University of California
Type of paper: Thesis/Dissertation Chapter
Satisfying All Stakeholders Is Difficult When the Business Is Competing in Mature Product Markets
A stakeholder is defined as ‘an independent party with an interest or concern in something’. Stakeholder groups are not all alike and therefore will want different things from a business. As each stakeholder deals with the business in different ways these needs are likely to conflict. With all of these differing needs it will be difficult for the business to satisfy all stakeholders at the same time as it is likely that acting to satisfy one stakeholder’s needs will end up conflicting with another’s meaning that the second stakeholder will not be satisfied.
Examples of stakeholders include the shareholders, employees, suppliers and customers of a business. The Product Life Cycle is a theory used by management to understand where one of its products is in terms of its eventual life expectancy. It involves identifying if the product is in one of four phases: the introduction, growth, mature or decline stage. By identifying which stage of the cycle a product is in management can change its strategies to realise the potential success of a product.
It is however, often difficult for management to see where the product is in the cycle as a rise or fall in sales most of the time will not necessarily mean that a product is growing or beginning to decline. It is also very hard, if not impossible, to accurately predict when the product will go into the next part of its life cycle. A business will find it very hard to tell when a market will reach saturation and will only know it while it is happening or in, some cases, after it has happened.
While using the product life cycle model it is assumed that all products have a limit to how long they will be used, in practise this may not be the case. The mature stage of the product life cycle is when a product market has finished growing, sales start to slow down and there is no more significant growth. At some point the market will reach saturation at which point the product enters the decline stage. Sales will start to decline slowly and eventually product will become obsolete and not sold anymore. When a product market reaches the mature stage it will usually mean various things.
As the mature stage of a product is when there are the most sales it usually means that the costs of producing each product are at the lowest as a result of economies of scale. This means that there is potentially more profit to be made per product if the price stays the same. However, often this is not the case as when a market reaches maturity more competitors emerge. As a result of this a business is likely to decrease the price of its product, eating into the profit margin per product sold, so that customers are more likely to buy its product.
By selling more products the business will gain a healthy market share. Market share is what is mostly sought after by a business in a mature market. With little growth to expand into in the market a business must aim to gain the biggest slice of the market as possible to increase profit. The stakeholder that is likely to be one of the most important to a business is the owner or shareholders. They have a say in how the business is run and if they do not feel that the business is doing well will remove their investment and the business will lose finance.
Shareholders will want two main things: increase in the size of the business and a good dividend. Therefore it is of great importance that the business keeps the shareholders happy. To do this the business must at the very least turn a profit. This will make the investing shareholder see that their investment is being put to some use. However if the business really wants to make the shareholder feel satisfied it must make a large profit. In a mature market this means that it must have a large share of the market.
To do this it must differentiate its product to make its product more attractive to buy than a competitors model. The customer must have an incentive to buy this product over another one such as a lower price or differentiate the product in other ways such as highlighting the products supposed better quality or more impressive features. Differentiating the product can, however, have an effect on the profit taken per sale. Obviously by lowering the price of a product there will be less profit margin as the cost to the business of producing the item will remain the same.
Also if the business decides to increase the quality or add extra features the cost of manufacturing the product will increase. While these may eat into the profit margin per product, if the business has marketed correctly and increased market share in the mature market by increasing sales the overall profit of the business may have increased. Management would hope that this would be the case given that this was the whole aim of the product differentiation in the first place. However by actually achieving an increase in the size of the business the shareholder would be satisfied with their investment.
Added to this a good dividend could be given out because of the increased profits and the shareholders should be pleased. However another stakeholder that the business will want to satisfy is the customer. As the customer is the way the business will make a profit, by selling to them, it is very important that the business satisfies the needs of the customer and make them want to buy its products. The customer will want a good quality product at a preferably low price at which he feels that he is getting good value for money.
In a mature market generally a consumer will get the best value for money with all of the competing businesses producing a large amount of alternative products and vying for market share. As such in a mature market a customer is likely to be most happy. The customer has conflicting needs with the shareholder in that the customer wants a low price whereas the shareholder wants a high profit. As these needs conflict a median must be found where both stakeholders feel that they are getting a good deal.
While it may be tempting to favour one group, it is in the interest of the business to find a point where both sides feel happy because if one side feels unhappy the business will either lose the support and investment of the stakeholders or the custom and income from the customer and this will lead to a loss in market share. This is the same as all of the stakeholders. As all of the stakeholders will want different things from the business and some of them will completely contradict each other it must deal with them as best they can and try to find a solution where all stakeholders are satisfied.
Keeping all stakeholders satisfied is critical to keeping the business going strongly and losing the faith of one of them could lead to dire consequences and none of the stakeholders being satisfied. For example if, in a bid to cut the cost to the business of producing the product so the shareholders could be given a bigger dividend out of a larger gross profit, the business told the supplier of raw materials that make the product that it must cut its price the supplier would not be happy.
This could lead to the supplier refusing to sell the raw materials to the business and this would mean that until an agreement was made or a substitute supplier could be found the business could not produce anything to sell. This would lead to the customer not being able to buy the product that it desires and going to a competitor and the business losing potential profit which would upset the shareholders.
In some situations the same groups of stakeholders may not ven have the same sets of ideas of what they want from a business making it even harder for the business to keep everyone satisfied. For example, in the group of shareholders a young businessman who has shares in a company is likely to prefer the profit made to be invested back into the business to expand and increase potential future earnings and increase the share price as opposed to a large dividend as he has less need for the money now and has long term plans for the shares.
However an older retired man is more likely to prefer a large dividend to be taken out of the profit so that he can have the money now. In conclusion, it is difficult for a business to satisfy all stakeholders at any time regardless of what stage of its cycle the product is in. The demands of a each stakeholders are different and likely to contradict each other. However, in a mature market where there is fierce competition there is tension between the arguably the business’ two biggest stakeholder: the shareholders and customers.
While the customers want a quality, low priced product, shareholders require a good profit be made. The business must satisfy the customer to compete in the market but also the shareholders to have the backing it needs to carry on functioning. Sometimes even groups of shareholders are fragmented which makes it even harder but it is critical for the business to find a point where all shareholders are content as this is when the business runs the smoothest.