The market-commitment strategy refers to the degree of involvement a company seeks in a particular market. It is widely held that not all customers are equally important to a company. Often, such statements as “17 percent of our customers account for 60 percent of our sales” and “56 percent of our customers provide 11 percent of our sales” are made, which indicate that a company should make varying commitments to different customer groups. The commitment can be in the form of financial or managerial resources or both. Presumably, the results from any venture are commensurate with the commitment made, which explains the importance of the commitment strategy. Commitment to a market may be categorized as strong, average, or light. Whatever the nature of the commitment, it must be honored: a company that fails to regard its commitment can get into trouble. In 1946, the Liggett and Myers Tobacco Company had a 22 percent share of the U.S. cigarette market. In 1978, its share of the market was less than

3.5 percent; in 1989, slightly less than 3 percent. 19 A variety of reasons has been given for the company’s declining fortunes, all amounting to a lack of commitment to a market that at one time it had commanded with an imposing market share. These reasons included responding too slowly to changing market conditions, using poor judgment in positioning brands, and failing to attract new and younger customers. The company lagged behind when filters were introduced and missed industry moves to both kingsize and extra-long cigarettes. It also missed the market move toward low-tar cigarettes. Its major entry in that category, Decade, was not introduced until 1977, well after competitors had established similar brands. Liggett and Myers illustrates that a company can lose a comfortable position in any market if it fails to commit itself adequately to it.

Strong-Commitment Strategy The strong-commitment strategy requires a company to operate in a market optimally by realizing economies of scale in promotion, distribution, manufacturing, and so on. If a competitor challenges a company’s position in the market, the latter must fight back aggressively by employing different forms of product, price, promotion, and distribution strategies. In other words, because the company has a high stake in the market, it should do all it can do to defend its position. A company with a strong commitment to a market should refuse to be content with the status quo. It should foresee its own obsolescence by developing new products, improving product quality, and increasing expenditures for sales force, advertising, and sales promotion relative to the market’s growth rate. This point may be illustrated with reference to the Polaroid Corporation. The company continues to do research and development to stay ahead of the field. The original Land camera, introduced in 1948, produced brown-and-white pictures. Thereafter, the company developed film that took truly black-and-white pictures with different ASAspeeds. Also, the time involved in the development of film was reduced from the original 60 seconds to 10 seconds. In 1963 the company introduced color-print film with a development time of 60 seconds; in the early 1970s, the company introduced the SX-70 camera, which made earlier Polaroid cameras obsolete. Since its introduction, a variety of changes and improvements have been made both in the SX-70 camera and in the film that goes into it. A few years later, the company introduced yet another much-improved camera, Spectra.

In 1976 Kodak introduced its own version of the instant camera. Polaroid charged Kodak with violating seven Polaroid patents and legally forced Kodak out of the instant photography business. The result: Polaroid has retained its supremacy in the instant photography field, a field to which it has been solely committed. Porsche continues to excel in the crowded auto industry by making a firm commitment to a well-defined market niche (a 40-something male college graduate earning over $200,000 per year). The company sells only about 6000 cars a year (each costing between $40,000 and $82,000), but does well in terms of profits. RCA pioneered color television in 1954, yet their product did not sell well since the vast majority of programs were broadcast in black and white. But RCA did not give up and made a long-term commitment to the business. It started broadcasting color TV programs through its NBC subsidiary at a time when the majority of consumers owned black-and-white TVs. RCA’s persistence over ten years was rewarded with long-term market leadership of color TVs. The nature of a company’s commitment to a market may, of course, change with time. Consider Levi Strauss & Co.

Its brand name is synonymous with rebellious youth. But while it retains its hold over the baby boomers who built the brand into mythic proportions, it has neglected the whims of the new generation of youth, and these are the future customers. This lack of commitment has cost the company dearly. Its sales have been declining since 1990, forcing it to close many factories. As a company executive put: “It was, in part, the classic corporate goof: taking your eyes off the ball. Projects during the last decade, such as expanding the casual clothing line Dockers and launching its upscale cousin Slates distracted executives from the threat to Levi’s core jeans brand.”22 Strong commitment to a market can be highly rewarding in terms of achieving growth, market share, and profitability. A warning is in order, however. The commitment made to a market should be based on a company’s resources, its strengths, and its willingness to take risks to live up to its commitment. For example, Procter & Gamble could afford to implement its commitment to the Pittsburgh market because it had a good rapport with distributors and dealers and the resources to launch an effective promotional campaign. Asmall company could not have afforded to do all of that.

