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Satisfying all stakeholders when the business is competing in mature product markets is difficult

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The business dynamics at play in a mature product market is quite different from that of newly introduced products.  Companies dealing with mature products will have to employ different manufacturing and marketing tactics than those adopted for trendy products in order to succeed.  One of the concerns facing the management is satisfying all involved stakeholders, including shareholders, customers, vendors, and to a lesser extend the society-at-large. Satisfying this diverse group is arduous at the best of times, but it gets close to impossible during an economic downturn or an industry-wide recession.  Another handicap facing mature products is that the markets they operate in are likely to be mature as well, making growth prospects for the product as well as industry very tough. The rest of this essay will present various factors that have a bearing on stakeholders when a business is competing in mature product markets.

Shareholders are one of the main (if not the most important) stakeholders to a company’s prospects.  And equity markets are the arena where they can hope to claim their rewards. But increasing share price on a consistent and non-volatile manner is very difficult in mature product markets.  For example,

“Equity markets both reward companies that outpace growth in their sector and that show significantly higher price/earnings multiples than their competitors. But, since 80 per cent of equity markets grow only as fast as their country’s gross domestic product – that is, at a rate that rarely pushes beyond the low single digits, an organization that seeks to outpace a mature equity market and achieve double-digit revenue growth faces a steep uphill climb. A company can attempt to take market share, but competitors in a mature market will work just as vigorously to defend their customer base. Higher revenue does not always signal success anyway, since revenue gains almost always hurt margins, and can precipitate a price war that devalues the entire market.” (Magrath, 2005)

The telecommunications industry offers opportunities for studying marketability of mature products.  This is so because, although digital and satellite communications technology were invented only a couple of decades ago, the rapid rate of growth ensured maturity of both the industry as well as its products.  The recent developments in the telecommunications industry in the Middle East illustrates common challenges faced by mature products and mature markets. The quarterly performance of these telecom companies after the first quarter of 2009 shows how growth can be stagnant or in decline for mature product markets. During this period, Saudi Telecom reported a whopping 69 percent dip in its net profit figures.  Etisalat, another major firm in the region, reported a 20 percent drop in profits in the same period. Smaller players too, including Maroc Telecom and Zain, performed likewise. (Hadfield, 2009) These examples illustrate how difficult it has become for managements to satisfy stakeholders in a mature product business.

It is a sign of problems identified with mature markets that investors are looking at opportunities in emerging markets.  An increasing share of the world’s capital is now being directed to equities and other derivative products in emerging economies.  In the era of globalization, the flow of financial capital is a vital parameter. Financial products and derivative products transacted via stock exchanges trans-nationally have matured as a product over the years. This means that there is now vast empirical data to draw theories upon. This has also had the effect of increasing the degree of volatility in these markets. Investment firms and individual investors look toward emerging markets despite their high volatility due to the following reasons: higher average returns, lower correlations than developed markets, and more predictable returns. Each of these characteristics has made the volatility of emerging markets an acceptable risk and a topic of ongoing research. In the Middle East, for example, the six countries in Arabian Gulf Cooperation council (AGCC) are now recognized as emerging markets. (Fayyad & Daly, 2010) Research studies conducted on data from these markets lead to interesting inferences. They weigh the pros and cons for companies dealing with mature products in entering emerging markets:

“Many small companies have niche (and sometimes mature) products for which much of the potential is in emerging markets. But these markets also have higher political risk and macroeconomic fluctuations. For example, Turkey would be an excellent market for a small company in the microelectronics industry due to Turkey’s modernization efforts in the 1990s, the establishment of a large military sector, and governmental support for high technology. Despite its small size and unstable political environment, Israel also offers significant potential for high-tech products due to its high level of technical expertise and trading relationships with the electronics industry in the United States and Europe. In developing countries such as India, China, and Brazil, due to their industrialization efforts, they often have pent-up demand for high-tech products from the industrialized world.” (Alon, 2004)

