The growth stage is marked by a rapid climb in sales. Early adopters like the product, and additional consumers start buying it. New competitors enter, attracted by the opportunities. They introduce new product features and expand distribution.
Prices remain where they are or fall slightly, depending on how fast demand increases. Companies maintain their promotional expenditures at the same or at a slightly increased level to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits increase during this stage as promotion costs are spread over a larger volume and unit manufacturing costs fall faster than price declines owing to the producer learning effect. Firms have to watch for a change from an accelerating to a decelerating rate of growth in order to prepare new strategies.
During this stage, the firm uses several strategies to sustain rapid market growth:
* It improves product quality and adds new product features and improved styling.
* It adds new models and flanker products that is products of different sizes, flavors, and so forth that protect the main product.
* It enters new market segments.
* It increases its distribution coverage and enters new distribution channels.
* It shifts from product awareness advertising to product-preference advertising.
* It lowers prices to attract the next layer of price-sensitive buyers.
These market expansion strategies strengthen the firmâ€™s competitive position. Consider how Yahoo! has fueled growth.
Founded in 1994 by Web-surfing Stanford University grad students, Yahoo! has become the number-one place to be on the Web, averaging 120 million visitors in a month. The company grew into more than just a search engine; it became a portal, offering a full-blown package of information and services, from e-mail to online shopping malls. Yahoo!â€™s revenue, which exceeded$ 1.3 billion in 2003, come from a number of sources — banner ads, paid search, subscriptions for services such as personals, and a broadband partnership with SBC Communication. Yahooâ€™s $ 1.6 bill[ion acquisition of Overture Services, a key paid search competitor of Google, helped strengthen its claim as a one-stop shop for advertisers. Yahoo! also continued to grow globally with strong emphasis on Europe and Asia.
A firm in the growth stage faces a trade-off between high market share and high current profit. By spending money on product improvement, promotion, and distribution, it can capture a dominant position. It forgoes maximum current profit in the hope of making even greater profits in the next stage.