Average-Commitment Strategy When a company has a stable interest in a market, it must stress the maintenance of the status quo, leading to an only average commitment to the market. Adoption of the average-commitment strategy may be triggered by the fact that a strong-commitment strategy is not feasible. The company may lack the resources to make a strong commitment; a strong commitment may be in conflict with top management’s value orientation; or the market in question may not constitute a major thrust of the business in, for example, a diversified company. In April 1976, when the Eastman Kodak Company announced its entry into the instant photography field, the company most worried about this move was Polaroid. Because Polaroid had a strong commitment to the instant photography market, it did not like Kodak being there just for the sake of competition. As Polaroid’s president commented, “This is our very soul that we are involved with. This is our whole life. For them it’s just another field.”23 Similarly, when Frito-Lay (a division of PepsiCo) entered the cookie business in 1982, the industry leader, Nabisco, had to adopt a new strategy to defend its title in the business.

As an executive of the company noted, “We aren’t going to sit on our haunches and let 82 years of business go down the drain.”24 A company with an average commitment to a market can afford to make occasional mistakes because it has other businesses to compensate for them. Essentially, the average-commitment strategy requires keeping customers happy by providing them with what they are accustomed to. This can be accomplished by making appropriate changes in a marketing program as required by environmental shifts, thus making it difficult for competitors to lure customers away. Where commitment is average, however, the company becomes vulnerable to the lead company as well as the underdog. The leader may wipe out the averagecommitment company by price cutting, a feasible strategy because of the experience effect. The underdog may challenge the average-commitment company by introducing new products, focusing on new segments within the market, trying out new forms of distribution, or launching new types of promotional thrusts. The best defense for a company with an average commitment to a market is to keep customers satisfied by being vigilant about developments in its market. An average commitment may be adequate, as far as profitability is concerned, if the market is growing. In a slow-growth market, an average commitment is not conducive to achieving either growth or profitability.

Light-Commitment Strategy A company may have only a passing interest in a market; consequently, it may make only a light commitment to it. The passing interest may be explained by the fact that the market is stagnant, its potential is limited, it is overcrowded with many large companies, and so on. In addition, a company may opt for light commitment to a market to avoid antitrust difficulties. GE maintained a light commitment in the color television market because the field was overcrowded, particularly by Japanese companies. (In 1988, GE sold its television business to Thomson, a French company.) In the early 1970s, Procter & Gamble adopted the light-commitment strategy in the shampoo market, presumably to avoid antitrust difficulties such as those it had encountered with Clorox several years previously; Procter & Gamble let its share of the shampoo market slip from around 50 percent to a little over 20 percent, delayed reformulating its established brands (Prell and Head & Shoulders), introduced only one new brand in many years, and substantially cut its promotional efforts. Acompany with a light commitment to a market operates passively and does not make any new moves. It is satisfied as long as the business continues to be in the black and thus seeks very few changes in its marketing perspectives. Overall, this strategy is not of much significance for a company pursuing increasing profitability, greater market share, or growth.

MARKET-DILUTION STRATEGY

In many situations, a company may find reducing a part of its business strategically more useful than expanding it. The market-dilution strategy works out well when the overall benefit that a company derives from a market, either currently or potentially, is less than it could achieve elsewhere. Unsatisfactory profit performance, desire for concentration in fewer markets, lack of top management knowledge of the market, negative synergy vis-à-vis other markets that the company serves, and lack of resources to develop the market fully are other reasons for diluting market position. There was a time when dilution of a market was considered an admission of failure. In the 1970s, however, dilution came to be accepted purely as a matter of strategy. Different ways of diluting a market include demarketing, pruning marginal markets, key account strategy, and harvesting strategy.

Demarketing Strategy Demarketing, in a nutshell, is the reverse of marketing. This term became popular in the early 1970s when, as a result of the Arab oil embargo, the supply of a variety of products became short. Demarketing is the attempt to discourage customers in general or a certain class of customers in particular on either a temporary or permanent basis. The demarketing strategy may be implemented in different ways. One way involves keeping close track of time requirements of different customers. Thus, if one customer needs the product in July and another in September, the former’s order is filled first even though the latter confirmed the order first. A second way of demarketing is rationing supplies to different customers on an equitable basis. Shell Oil followed this route toward the end of 1978 when a gasoline shortage occurred. Each customer was sold a maximum of 10 gallons of gasoline at each filling. Third, recommending that customers use a substitute product temporarily is a form of demarketing. The fourth demarketing method is to divert a customer with an immediate need for a product to another customer to whom the product was recently supplied and who is unlikely to use it immediately. The company becomes an intermediary between two customers, providing supplies of the product to one customer whenever they are needed if present supplies are transferred to the customer in need. The demarketing strategy is directed toward maintaining customer goodwill during times when customer demands cannot be adequately met. By helping customers in the different ways discussed above, the company hopes that the situation requiring demarketing is temporary and that, when conditions are normal again, customers will be inclined favorably toward the company. In the long run, the demarketing strategy should lead to increased profitability.

