Effect of time on a marketing strategy

Effect of time on a marketing strategy

Effect of Time on a Marketing Strategy Douglas A. Schellinck A firm that had enjoyed considerable success in the marketplace during the early stages...

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Effect of Time on a Marketing Strategy Douglas

A. Schellinck

A firm that had enjoyed considerable success in the marketplace during the early stages of the product life cycle found itself losing market share. The firm and its competitors had not changed their marketing strategies since the introduction of the product. This article describes the results of research examining possible causes for the market reversal. It was discovered that the nature of the organizational buyer and his buyer behavior changed in a predictable manner since product introduction progressed. These changes made the competitors’ marketing strategy more effective and probably caused the market reversal. The implications for this firm and for firms marketing innovative products in general are discussed.

Company “X” had successfully introduced an innovative industrial product into its market area. During the first two or three years the firm effectively controlled the market capturing 70% of total sales. The marketing manager was aware of some weaknesses in his strategy but its strong points had been sufficient to dominate the market, then it became apparent they were losing market share. Adjustments to the marketing strategy didn’t seem able to halt the decline.

Address correspondence to: Professor Douglas A. Schellinck, School of Business, Dalhousie University, 6152 Coburg Road, Halifax, Nova Scotia, Canada B3H IZ5

The competitions’ activities were monitored; nothing was noted which might suggest a cause for the change in market share. No new firm had entered the market and the general market environment initially appeared to be the same as it had been during the time this company had enjoyed such success. What had happened? What had they done wrong? One answer to, “What had happened?” could be simply the movement of the product through the product life cycle. Strategies that may have been effective at an early stage of the product life cycle may no longer be effective in a later stage of the life cycle. This case illustrates what can happen if a firm does not plan ahead for the impact of changes in the market environment on their marketing strategy. The research reported in this article was conducted for a firm which found itself in such a situation. Four years earlier, two firms had introduced paging services (“beepers”) for the first time into their market. Sales in the first two years were slow, but rapidly expanded over the next two years. In the second year, a third firm had entered, but this firm never achieved a substantial share of the market. Otherwise, the market environment and marketing practices remained relatively constant; differences in buyer behavior over time could not be attributed to changes in marketing strategy.

Industrial Marketing Management 12, 83-88 (1983) 0 Elsevier Science Publishing Co., Inc., 1983

52 Vanderbilt

Ave., New York, New York 10017

83 0019-8501183/020083-06KF103.00

In the first two years Commco (a fictitious name) had captured approximately 70% of new rentals but this dropped to approxmately 30% by year four. The resulting decline in share was not immediately noticed because sales growth, attributed to total market expansion, had produced the appearance of success. There has been no noticeable change in the competitions’ strategy over the four years. It became apparent to Commco that it was losing market share when it learned that the major competition was going to request a second radio channel. A market research study was therefore commissioned to discover the causes of Commco’s deteriorating position. It was felt the key to success in maintaining market share in the pager market is to effectively attract new customers to your company. Because paging is a rental service it was assumed there would be little supplier switching. Later, there turned out to be more switching than anticipated. The competitions’ customers were identified by calling, at random, organizations listed in the Yellow Pages.

Strategies

RESULTS The first step in the analysis was to determine the relative strengths of the two marketing strategies. It was found that the competition had more effective salesmen, offered a wider range of services that were sought by customers, and their speed of service (the elapsed time between when the message was given to the paging company and when the message is received by the customer) was perceived as superior. Customers that chose the competition were more often stimulated to consider renting pagers because they saw the service advertised. When they considered purchasing the pager they considered more alternative suppliers than the client’s customers. Also, competitors’ customers tended to be larger organizations than those firms using Commco’s services

must change

Once a competitor’s customer was identified, a telephone interview was conducted with the person responsible for the rental of pagers. Similarly, a random sample of Commco’s own customers were interviewed. After eliminating “don’t knows,” refusals, and organizations that switched suppliers there remained 40 organizations that were used in this analysis. This represents 60% of those approached. The questionnaire had three sections. First, service satisfaction, usage patterns, and length of service were measured. Second, subjects indicated what stimulated them to purchase the service, what sources of information they used, as well as the relative helpfulness of the various sources. Third, the jobs performed by the pager

TONY SCHELLINCK is an Associate Professor at Dalhousie University, Halifax, Nova Scotia. After receiving his MBA in 1973 he worked for several years as a marketing researcher in the communication’s industry. He received his Ph.D. from the University of Illinois in 1980. Dr. Schellinck serves as a consultant for industry, specializing in research design and strategy development.

