Marketentry Strategy
Market-entry strategy refers to the timing of market entry. Basically, there are three market-entry options from which a company can choose: (a) be first in the market, (b) be among the early entrants, or (c) be a laggard. The importance of the time of entry can be illustrated with reference to computers. Experience has shown that if new product lines are acceptable to users and if their impact is properly controlled through pricing and contractual arrangements, sales of an older line can be stimulated. Customers are more content to upgrade within the current product line if they know that a more advanced machine is available whenever they need it. A successful introduction, therefore, requires that the right product is announced at the right time. If it is announced too early, the manufacturer will suffer a drop in revenues and will lose customers to the competition.
First-In Strategy
To be the first in the market with a product provides definite advantages. The company can create a lead for itself that others will find difficult to match. Following the experience curve concept, if the first entrant gains a respectable share of the market, across-the-board costs should go down by a fixed percentage every time experience doubles. This cost advantage can be passed on to customers in the form of lower prices. Thus, competitors will find it difficult to challenge the first entrant in a market because, in the absence of experience, their costs and hence their prices for a similar product will be higher. If the new introduction is protected by a patent, the first entrant has an additional advantage because it will have a virtual monopoly for the life of the patent.
The success story of Kinder-Care Learning Centers illustrates the significance of being first in the market. In 1968 a real estate developer, Perry Mendel, had an idea that many people thought was outrageous, impractical, and probably immoral. He wanted to create a chain of child care centers, and he wanted to use the same techniques of standardization that he had seen work for motels and fast-food chains. Convinced that the number of women working outside the home would continue to increase, Mendel started Kinder-Care Learning Centers. In its brief history, the company has become a dominant force in the commercial child care industry.
The strategy to be the first, however, is not without risks. The first entrant must stay ahead of technology or risk being dethroned by competitors. Docutel Corporation provides an interesting case. This Dallas-based company was the first to introduce automated teller machines (ATMs) in the late 1960s. These machines made it possible for customers to withdraw cash from and make deposits to their savings and checking accounts at any time by pushing a few buttons. Docutel had virtually no competition until 1975, and as recently as 1976, the company had a 60 percent share of the market for ATMs. Then the downfall began. Market share fell to 20 percent in 1977 and to 8 percent in 1978. Docutel's fortunes changed because the company failed to maintain its technological lead. Its second-generation ATM failed miserably and thus made room for competitors. Diebold was the major beneficiary of Docutel's troubles: its share of the market jumped to 70 percent in 1978 from barely 15 percent in 1976. Although Docutel's comeback efforts have been encouraging, the company may never again occupy a dominant position in the ATM industry.
Similarly, Micro Instrumentation and Telemetry Systems invented the PC in the mid-1970s, but ceded market leadership to latecomers (such as Apple computers and IBM) that invested heavily to turn the PC into a mass-market product. Royal Crown was a pioneer in the consumer market for diet colas, a product that had previously been sold only to diabetics. However, PepsiCo and Coca-Cola were able to use their vast financial muscle in other parts of the cola market to crush Royal Crown, despite their late arrival. Indeed, it took Diet Coke only a year to establish market leadership after Coca-Cola launched it in 1983.13
A company whose strategy is to be the first in the market must stay ahead no matter what happens because the cost of yielding the first position to someone else later can be very high. Through heavy investment in promotion, the first entrant must create a primary demand for a product where none exists. Competitors will find it convenient to piggyback because by the time they enter the market, primary demand is already established. Thus, even if a company has been able to develop a new product for an entirely new need, it should carefully evaluate whether it has sufficient technological and marketing strength to command the market for a long time. Competitors will make every effort to break in, and if the first company is unsure of itself, it should wait. Apple Computer, for example, was the first company in the personal computer field. Despite its best efforts, it could not compete against IBM. The upstart company that always talked confrontation with IBM finally decided to play second fiddle. If properly
Early-Entry Strategy implemented, however, the strategy to be first can be highly rewarding in terms of growth, market share, and profitability.
Several firms may be working on the same track to develop a new product. When one introduces the product first, the remaining firms are forced into an early-entry strategy, whether they had planned to be first or had purposely waited for someone else to take the lead. If the early entry takes place on the heels of the first entry, there is usually a dogfight between the firms involved. By and large, the fight is between two firms, the leader and a strong follower (even though there may be several other followers). The reason for the fight is that both firms have worked hard on the new product, both aspire to be the first in the market, both have made a strong commitment to the product in terms of resources. In the final phases of their new-product development, if one of the firms introduces the product first, the other one must rush to the market right away to prevent the first company from creating a stronghold. Ultimately, the competitor with a superior marketing strategy in terms of positioning, product, price, promotion, and distribution comes out ahead.
After the first two firms find their natural positions in the market and the market launches itself on a growth course, other entrants may follow. These firms exist on the growth wave of the market and exit as the market matures.
