MARKETING MATERIAL
7262 MEG93 - Competitive Saw
PAPER TO MEG (Marketing Educators Group) CONFERENCE 1993
THE COMPETITIVE SAW - AN ALTERNATIVE TO SLOW DEATH BY THE 'PRODUCT' LIFE CYCLE
David Mercer
This paper challenges the practical value of the Product Life Cycle as a viable model for the great majority of products or services, which are in the 'mature' phase, and offers the alternative of the 'Competitive Saw'. This is based on the philosophy that marketing is a long term investment in the brand rather than a short run operating cost
The Product Life Cycle (PLC) has long been a very important element of marketing theory. Its 'intuitive appeal' is based on the analogy of natural (human) lives. It, thus, suggests that any product or service moves through identifiable stages, each of which is related to the passage of time (as the product or service grows older) and each of which has different characteristics;
Indeed, over the very long term every product or service must, by definition, have a life cycle. It is launched, it grows, then it dies. As such, the PLC may offer a useful 'model', to be kept at the back of your mind. Indeed, if you are in the introductory or growth phases, or in that of decline, it perhaps should be at the front of your mind; for the predominant features of these phases may be those revolving around such life and death. Between these two extremes, it may be salutary to have that vision of mortality in front of you.
On the other hand, the most important characteristic of most product life cycles is that - to all PRACTICAL intents and purposes - they do not exist! In most markets the majority of the leading (dominant) brands have held their position for at least two decades[i]. The dominant product life cycle, that of the brand leaders which almost monopolise many markets, is therefore one of continuity[ii]!
In the most respected criticism of the product life cycle, Dhalla & Yuspeh (1976)[iii] state;
"...clearly, the PLC is a dependent variable which is determined by market actions; it is not an independent variable to which companies should adapt their marketing programs. Marketing management itself can alter the shape and duration of a brand's life cycle."
Thus, the product life cycle may be useful as a description, but not as a predictor; and usually should be firmly under the control of the marketer!
An important point to note is that in many, if not most, markets the product or brand life cycle is significantly longer than the planning cycle of the organisations involved. It, thus, offers little of practical value for most marketers. Even if the PLC exists for them, their plans will be based just upon that piece of the curve where they currently reside (most probably in the 'mature' stage); and their view of that part of it will almost certainly be 'linear', and will not encompass the whole range from growth to decline.
The power of the brand is most evident in the case of the brand leaders; those in the top three slots - and especially the brand leader itself. In FMCG markets, for instance, the brand leader often holds 40% of the overall market or more - for periods in excess of two decades. We have encapsulated this in the 'Rule of 1:2:3';
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Thus, the most stable markets - the majority of markets (where the brand leadership positions remain unchanged for decades) - are typically dominated by 2 - 3 brands; between them accounting for around 70% of the total sales. For maximum stability the ratio of share between these should typically be that the brand leader should hold twice the share of the second and three times the share of the third - hence the Rule of 1:2:3. In this situation, the brand leader usually has 40% of the overall market; and is correspondingly profitable - justifying the high investment policies needed to achieve this position.
As this is only a rule of thumb, the exact ratios vary from market to market, and even the average may vary somewhat - depending upon what parcel of products is examined. The Boston Consulting Group (1985)[iv], for example, also suggest that the brand leader should hold twice the share of the second brand, but they differ in detail when they suggest that it should hold four times that of the third brand (giving a rule of 1:2:4!). But the general principle of the Rule of 1:2:3 seems to hold.
The evidence from our recent research shows that the value of the PLC lies at the extremes. Half (49%) of the managers in our 1992 survey[v] linked its value to new products and a quarter (25%) linked it to the decline phase. Only 18% gave more general answers, and none mentioned the mature phase.
On the other hand, half of the managers (51%) reported that it was difficult to make practical use of the PLC, and a further quarter (25%) specifically queried its validity in respect of declining products.
The net result was that the PLC received the second lowest rating, in terms of usefulness, of the techniques investigated; with an average score of 2.96 (of a scale from 1 - 5). Only the Boston Matrix received a lower score (2.93).
You will realise, from the presentation of the above findings, we too think that the PLC has little value in practice; for the majority of organisations which are dependent upon products in their mature phase. Indeed, we believe that its use may be positively dangerous for many such organisations; since it tempts managers of successful, mature brands to prematurely anticipate their move into decline. But is probably the most widely known, taught and respected piece of marketing theory!
How, in the absence of the PLC as guiding framework, might you theorise about change as it relates to these mature products and services?
At one extreme, seeing fractures in advance or even recognising their implications after they have occurred, is best handled by 'scanning'; though this is difficult in practice and beyond the scope of this paper. Responding to them once they have been detected is perhaps best ensured by undertaking the most effective possible marketing; better than that of other organisations which might also attempt to take advantage of the fracture.
At the other extreme, handling the less dramatic changes which regularly occur in the stable market - and are the staple diet of most marketers - is a different matter. The specific technique we have developed, as a positive alternative to ineffective use of the PLC in this ('mature') range, is called the 'Competitive Saw';
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The principles involved are very simple: as indicated by the chart above.
The first is that every 'stimulus' (every investment, be it an advertising or promotional campaign or a new feature added to the 'product') results, after a short delay, in a relatively rapid improvement in 'output', the product or service's position (typically directly in terms of its competitive position, and indirectly in terms of sales levels).