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users, the number of employees, the type of business and the number of employees in all job functions were measured.

over time.

and therefore, tended to rent a larger number of pagers with a larger proportion to be used by management. Organizations renting from the competition were very satisfied with their service and word-of-mouth in the market tended to be more favorable to the competitors. Commco was viewed as having superior maintenance services, lower prices, and considerable competence in providing paging service. Organizations that rented from Commco did so because they needed a problem solved and would go to this firm because of its reputation in the communications industry. As a result, these organizations did not “shop around” for alternative service offerings. The organizations renting from Commco were also very satisfied with the service. While this analysis highlighted the relative strengths and weakness of the competitors in this market it did not tell Commco why they were no longer as successful. Their strategies had not changed significantly over the last four years. It was, therefore, hypothesized that the characteristics of the organizations renting the service had changed in such a way as to make the competitions’ strategy more effective. The superiority of the competition at appealing to

larger organizations had been noted. It was felt that if the size of the firm adopting innovations tended to increase during the product life cycle then this might account for loss of market share. The issue of the size of the organization and its likelihood of early product adoption has received considerable attention in the marketing literature [3]. There is good reason for this. Firms are easily categorized into size and the methods of selling to these

role in the change in effectiveness of the strategies, it did not account for a large part of the difference in success and it was felt another factor probably had a larger impact. This was felt to be simply the accumulated impact of the firms’ marketing activities over time. That is, as time goes on, potential purchasers of the service will more likely be exposed to the various product offerings on the market through advertising and observation of

“Their strategies had not changed significantly over the last four years.” organizations differ considerably. Webster [3] put forward arguments concerning the size of the organization and when it will adopt a product. “Larger firms will be more able to afford innovative products and will therefore adopt products earlier. Larger firms will be more able to tolerate risk and will therefore adopt products earlier. Smaller firms will value seller information more. They are more likely to be persuaded to try out the new product. They also have more incentive to take the risk and adopt new products. Smaller firms have a less complicated decision making structure. This will allow them to adopt products earlier. ’ ’ Which of these factors has the greatest influence will depend on the nature of the product. For expensive products with long pay-back, the risk and cost factors will likely favor early adoption by large organizations. For inexpensive products that offer immediate advantages, the need for a competitive advantage and the quicker decision process will favor the product’s early adoption by smaller organizations. Pagers are relatively inexpensive which would suggest smaller firms will adopt the product first. In this study, the number of employees a firm has was used as the indicator of firm size. Using this measure it was hypothesized that: Larger organizations are likely to adopt this product later. Subsequent analysis supported this hypothesis (see Table 1) and it was concluded that the client firm would have to change its strategy to more effectively appeal to large organizations. While changes in organization size probably played a

others using the product. Also, as time goes on more people will have used the product, or gone through stages of the purchase process [2] such that word-of-mouth would likely have a greater impact. Thus, it was decided to examine how the passage of time had influenced the purchase process. It had been noted that the competitors’ customers were more often stimulated to start the process by advertising or word-of-mouth while Commco’s customers more often started the purchase process because of problems in operation. If the nature of the problem stimulus changed TABLE 1 Correlation

Hypothesis 1 2 3 4

5

6 7

of time since adoption and buyer behavior variables

Relationship Solution to problem was early stimulus Advertising was early stimulus Word of mouth more often stimulus later Used more sources of information later Specifically saw more salesmen later saw more ads later saw more Associates later Salesmen helped more early Advertising helped more early Word of mouth helped more later Aware or two or more brands later Smaller firms will adopt earlier

