world. Price parity, supported by competitive service and value additions has been the secret of this successful cartelization. This is an exception, since growth of mobile telephony has caught on as fast in growing markets as it has in mature markets, despite the cost and infrastructure development implications. “Opening up to international trade has helped many countries grow far more quickly than they would otherwise have done”. (Stiglitz.2003.Page 4). Efforts at Global integration may prompt the mature economies to unite as an economic union, like the European Union. Specifically, in the car industry replacement demand results in good bottom lines for some car manufacturers while for others it may take away from their existing number of cars on road. The effort of every car company is to offer the customer a better replacement than the earlier car he or she possessed. In a mature market, a car is not just a functional mode of transport- it is a statement of lifestyle, and at times, affluence. It does not matter whether the car is big or small; what matters is the customers’ perception and the choices available. The mature market customer will go for the car which personalizes him or her most, as against the car which serves many functions. “Today’s marketplace is no longer responsive to the strategies that worked in the past. There are just too many products, too many companies and too much marketing noise”. (Ries &Trout. 2000. Page 6). A word about cost recoveries. In mature markets cost recoveries are easier under normal conditions since the existing vast user base ensures the base minimum revenues. However, there are fence sitters who are simply waiting to move over to another product or brand if it offers them more lifestyle enhancement, as against value for money in growing markets; and options are available. So fighting competition is an important management function in a mature market, to prevent share loss, in the case of established product brands. Fighting recession is also a difficult proposition in a mature product market for cars- the replacement decisions are stalled till times get better. This has been the prime reason for the current downturn being more severe in mature markets than in emerging or growing economies. “Financial turmoil has not hit emerging markets as hard as mature markets.” (Kodres. 2007). Expensive factors of production also render the recession more severe. Population ageing is a much discussed feature especially in the US, where the ‘baby boomer’ generation is growing up to be 65 years and older over the next decade. In a growing product market, introducing and establishing the product and the brand is more important than fighting competition. Asserting technological superiority through physical positioning is typical of the growing market. Functionality is the key factor here. The mature market demands perceptual positioning of products and services and high brand recall through personalization in order to sustain a loyal customer base. The expensive car makers can spend more to create the desired brand pull; while the low cost economy car segment is just about able to cover their costs by a very narrow margin. But, “development is more than a purely quantitative economic process; it should also involve a qualitative improvement in the life of a nation’s population”. (Jaffee. 1998. Page 7-8). References Godin, Seth. Survival is not Enough. Published by The Free Press. A Division of Simon & Schuster Inc.2002. Jaffee, David. Levels of Socio-Economic Development Theory Published by Greenwood Publishing Group. 2nd Edition. 1998. Kodres, Laura. IMF Survey Magazine: In the News. Sub Prime Fallout: Vulnerability up in Some Emerging Markets. Sept 2007. www.imf.org Ries, Al, & Trout, Jack. Positioning: The Battle for Your Mind. 20th Anniversary Edition Hardcover. 2000 Published by McGraw-Hill. 2000. 3rd Edition. Rostow, Walt W. The Stages of Economic Growth: A Non-Communist Manifesto. Published by Cambridge University Press.3rd Edition. 2008 Stiglitz, Joseph E. Globalization and its Discontents. Published by W.W. Norton & Co.1st Edition. 2003. Welch, Jack, & Welch, Suzy. Winning. Published by Harper Collins. 2005. Read More