The second is that this advantage is then steadily diluted over time as competitors invest in their own activities, and the performance level (the competitive advantage or sales) slowly drops until the next stimulus is applied. Because of the competitive aspect and because it largely removes variations due to seasonality etc, the measurements are usually in terms of relative share (though absolute figures may also be used).
This is a very simplified model of what actually happens, though something approaching it can be observed in practice (which is not the case with the Product Life Cycle which it replaces), but even so it offers a number of benefits:
INTIMATIONS OF MORTALITY - it very effectively replaces the one important function of the Product Life Cycle, that of reminding managers that there will be no future if they do not look after their brands, and continue to invest in them - but it does this more directly, and without the drawbacks of the other model.
TIMESCALING - on much the same theme, it is an ever-present reminder that you cannot neglect your brands, or stop investing in them, for too long
LINKAGE OF INPUTS AND OUTPUTS - it encourages, and provides a framework for, managers to actively plan what inputs are needed, when, and what the outputs will be; and what the efficiency of conversion of inputs to outputs is
SURFACING OF INVESTMENT - it makes very clear the need for, and the results of, investment policies on brands. This is even more clear in the 'STEPPED SAW';
This looks at the effect of major inputs, major investments (such as new products or significantly increased promotional spending). These may have the effect of raising the average level of the 'saw teeth'; though, as shown above, later neglect (or a comparably strong competitive response) can just as easily result in a step down to a lower average level.
As the illustration below shows, there are two elements to performance. One is the average level. This is strategically most important since it shows longer term trends (a slowly decreasing average might be hidden by the variations in the saw). The other is the pattern of the saw itself, the time intervals and the performance variation per cycle, which determines the tactical approach.
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The saw should not lull you into expecting regularity. Different stimuli will have different impacts, and will be more or less efficient, so the saw will be a jagged one;
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As the saw is primarily an illustration of the impact of short term investments, the main criterion will be which of the stimuli available will result in the most efficient investment pattern (which, advertising or new features say, will produce the greatest impact for the same amount of money), though a mix of stimuli will usually produce the highest efficiency overall.
The three main lessons of the competitive saw are the importance of relative performance, the time related nature of this, and the investments which lie underneath.
As the most important of the marketing inputs, advertising and promotion have traditionally been treated as current cost; with an immediate, but short-term, effect. Although this view probably is justified in terms of most forms of sales promotion it seriously distorts some important aspects of advertising and PR. In view of the earlier comments in this paper, you will see that we believe a more useful view in this context is that advertising investment should in effect be treated as a fixed asset.
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Adopting such a long-term perspective has a number of important implications. The first of these revolve around the patterns of performance which might expected. Thus, the basic pattern is not that of the short run supply and demand curves but that of the longer term competitive saw. Indeed, it is a level saw; its overall trend relatively flat but with the teeth representing the impact of the individual campaigns (or even that of individual insertion, or even of words within the single advertisement - it shares with fractals the ability to continue to display new detail at ever greater degrees of 'magnification').
Following the implied principle of the fixed asset, this sawtooth maintenance pattern can be overlaid on a gradually declining trend in performance; notionally equivalent to depreciation in financial accounting. Thus, over time there may be a slow drift away from the ideal position - as the customers' needs and wants change and/or competitive positioning improves. Your own response to this may take two forms. The first, and perhaps the most effective, is that of 'dynamic repositioning'. The need for change is regularly tracked and the brand's position readjusted - in much the same way that an autopilot's feedback mechanisms ensure that an airliner follows the correct flightpath. The emphasis here is on the dynamic approach to (current) change - where most of marketing theory revolves around decisions based upon static (historic) positions.
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If such dynamic repositioning is not possible, perhaps because the necessary product changes come in discrete steps, then periodic readjustments may be needed. This is where the concept of depreciation is especially valuable. Thus, it allows the build-up of reserves to cover the significant costs of such repositioning exercises.This long-term asset investment aspect of brand performance is largely ignored by traditional marketing theory. We believe it should be!
In a more general sense, our underlying philosophies now revolve around the 3 Is. They are best illustrated as the triangle which philosophers have long used to illustrate the impossible. Here they are intended to show not just the possible but the practical, even if it requires some mind bending changes for most managers;
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INVESTMENT - the ideas above have revolved around the concept that the essence of marketing is investment in the longer term, to build the brand value which is normally the organisation's most valuable asset, rather than milking short-term profit
In moderation of this, however, two important perspectives need to be applied in all marketing situations - including these.
INSIGHT - what the manager always must apply is the common-sense, with a small amount of inspiration and a large amount of perspiration, which allows him or her to see what is really important in each situation
INDIVIDUALITY - and then he or she should deal with each marketing situation individually, directly addressing the specific issues involved, rather than relying on generalised solutions
[i] Mercer, D S (1993) Research to be published.
[ii] Mercer, D S (1993) Research to be published.
[iii] Dhalla, Nariman K. and Yuspeh, Sonia (1976), "Forget the Product Life Cycle Concept", Harvard Business Review, January-February 1976
[iv] Henderson, Bruce D. (1985), "The Rule of Three and Four", The Boston Consulting Group
[v] A postal survey of 500 OBS students in the first quarter of 1992
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