Pruning-of-Marginal Markets Strategy Acompany must undertake a conscious search for those markets that do not provide rates of return comparable to those rates that could be attained if it were to shift its resources to other markets. These markets potentially become candidates for pruning. The pruning of marginal markets may result in a much higher growth rate for the company as a whole. Consider two markets, one providing 10 percent and the other 20 percent on original investments of $1 million. After 15 years, the first market will show an equity value of $4 million, as opposed to $16 million for the second one. Pruning can improve return on investment and growth rate by ridding the company of markets that are growing more slowly than the rest of its markets and by providing cash for investment in faster-growing, higher-return markets.

Several years ago, A&P closed more than 100 stores in markets where its competitive position was weak. This pruning effort helped the company to fortify its position and to concentrate on markets where it felt strong. Pruning also helps to restore balance. Acompany may be out of balance when it has too many diverse and difficult markets to serve. By pruning, the company may limit its operations to growth markets only. Because growth markets require heavy doses of investment (in the form of price reductions, promotion, and market development) and because the company may have limited resources, the pruning strategy can be very beneficial. Chrysler Corporation, for example, decided in 1978 to quit the European market so that it could use its limited resources to restore its position in the U.S. market. The pruning strategy is especially helpful in achieving market share and profitability.

Key-Markets Strategy In most industries, a few customers account for a major portion of volume. This characteristic may be extended to markets. If the breakdown of markets is properly done, a company may find that a few markets account for a very large share of its revenues. Strategically, these key markets may call for extra emphasis in terms of selling effort, after-sales service, product availability, and so on. As a matter of fact, the company may decide to limit its business to these key markets alone. The key-markets strategy requires:

1. A strong focus tailored to environmental differences (i.e., don’t try to do everything; rather, compete in carefully selected ways with the competitive emphasis differing according to the market environment).

2. A reputation for high quality (i.e., turn out high-quality products with superior performance potential and reliability).

3. Medium to low relative prices complementing high quality.

4. Low total cost to permit offering high-quality products at low prices and still show high profits.

Harvesting Strategy The harvesting strategy refers to a situation where a company may decide to let its market share slide deliberately. The harvesting strategy may be pursued for a variety of reasons: to increase badly needed cash flow, to increase short-term earnings, or to avoid antitrust action. Usually, only companies with high market share can expect to harvest successfully. If a product reaches the stage where continued support can no longer be justified, it may be desirable to realize a short-term gain by raising the price or by lowering quality and cutting advertising to turn an active brand into a passive one. In any event, the momentum of the product may continue for years with sales declining but with useful revenues still coming in. Because they reduce a firm’s strategic flexibility, exit barriers may prevent a company from implementing a harvesting strategy.

Exit barriers refer to circumstances within an industry that discourage the exit of competitors whose performance in that particular business may be marginal. Three types of exit barriers are (a) a thin resale market for the business’s assets, (b) intangible strategic barriers as deterrents to timely exit (e.g., value of distribution networks, customer goodwill for the other products of the company, or strong corporate identification with the product), and (c) management’s reluctance to terminate a sick line. When exit barriers disappear or when their effect ceases to be of concern, a harvesting strategy may be pursued.

This article illustrated various types of market strategies that a company may pursue. Market strategies rest on a company’s perspective of the customer. Customer focus is a very important factor in market strategy. By diligently delineating the markets to be served, a company can effectively compete in an industry even with established firms. The five different types of market strategies and the various alternatives under each strategy that were examined in this article are outlined below:

1. Market-scope strategy. a. Single-market strategy b. Multimarket strategy c. Total-market strategy

2. Market-geography strategy. a. Local-market strategy b. Regional-market strategy c. National-market strategy d. International-market strategy

3. Market-entry strategy. a. First-in strategy b. Early-entry strategy c. Laggard-entry strategy

4. Market-commitment strategy. a. Strong-commitment strategy b. Average-commitment strategy c. Light-commitment strategy

5. Market-dilution strategy. a. Demarketing strategy b. Pruning-of-marginal-markets strategy c. Key-markets strategy d. Harvesting strategy Application of each strategy was illustrated with examples from marketing literature. The impact of each strategy was considered in terms of its effect on marketing objectives (i.e., profitability, growth, and market share).