Stratigies for Declining Market
DECLINING MARKETS
Eventually, technological advances, changing customer demographics, tastes, or lifestyles, and development of substitutes result in declining demand for most product forms and brands. As a product starts to decline, managers face the critical question of whether to divest or liquidate the business. Unfortunately, firms sometimes support dying products too long at the expense of current profitability and the aggressive pursuit of future breadwinners.
An appropriate marketing strategy can, however, produce substantial sales and profits even in a declining market. If few exit barriers exist, an industry leader might attempt to increase market share via aggressive pricing or promotion policies aimed at driving out weaker competitors. Or it might try to consolidate the industry, as Johnson Controls has done in its automotive components businesses, by acquiring weaker brands and reducing overhead by eliminating both excess capacity and duplicate marketing programs. Alternatively, a firm might decide to harvest a mature product by maximizing cash flow and profit over the product’s remaining life. The last section of this chapter examines specific marketing strategies for gaining the greatest possible returns from products approaching the end of their life cycle.
Strategies for Declining Markets
Most products eventually enter a decline phase in their life cycles. As sales decline, excess capacity once again develops. As the remaining competitors fight to hold volume in the face of falling sales, industry profits erode. Consequently, conventional wisdom suggests that firms should either divest declining products quickly or harvest them to maximize short- term profits. Not all markets decline in the same way or at the same speed, however; nor do all firms have the same competitive strengths and weaknesses within those markets. Therefore, as in most other situations, the relative attractiveness of the declining product-market and the business’s
Eventually, technological advances, changing customer demographics, tastes, or lifestyles, and development of substitutes result in declining demand for most product forms and brands. As a product starts to decline, managers face the critical question of whether to divest or liquidate the business. Unfortunately, firms sometimes support dying products too long at the expense of current profitability and the aggressive pursuit of future breadwinners.
An appropriate marketing strategy can, however, produce substantial sales and profits even in a declining market. If few exit barriers exist, an industry leader might attempt to increase market share via aggressive pricing or promotion policies aimed at driving out weaker competitors. Or it might try to consolidate the industry, as Johnson Controls has done in its automotive components businesses, by acquiring weaker brands and reducing overhead by eliminating both excess capacity and duplicate marketing programs. Alternatively, a firm might decide to harvest a mature product by maximizing cash flow and profit over the product’s remaining life. The last section of this chapter examines specific marketing strategies for gaining the greatest possible returns from products approaching the end of their life cycle.
Strategies for Declining Markets
Most products eventually enter a decline phase in their life cycles. As sales decline, excess capacity once again develops. As the remaining competitors fight to hold volume in the face of falling sales, industry profits erode. Consequently, conventional wisdom suggests that firms should either divest declining products quickly or harvest them to maximize short- term profits. Not all markets decline in the same way or at the same speed, however; nor do all firms have the same competitive strengths and weaknesses within those markets. Therefore, as in most other situations, the relative attractiveness of the declining product-market and the business’s