STUDYING PRODUCT-MARKET STRATEGIES OF GROWING BUSINESSES: A CASE STUDY APPROACH.
Richard N. Cardozo
Carlson School of Management
University of Minnesota
271 19th Ave So.
How do product-market strategies evolve over time in fledgling businesses? Are there any general patterns, common for ventures of various initial sizes, and in different industries? Three major hypotheses have been formulated. HI: New ventures would follow the "wave of growth" strategy, with introduction of new products occurring only after the first major product line reached the saturation point. H2: Since serving multiple demographic segments requires greater variation in marketing activity than does serving multiple geographic segments, ventures would first expand geographically, and then move to new demographic markets. H3: All new ventures would have some kind of product-market strategy from the outset, and would follow this strategy in subsequent years.
In-depth analysis of real life cases describing arowth and roduct-market strategies of 38 entrepreneurial ventures of different size, from different industries, and with different rates of growth. Across-cases pattern matching, and analysis of cases in several divergent ways (high versus low growth, young versus older ventures, manufacturing versus services, independent versus internal ventures) have be(--n. used. To classify changes in products/markets we used a matrix developed by us in previous research. The product changes have been placed on the continuum according to the intended functionality of the product from the user's perspective. On the market continuum two types of change have been traced: geographic and demographic changes. Growth measure was based on sales adjusted for inflation. We report both ratio of most recent year's sales to first year's sales, and sales change in dollar terms (most recent year-first year).
Hl: In majority of the observed cases new ventures did not follow the wave of growth strategy, and moved fast to the stage of simultaneously producing two major product lines. By the third year of the venture's existence most of the 38 had added a second major product line, which was based on the same or closely related technology as the first product line. More than 80% of the companies kept the initial product line among the three most important product lines. Eighteen of them derived 50% or more of the most recent year's sales from the same major product line which was introduced in year one. H2: The ventures did act according to our second hypothesis--younger firms tended to expand geographically, and older firms expanded into new demographic markets. H3: There seemed to be little evidence that ventures relied on any consistent product-market strategy. Ventures' actions have been rather a reaction to environmental changes, pressures from significant outside players, and reflected fast opportunistic reactions to unexpected events. Early diversification into multiple product-markets (.].id not seem to be a winning strategy for firms of any size or industry.
First, our findings suggest that the whole notion of product-market strategy may need to be reexamined. It is possible that instead of talking about "Strategy" we need to study initial product-market choices, and then analyze major contingencies that influence changes in product-market composition. Second, our analysis indicates that despite industry specificity there are certain general patterns of behavior of new ventures in the product-market domain. Third, if the changes in venture's products-markets are a result of a complex interplay of multiple contingencies, there is a need for systematic observation of product-market related decisions and actions. Surveys and retrospective case studies (of the type used by us in this project) do not provide sufficient information for making, inferences about relative importance of major contingency variables, and their impact on the new firm growth. Longitudinal observations of changes in product lines and customer/market compositions of a heterogeneous sample of new ventures are needed in order to develop a process model of product-market growth.
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