Marketing strategy
The marketing strategy a firm adopts to enter into the new market, retain the existing customers or expand into a new market is very important. With current increased competition in the market place, companies that maintain the traditional ways of doing business find themselves winding up while those accepting changes and transform according to the market needs remain and thrive (Hutt & Speh, 2012). Changes that have occurred in the market place require new strategies and approaches in order to remain competitive. With ever-changing needs of the customers, firms have no choice but to bring into the market products that will suit the customer requirements.
Therefore, the marketing strategy that the firm adopts can either be customer-oriented or competitor oriented (Kotler & Keller, 2012). The customer-oriented strategy is designed in accordance with the customer needs while the competitor oriented are based on the actions of the competitors in the market. However, companies do not absolutely practice one particular strategy. The reality is that both strategies are adopted by firms. Nevertheless, a firm may emphasize one strategy depending on the given circumstances. These circumstances are what to be explored.
A market leader in pharmaceuticals
In this scenario, the company will be customer-oriented. As a market leader, the company has penetrated and established itself in the market. Being a market leader also means that the company is relevant to the market needs. Moreover, the company is expected to have knowledge of market dynamics, the main target, and the specific needs of the customer, the product specifications as well as a long-term relationship with customers (Kotler & Keller, 2012).
The main aim of the company, once it has established itself in the market, is to retain the existing customers. In addition, the company may also want to expand its market share. Therefore, it will develop its products keeping in check what the new entry into the market offers. In other words, the company will be developing their products at low cost in order to keep its prices competitive while providing quality to sustain the trust that has already been built.
A market follower in a mature market
Under these circumstances, the company will be competitor oriented. The reason is that the company will always be behind the market leader. Since the market leader has all the information concerning the market needs, entering into the market requires an innovative strategy (Lancaster & Massingham, 2010). The organization must first find out how the leader became relevant or established itself in the market. This information will be useful in either product specification that provides more quality than that of the major competitor or producing at low cost to sell at lower prices. For the company to gain access to and have a share of the market, it must produce more quality and cheaper product (Kotler & Keller, 2012). In essence, the market follower must gain access; increase its market share and revenues at reduced costs than the market leader.
A market niche
Market niche only targets one particular segment of the market and therefore must be customer-oriented. Like the market leader, the market niche must focus on the retaining the customers and expanding into the market (Hutt & Speh, 2012). The products must be tailored according to the customer’s specification. For the market nicher to increase its revenue, it must produce at low cost so as to keep prices constant. However, the market nicher enjoys the good relations with the customer as well as the greatest information in his market niche (Kotler & Keller, 2012).
Market challenger in a mature market with low margins and significant economies of scale
The company will be competitor oriented. The company already has the advantage of low cost mass production. However, the company must observe the behavior of the other competitors in the market. The organization must outperform the other competitors in order to penetrate and have a share in the market (Winer & Dhar, 2010). For the company to attain this strategy, its products must be of high quality, are manufactured in accordance to the needs of the market, and most importantly, are of low prices. Since the challenger has the advantage of economies of scale, this means that the company can still attain these objectives. The profit margins might be low at the beginning but will increase as the company market share increases (Winer & Dhar, 2010).
Determining the strategy that will generate the highest income
- Contribution margin ratio = 1 – 40% = 60%.
- Beginning variable cost = 40,000,000 × 60% = $24,000,000.
- Total sales units = variable cost/variable cost per unit = 24,000,000/12 = 2,000,000.
- The average product prices = total sales/units sold = 40,000,000/2,000,000 = $20.
- Net operating income = Fixed cost + profit contribution margin = 3,000,000 + (40% of 40,000,000) = 3,000,000 + 16,000,000.
- Sales are 40,000,000 = 2,000,000 × 20 less variable cost which is 24,000,000 = (2,000,000 × 12).
- Contribution margin = 16000000 (8 × 2000000) less fixed cost 3000000.
- Net operating income = 13000000.
Strategy 1 will generate the highest income as follows
There will be increased revenue because of increased advertising
That is 40,000,000 × 0.25 = 50,000,000 an increase of 10,000,000. However, there are also costs involved. The annual fixed cost has increased by 2,000,000 due advertising. There is also 4,000,000 contribution margin as a result of increased sales (10 × 0.4). The total incremental effect less incremental cost = 2,000,000, that is, (4,000,000 – 2,000,000)
References
Hutt, M. & Speh, T. ( 2012). Business Marketing Management. New York, NY: Cengage Learning.
Kotler, P. & Keller, K. (2012). Marketing management. Upper Saddle River, NJ: Pearson.
Lancaster, G. & Massingham, L. (2010). Essentials of Marketing Management. Oxford, UK: Taylor & Francis.
Winer, R. & Dhar, R. (2010). Marketing Management. Upper Saddle River, NJ: prentice hall.