Author: Mariana da Silva Godinho
Tags: market, cycle, startup, stages, strategy
The markets evolve through several stages. And in each stage, you should use a different strategy. Knowing how to identify the stage the market is in, is key to define the right strategy.
As we see in the picture above, the market evolves in different stages (Introduction, Growing, Maturity and Decline. In the next few paragraphs we explain the characteristics of each of the stages and we will give examples of the best strategies to adopt in each one of them.
The first stage is the Introduction stage. At this time you will have undefined segments, few competitors and low sales. The consumers still have a low level of information/awareness about your company. Related to the firm itself, it has to charge a high price per customer, but will still have negative profits.
It’s important to think about some good tactics and make important decisions to improve your startups performance. Generally, in this stage, build Primary demand (innovators) and create product awareness and trial. The product should be basic with a narrow product line. You need to choose between a high price for your product if you want to recover costs (skimming) or a low price to develop demand (penetration pricing). The topic you should focus more is advertisemente and promotion and you need to invest a large amount. You need to educate your target by personal selling and demonstrations. You should also induce trial - give free samples and attempt to get PR coverage. Finally, have a selective distribution strategy.
Creating a market
If you entered the market at this stage, you will not have competition, the product is unique, it was you who created the market. However, the costs are very high (due to low production volumes and high Marketing costs) and there is almost certain that you will loose money in the initial years.
At this stage, the competition has already increased, the segments emerged and the sales are increasing. The consumers begin to be more informed. The company already has distribution channels and production process sharpen (efficient), the cost per customer is decreasing and the profits are increasing.
Generally, in this stage, you need to build secondary demand (market share), compete on features and watch out for “me‐too” products. The product has been innovated based on customer feedback, and already has extensions, warranties and services. As a result of the competition increasing, the price needs to be lower to penetrate the market and compete. Broaden your distribution: add more channels to meet demand. And don’t forget advertisement and promotion. Continue building brand awareness by, for example, advertising.
Entering the market
This stage is an excellent growth opportunity for the business, but the market is aggressive, there’s a lot of competition.
This is the stage when the market has achieved it's full size potential. It has a very distinct segments, a high competition and peak sales. The consumers already expect something from you and demand quality and performance. Inside the firm you are looking for cost reductions in order to milk higher profits.
Generally, in this stage, you need to defend brand share, and you grow by stealing clients from competition. It is time for “freshening” brand with new claims. The product has already diversified brands and models. Its price drops to maintain share, if competition is heavy. A more intensive distribution should be built. Even though you already have a spot in the market, you have to continue promoting your product. At this point, stressing brand differences and benefits and handing coupons would be the best way to go.
Entering the market
This is a stage from which you can benefit if you can produce the same product at more affordable costs. There will be pressure to drop prices.
This is the last stage the market will face. You will go through a decline in sales and the segments will shrink or disappear. The preference of your customers will change and as a result, lower costs per customer. The profits will decline.
Above all, in this stage you will cut costs, reduce expenditures and milk the brand. You will be phasing out weak items and seek ways to make your product “new” again. One of the biggest concerns will be the cut in prices, so that you can sell of inventory. The place to be is more selective and you will be phasing out unprofitable channels. Advertisement and promotions need to be reduced to the level needed to retain hard-core loyals and to emphasize service.
Exiting the market
This is a stage where the market conditions are adverse and not suitable for you to enter the market with your product.If you are alrady in the markemt you should consider exiting the market and keep a close eye on profitability.
As you have read, following this article, the market has four stages:
Each of these stages has its specific features and techniques that can help you improve the performance of your business. You can enter the market in any of the stages, however the most recommended are the growing or the maturity stage. Entering in the introduction stage you make yu loose money in the initial years. In the declining stage, there isn't much attractiveness there anyway.