How a Growth Market Can Lead to Reduced Competition

Small Generic Drug Firms Need Niches to Survive Looming Price War (Reuters)

Marketing is considered a relatively fluid discipline. While many other areas of business are slow to embrace change (e.g., changing a company’s technology infrastructure) or tend to follow a fairly consistent routine (e.g., Accounting department), marketing constantly requires the cultivation of new ideas that lead to adjustments to its strategy.

While marketing decisions often are built around the idea of something new, many of the basic concepts of marketing have not changed much since the modern marketing era began in the 1950s. For instance, the key cornerstone of marketing remains the Marketing Concept, which says marketers must engage in efforts to identify customers’ needs before committing significant resources to various marketing decisions.

Another concept that is also deep-rooted is the Product Life Cycle (PLC). Made popular in the mid-1960s by Theodore Levitt, the PLC remains extremely valuable in terms of helping marketers see what competitive pressures may lay ahead in their market. Additionally, it offers guidance for how they should prepare for a changing market. For instance, in 2011 we discussed how it PLC impacted marketing decisions in the minivan market.

Yet, while the PLC is very useful we also note in our Planning with the Product Life Cycle tutorial that there are weaknesses with this concept making it not suitable for all markets. A good example of how the PLC may not be useful can be found in this story discussing the generic pharmaceutical market. Here we see a market that is expected to grow rapidly over the next 5 years. The PLC would suggest this market is in the middle growth stage. The PLC would also suggest that product pricing should remain strong and that growth opportunities should attract more competitors in the market.

However, the PLC would likely be wrong on this. While sales are expected to grow rapidly, pricing is weak due to government regulations that force companies to cap pricing resulting in low profit margins. In turn, this has resulted in a reduction in the number of competitors as large companies look to become more efficient and reduce costs by acquiring smaller firms that possess production capacity. This has led to consolidation among major players and left smaller companies to wonder what is next.

As the story suggests, the best strategy for many smaller players is not to follow strategies associated with the growth stage but, rather follow strategies that the PLC suggests when firms reach the maturity stage. In particular, the key option is to find a niche market that larger competitors are not addressing.

Focusing on dominating one market for specific drugs can help small players, as shown by Britain’s Mercury Pharma, which was taken private by private equity firm HgCapital in 2009. “Mercury has a number of products that are either difficult to make or have very low prices but high volumes; but only in the United Kingdom. This kind of approach could be a big potential for smaller players,” IMS’s Sheppard said.

In what other markets is the PLC not considered to be a reliable indicator of market behavior?

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