When Sara Lee Corp. introduced its new Wonderbra in the United States in 1994, the rival VF Corp. watched closely. Only after American shoppers began buying it in large numbers did VF offer up its own It Must Be Magic version. But once VF decided to enter the market, it moved swiftly using state-of-the-art distribution, surging with nationwide distribution ahead of Sara Lee. VF's "second-to-the-market" approach, bringing high technology to the nitty-gritty details of distribution, have helped it avoid the financial risk that beset clothing makers.14
Early entry on the heels of a leader is desirable if a company has an across-the-board superior marketing strategy and the resources to fight the leader. As a matter of fact, the later entrant may get an additional boost from the groundwork laid by the leader (in the form of the creation of primary demand). A weak early entrant, however, will be conveniently swallowed by the leader. The Docutel case discussed above illustrates the point. Docutel was the leader in the ATM market. However, being a weak leader, it paved the way for a later entrant, Diebold, to take over the market it had developed. The disposable diaper was introduced in the mid-1930s by a small company under the brand name Chux. Although it was probably the best product in the early 1960s, it was relatively expensive, limiting the market to wealthy households, or for use while traveling. However, P&G's experience in grocery marketing and its early research with Pampers prompted it to aim at the mass market. Through making huge investments, P&G expanded the market from $10 million to $370 million in seven years.15
As the market reaches the growth phase, a number of other firms may enter it. Depending on the length of the growth phase and the point at which firms enter the market, some could be labeled as early entrants. Most of these early entrants prefer to operate in specific market niches rather than compete against major firms. For example, a firm may concentrate on doing private branding for a major retailer. Many of these firms, particularly marginal operations, may be forced out of the market as growth slows down. In summary, an early-entry strategy is justifiable in the following circumstances:
1. When the firm can develop strong customer loyalty based on perceived product quality and retain this loyalty as the market evolves.
2. When the firm can develop a broad product line to help discourage entries and combat competitors who choose a single-market niche.
3. When either current investment is not substantial or when technological change is not anticipated to be so rapid and abrupt as to create obsolescence problems.
4. When an early entrant can initiate the experience curve and when the amount of learning is closely associated with accumulated experience that cannot readily be acquired by later entrants.
5. When absolute cost advantages can be achieved by early commitment to raw materials, component manufacture, distribution channels, and so forth.
6. When the initial price structure is likely to be high because the product offers superior value to products being displaced.
7. When prospective competitors can be discouraged as the market is not strategically crucial to them and existing competitors are willing to see their market shares erode.
Early entry, therefore, can be a rewarding experience if the entry is made with a really strong thrust directed against the leader's market or if it is carefully planned to serve an untapped market. Early entry can contribute significantly to profitability and growth. For the firm that takes on the leader, the early entry may also help in gaining market share.
Laggard-Entry Strategy
The laggard-entry strategy refers to entering the market toward the tail end of the growth phase or in the maturity phase of the market. There are two principal alternatives to choose from in making an entry in the market as a laggard: to enter as imitator or as initiator. An imitator enters the market as a me-too competitor; that is, imitators develop a product that, for all intents and purposes, is similar to one already on the market. An initiator, on the other hand, questions the status quo and, after doing some innovative thinking, enters the market with a new product. Between these two extremes are companies that enter stagnant markets with modified products.
Entry into a market as an imitator is short-lived. A company may be able to tap a portion of a market initially by capitalizing on the customer base of the major competitor(s). In the long run, however, as the leader discards the product in favor of a new or improved one, the imitator is left with nowhere to go. When Enterprise Rent-a-Car Inc. entered the business, it had to decide whether to follow the strategy that the early starters, Hertz and Avis, had pursued or consider an alternative strategy. It decided to go against all the conventional wisdom. Not only has it ceded the bread-and-butter airport business to Hertz, Avis and others, but it has also done without celebrity-driven advertisements and catchy slogans. Sticking close to the niche it developed—providing rentals for customers whose cars are being repaired or who need an extra car— Enterprise is the leader in fleet size and locations. Its sales in 1996 were $3.1 billion versus $3.8 billion for Hertz, but it probably was number one in profits, estimated to be $500 million (Hertz, a division of the Ford Motor Company, does not disclose earnings).16
Imitators have many inherent advantages that make it possible to run a profitable business. These advantages include availability of the latest technological improvements; feasibility of achieving greater economies of scale; ability to obtain better terms from suppliers, employees, or customers; and ability to offer lower prices. Thus, even without superior skills and resources, an imitator may perform well.
The initiator starts by seeking ways to dislodge the established competitor(s) in some way. Consider the following examples:
The blankets produced by an electrical appliance manufacturer carried the warning: "Do not fold or lie on this blanket." One of the company's engineers wondered why no one had designed a blanket that was safe to sleep on while in operation. His questioning resulted in the production of an electric underblanket that was not only safe to sleep on while in operation, but was much more efficient: being insulated by the other bed clothes, it wasted far less energy than conventional electric blankets, which dissipate most of their heat directly into the air.
A camera manufacturer wondered why a camera couldn't have a built-in flash that would spare users the trouble of finding and fixing an attachment. To ask the question was to answer it. The company proceeded to design a 35mm camera with built-in flash, which has met with enormous success and swept the Japanese medium-priced single-lens market.17
These two examples illustrate how a latecomer may be able to make a mark in the market through creativity and initiative. In other words, by exploiting technological change, avoiding direct competition, or changing the accepted business structure (e.g., a new form of distribution), the initiator has an opportunity to establish itself in the market successfully.
The Wilmington Corporation adopted the middle course when entering the pressed glass-ceramic cookware market in 1977. Until that time, Corning Glass Works was the sole producer of this product. Corning held a patent that expired in January 1977. The Wilmington Corporation opted not to enter the market with a me-too product. It sought entry into the market with a modified product line: round containers in solid colors. Corning's product was square-shaped and white, with a cornflower design. The company felt that its product would enlarge the market by appealing to a broader range of consumer tastes.18
Whatever course a company may pursue to enter the market, as a laggard, it cannot expect much in terms of profitability, growth, or market share. When laggards enter the market, it is already saturated; only established firms can operate profitably. As a matter of fact, their built-in experience affords the established competitors an even greater advantage. An initiator, however, may be able to make a profitable entry, at least until an established firm adds innovation to its own line.
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