Apr 162017
 

Growth phase follows the introduction phase

The growth phase follows a successful introduction stage. There is no guarantee that a new product will be successful – therefore, not all new products will have a growth phase.

However, provided that the firm has been successful in reaching innovators in the market, and the product has some advantages over the existing product solution, and there is positive consumer word-of-mouth and supportive retailers – then there is a likelihood of a product entering its growth stage.

Main Driver of the Growth Phase

The dynamics of a growth market of very different to a new product in its introduction phase. In a growth market, there are significant dynamics of the driving growth, in particular there are a significant number of consumers that are now purchasing the new product for the first time.

This means that they are “switching” their purchasing behavior from a product that they would normally buy to meet this particular need, to this new product offering. As we learn in marketing, consumers generally have a significant degree of loyalty – either by choice or by habit – that they use to help simplify their “consumer life”. Therefore, a change in purchase behavior demonstrates a willingness to embrace (adopt) the new product.

It is this increase in numbers of consumers purchasing the product that is the most significant driver of growth of the sales. There is also some growth contribution from consumers who increase the frequency/volume of their purchases as the new product becomes more socially accepted.

Changes in the Marketplace During the Growth Phase

There is also the likelihood of a variation of product offerings – often due to new competitors entering the market with new benefits/features in the growth stage – which will also help drive the volume of purchases.

As the interest in the product increases and sale volumes increased dramatically, there are a number of other key changes in market conditions that also help contribution to increased sales, which include:

  • Retailers become far more interested in the new product category, as consumers are coming in and asking about the product = essentially moving from push to pull marketing
  • The volume of sales – and its impact on logistics efficiencies and learning curve benefits and economies of scale – generally allows for a lower price point through the cost efficiencies, which also aids the ability of the product to reach a broader market
  • Word-of-mouth and product visibility increases dramatically, as more and more consumers discuss, engage, and gain direct experience with the product. This creates a significant compounding effect on awareness and willingness to trial the product.

As highlighted in the discussion on the introduction stage, competitors are more likely to enter the market as growth starts to ramp up – primarily because it is an attractive market because of its size and potentially because this new market/product is eroding sales from their established product offerings.

Increased Competitive Rivalry

As competitors enter market, they generally like to have some form of innovation in order to provide consumers with an incentive to purchase their product. This leads to an increase in the variety products being offered. Existing firms, those early in the market in the introduction phase, have also developed further experience and expertise – thereby, making them more likely to be able to improve their existing products and to offer new variations.

One of the most interesting and attractive aspects of a growth market is the limited degree of customer loyalty that exists. Obviously strong brands have some form of advantage where consumers are aware of and trust the brand in the market. However for new products that are quite distinct, as the market grows – which primarily comes from first-time consumers purchasing the product – they typically have limited loyalty.

This is because they are “first-time consumers” and have no direct experience purchasing the product. Therefore, in a growth market, it is common to see the competitors tried to grab as much market share as possible. Market shares are far more volatile in a growth market, primarily due to the lack of underlying habitual loyalty.

Many firms will take the view, that if they can grab a consumer’s first time purchase of a new product, then there is a significant likelihood that they will hold the consumer for a significant period of time – generally through simple repeat purchase loyalty. This concept is strongly related to customer lifetime value, where customer loyalty is a significant driver of long-term profitability.

Because of this incentive to grab as many consumers as possible – that is maximize market share – the growth stage of the product life cycle can tend to be quite aggressive in terms of competitive rivalry. This is a firm’s opportunity to position themselves as a market leader or a dominant player, due to a greater proportion of the market being “available” and being willing to trial new brands and offerings.

Once the market becomes mature, consumers tend to revert back to establish purchase patterns and a certain degree of loyalty, making significant changes in market share quite difficult.

This underlying premise of a market highlights why the Boston Consulting Group model/matrix classifies market leaders in high-growth markets as “stars”, whereas market followers are classified as “question marks”. You can see by the wording difference of a star versus a question mark that most firms would prefer to have stars.

Key Marketing Strategies in the Growth Phase of the PLC

When firms become competitive and more aggressive – in their efforts to maximize market share – they are more likely to engage in:

  • Price discounting and sales promotions
  • More significant retailer incentives
  • More product variations and choices
  • Attractive offerings for repurchases and loyalty
  • Increased communications and promotion

Collectively, while these various marketing practices, particularly across many players in the industry, will help growth the market and attract new customers – which are a key goal of the growth stage – it also has the impact of reducing the profitability in the marketplace.

Therefore, in the growth phase we have profit levels increasing from the negative levels of the introduction stage, but they are dampened from their potential by the degree of competitive rivalry experience, as firms compete to maximize market share in this more dynamic phase of the market.

There is a possibility that some firms, surprisingly, may decide to withdraw from a growth market, particularly if they do not have any underlying competitive advantages. They may not be able to compete on price or retailer access or brand strength or product innovation. Therefore, while it is financially and potentially a very attractive market, they are simply not in a position to be a viable long-term competitor.

This is a difficult decision to make – and shown as the “question mark” in the Boston Consulting Group model. Where the question is: do we continue to compete in this attractive, but highly competitive market? Is it worthwhile continuing to invest – perhaps at a loss – in order to grab a small piece of this market in the longer-term?

Key PLC growth stage strategies

As you should see from the above discussion, as the market dynamics of a growth stage market is quite different to the introduction, it is necessary for the marketer to adapt its strategies to the new conditions. In particular,

  • Increased communication that highlights the unique benefits and features of the product offering
  • Increased emphasis on retailer expansion and retailer relationships and expand channels
  • Development of product variations, in an attempt to broaden the scope of the target markets
  • Look beyond consumer innovators and reconsider target markets – looking to capture market-leading positions in smaller market segments
  • Reduced pricing levels to encourage adoption, to increase market share, and to deter potential new entrants
  • Look to improve logistics and efficiencies in order to maintain margins, due to reduced pricing
  • Analyze customer lifetime value in order to ensure an appropriate marketing budget and investments
  • Invest in various forms of consumer loyalty incentives and programs, where relevant
  • Eventually, the rate of growth in a market will slow and eventually the market will become “mature”.