Hypothesized DIrection

R

P One Tailed

Negative

-.I85

.127

Negative Positive

-.019 +.157

,454 .I67

Positive

.320

.040

Positive Positive Positive Negative Negative Positive

,167 ,047 ,452

,177

,397

,375

,003 ,911 ,193 ,015

Posittve

,252

.075

Positive

.I214

,092

,240 -.I56

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over time then this would have indicated the need to adapt their strategy to the changing conditions. It was hypothesized that: l

l

l

Problems with operations will more often be the problem stimulus earlier in the product life cycle. This is based simply on the premise that a new product should be the solution to problems that existed before it was introduced. Advertising will play a greater role in problem recognition for early adopters. This assumes late adopters will have been exposed to the ads previously and decided not

to respond. Word-of-mouth will play a greater role in problem recognition for late adopters. The assumption is, that as more organizations gain experience with the product the opportunity for word-of-mouth to stimulate problem recognition increases.

Analysis (see Table 1) indicated that operational problems may have more often stimulated problem recognition early in the product cycle and that word-of-mouth may have more often stimulated problem recognition later in the product life cycle. The role of advertising as a problem stimulus did not change with time. Commco’s early customers had come to the firm because of its general expertise for solving communications problems. This accounted for some new sales, but the majority of organizations now entering the market were doing so because of word-of-mouth. Unfortunately for the client, word-of-mouth was heavily in favor of the competition. To compete effectively, the client firm would have to change or overcome the competitors’ advantage in wordof-mouth. Commco also learned that, while advertising might still be important, it was not the cause of the decline in market share. Thus, in altering this strategy they should first focus on counteracting the threat from word-ofmouth rather than the threat from the competitors’ advertising. Our analysis now turned to examining the information search phase of the purchase process. Previous analysis had shown that organizations that tended to rent from the competition: a) talked to one or more salesmen; b) were aware of advertising; and c) had talked to users. If potential users of the service went through a more extensive search process later in the product life cycle this could be another of the causes for the loss in market share. It was hypothesized that this increase in search would occur because of the likelihood that purchasing organizations would be more aware of alternative services offered. This would be because, as time went on, they 86

would more likely have been exposed to the marketing effort of these firms. As time progressed, potential purchasers would also more likely be aware of paging service users and would therefore, be more likely to consult associates on the relative strengths of the alternative services. This increased search behavior should result in the use of more types of information sources as well as increased use of each type of source. It should also result in the purchaser being aware of more alternatives later in the product life cycle. Thus, it was hypothesized: l

l

Later adopters are more likely to use multiple sources of information (Salesmen, advertising and word-ofmouth). Later adopters will tend to evalute more suppliers of the service.

While it was felt that the exposure to information will increase later in the product life cycle, the perceived importance of advertising and salesmen should drop. This will be due to the fact that the purchaser can now more often rely on word-of-mouth. In the case of pagers, it is difficult to judge the quality of the product without considerable experience with it. It was assumed that purchasers will tend to attribute information provided by advertising and salesmen to persuasive intent and view word-of-mouth information as assistive in nature. Thus, the following hypotheses were postulated: l

l

l

Salesmen would be seen as less helpful later in the product life cycle. Advertising would be seen as less helpful later in the product life cycle. Word of mouth would be seen as more helpful later in the product life cycle.