Companies like Coca-Cola, Boeing, Intel, Daewoo, Nestle, Avon, Microsoft, General Electric, Fed-Ex, etc have a vast portfolio of products.  While some of them are recent inventions most of their offerings come under the mature product category.  With global markets being open and allowing free flow of capital, these companies have set their goals to worldwide domination in their respective specializations. These companies, dealing mostly in mature product markets are “investing fortunes in condensed time frames to obliterate the concept of ‘geographical markets’.” (Kahn & Lanchner, 1997) As they seek a dominant presence instantly in countries virtually worldwide, they are ushering in the Age of the Global Titans. Without question, global domination is an unconventional and risky concept. The danger of spreading both financial and managerial resources thin is painfully real. And the likelihood of entering markets not understood by management is a given.” (Kahn & Lanchner, 1997) These companies also have to overcome cultural, economic, regulatory and currency barriers to their success.  Hence, in the face of these challenges the odds are stacked against them delivering impressive returns to stakeholders.

Another industry that lends itself to studying mature products is the electronics industry due to its fast-paced product life-cycles.  Even among prominent companies in this sector, market leadership never goes unchallenged.  One of the reasons why this is the case is the nature of electronic products, whose utility, compatibility and adaptability decline rapidly from the moment they are introduced in the market. Hence, the rapid technological advancement that is the life-blood of this industry also hampers the prospects of mature products. But this alone does not determine how a company will be able to satisfy its stakeholders – the methods adopted by the management also play a role. In particular, how managers handle different stages of the product life-cycle, in terms of marketing strategy, value add-ons, etc factor into the company’s profitability. For example,

“Managers are faced with different strategic goals in the course of the market cycle. In the first stage, when technology opens up a new product market, rapid growth must take precedence over profit if companies are to gain a leading market share. In the second stage, when the new product penetrates the market, the goal shifts from growth at any cost to a balance between growth and profit. The final stage entails maximizing profit in a mature market. Managers have to operate in different ways to attain each goal. Moreover, because they may need to switch goals suddenly, they must be able to adjust their operations swiftly.” (Nevens, Guiniven, & Paulsen, 1998)

Another instance of how a mature product market poses bottlenecks for profits is the commercial card business.  Bankers who entered this market in the last decade have not found revenues as quickly as they had hoped.  Though some segments of this market remain untapped, leading strategists to envision optimistic growth projections, those banking institutions that have ventured into this business have encountered “growing pains, technology snafus, even organizational confusion.” (Bloom, 2007) Lack of quality manpower to dispense and implement card systems is another handicap. Clients have also proven un-cooperative, as many of them don’t make full use of these systems. Bankers are coming to the understanding that the success they found with consumer cards, including credit cards, debit cards, etc cannot be equivalently replicated in the area of commercial cards.  Consumer cards as a product reached maturity a long time back and its dynamics are well understood by all sides in a transaction. The president of American Express, Edward P. Gilligan notes the difficulties in extending the success of a proven mature product to another domain:

“It’s a different world. It’s the difference between selling products, which you do on the consumer side, and selling solutions to companies. Companies are eager for the products, and most bankers say they got into the business in response to inquiries from corporate customers. But the road from paper-based to electronic purchasing and expense reporting can be bumpy. Many companies are unprepared for the changes in practices and procedures that such a move entails; many banks are caught off-guard by the support their clients need.” (Bloom, 2007)


In conclusion, it is fairly clear why companies operating in mature product markets don’t find it easy to satisfy all stakeholders. Despite numerous hurdles to outperforming in a mature product market, a business organization can adopt the following strategies to succeed.  Firstly, it can try to participate in a different part of the value stream so that it can reduce competitive pressure.  The company can deploy new technology in aiding innovation.  Looking for newer opportunities in newer geographies is also a sound idea – introducing mature products in emerging economies have historically proven very successful.  The company can also work on building its brand.  This strategy is especially relevant when distinction based on quality and price is no longer possible due to heavy competition and product maturity. (Moingeon & Lehmann-Ortega, 2006)

References

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