What’s it: The growth stage is the part of the business cycle in which the company begins to enjoy high sales volume growth. Consumer awareness has also increased, reducing the risk of rejection. They try to buy a new product and, when satisfied, are willing to recommend it to their friends or family members.
What are the characteristics of the growth stage and what are the implications for the company
The growth stage is the phase after the development stage. If the growth rate starts to slow down, the product will enter the mature stage and then go to the decline stage. Each stage has unique characteristics and requires a different marketing strategy.
Sales volume grew fast.
More and more new customers are aware of the product and buying it. Several factors support the company in achieving strong growth. First, consumer awareness has been increasing. That’s the risk of rejection getting less and less. And vice versa, the opportunity for consumers to try and buy new products is getting bigger.
Second, the customer base grows in size with a powerful network effect. Product recommendations among consumers increase the number of potential customers. That also reduces the cost of educating consumers.
Third, increased competition leads to lower prices. Of course, that spurred more demand.
Fourth, the customer becomes satisfied with the product. The product has become more and more perfect. They then buy it again and again—the happier the customer, the higher their repurchase.
Competitive pressures are increasing.
Several new players entered the market. They see the market is profitable, and demand is growing strong. The costs of entering the market are also getting lower as they do not have to create demand and build markets as consumer awareness increases.
New players are flooding the market with more new versions. It creates increased competition in the market, pushing prices down as supply increases. Also, consumers have more choices because more variety of products is present in the market.
Not only that. The presence of new players also encourages an increase in the supply of better quality products. Players compete not only on the price to attract demand, but quality as well. They are aware that some consumers are price-conscious, while others are quality conscious. They then spur research and development to produce a more innovative version.
Production costs are reduced due to economies of scale. High sales allow the company to operate on a larger scale and make optimum use of its current capacity. Firms can spread fixed costs over a more massive output. That ultimately results in lower unit costs.
Also, the cost of educating consumers is slowly decreasing. Companies don’t have to spend a lot of money to educate consumers and build markets. Marketing’s focus is to differentiate the company’s offerings from those of competitors, rather than to create new demand.
Profitability started to increase.
The company started to enjoy better profits. Sales volume grew stronger, allowing them to make more money. At the same time, cost growth has also been slower with the benefits of economies of scale, network effects, and savings in marketing costs.
The company began to build a market position.
At this stage, the company must spend large amounts of cash. They invest in building a strong position in the market before entering the mature phase. They must increase the market share of the product and create brand preference among customers.
Some of the possible options for establishing a market position are:
- Adding features to products. That, not only to capture more demand but also to encourage loyalty.
- Lowering the price. Lower prices should increase sales volume.
- Improving distribution channels. The company will try to expand its marketing reach to increase sales.
- Targeting promotions at a wider audience. The more exposed individuals, the bigger the potential customers of the company.
For options number 1 and 2, it depends on the company’s strategy and target market. Option 1 makes more sense when the company adopts a differentiation strategy. The company will charge a premium price by offering a unique product. This uniqueness makes consumers willing to pay a higher price.
But, if the company’s strategy is cost leadership, option number 1 makes more sense. Firms lower prices to stimulate sales volume. The company does not have to set the lowest price. Pricing just below the industry average may be sufficient to stimulate demand. Under this strategy, they rely on larger sales volumes and lower production costs to achieve profitability targets.