The hypothesis that purchasers used more sources of information later in the purchase process was confirmed, with associates and salesmen being used more often and the use of advertising remaining constant (see Table 1). Analysis indicated that advertising was perceived as less helpful later in the product life cycle and word-of-mouth was viewed as more helpful later in the product life cycle. Contrary to the hypothesis, salesmen were found to be perceived as more helpful later in the product life cycle. The results, however, support work by Rogers [2] which found that farmers tend to rely more on salesmen later in the product life cycle. These differences in the exposure to and the use of the three sources of information all made the competitors’ strategy more effective. However, these results were encouraging for the client. If salesmen had been found to

be less important later in the product life cycle (as hypothesized) then the chances of counteracting the competitions’ positive word-of-mouth would have been diminished. As it was, the client learned that advertising

As time progressed the competition developed a better reputation for pager services than Commco. This began to have its effect as product specific word-of-mouth played a larger role at the problem recognition and sup-

“Tend to rely more on salesmen later in the product life cycle. ” was likely to be ineffective and that he should put his efforts into improving the effectiveness of his salesmen. DISCUSSION Commco was surprised to discover they were losing market share. There had been few indications from the market environment that their situation was rapidly deteriorating. The competitions’ strategy, which originally appeared relatively unsuccessful, had not changed with time. Similarly, Commco had not changed its marketing strategy. The major cause was a change in the relative effectiveness of competing strategies as buyer behavior changed over time. The analysis suggests that the nature of the problem stimulus, the amount of information searched, the number of salesmen and associates consulted, the role of salesmen and associates and the number of supplier firms considered all changed with time. Also, the size of the purchasing firms increased with time. Commco was initially successful because it had a generalized reputation for expertise in the communications area and a well established sales force. The need to solve operatonal problems caused buyers to seek out firms they knew had expertise in this area. This generally lead them to Commco. As time progressed problem recognition occurred more because buyers were exposed to other firms using pagers or because they had discussions about pagers with professional associates. This lead buyers to consider both Commco and its competition. The changes in buyer behavior exposed the wcaknesses in Commco’s strategy. Its product line was not as extensive as the competitors’ and its salesforce was not as effective man for man. Thus, as buyers more often considered more than one supplier they tended to go with the competition.

plier evaluation stages of the decision process. However, Commco continued to attract those buyers whose problem stimulus was an operational problem (leading them to approach Commco because of its general expertise in the area) and those buyers looking for the particular type of pager Commco was renting. Commco did not realize the effect time was having on the effectiveness of their marketing-strategy. There was little incentive to determine the weaknesses of their strategy, let alone improve it when they were very successful in the market place. If’ Commco had considered the changes in the nature of problem recognition, the role of salesmen and associates, and the degree of search in light of their strategy’s weaknesses it would have been apparent that changes were necessary to maintain market share. For the competition this analysis provides hope that the first and largest firm selling in a market does not necessarily hold all the trump cards. In the long run a product specific reputation can overcome a generalized reputation. In the long run the chances are greater that buyers will seek out alternative suppliers. There are two major weaknesses in this study which are common with most studies of the adoption process. 1. Behavior variables are measured in retrospect and therefore are subject to distortion through memory effects and biased responses. 2. Respondents have not been randomly assigned to treatment levels and therefore, the results are open to many interpretations. Considerable care was taken during sample element identification to talk only to those people personally involved in the decision process. Few, if any, claimed cny problems in remembering the details of the purchase ptJcess. However, it is conceivable that time caused 87

them to forget some sources of information utilized which would account for the increased use of information sources later in the adoption process. However, it is unlikely that time would affect their memory concerning how many suppliers were considered and this supported the increased search hypothesis. The chance to study product adoption in industrial markets is rare and the chances to measure independent variables and gain some kind of experimental control far rarer. With this in mind, researchers are forced to use expost facto research and make the best interpretation possible given the data. The fact that industrial buyer behavior changes in a

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predictable manner suggests that firms should alter their marketing mix accordingly. The experience of the firm conducting this research underscores the consequences of not matching changes in buyer behavior with strategy change. REFERENCE I.

Ozanne, Urban B., and Churchill, Gilbert A. Five Dimensions of the Industrial Adoption Process, Journal ofMarketing Research 8, 322-328 (1971).

2. Rogers, Everett, M., Diffusion of Innovation, The Free Press. New York, 1962. 3. Webster, Frederick E., New Product Adoption in Industrial Markets: A Framework for Analysis, Journal ofMarketing 33, 35-39 (1969).