Ch15 Deciling Nd Hostile Mrkt

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Strategies in Declining and Hostile Markets PPT 15-1

Strategies in Declining and Hostile Markets

Chapter Fifteen

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“Anyone can hold the helm when the sea is calm.”

- Publilius Syrus

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“Where there is no wind, row.” - Portuguese proverb

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“There is nothing so useless as doing effectively that which should not be done at all.”

- Peter Drucker

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Routes to Revitalizing a Stagnant Market

New MarketsNew Markets

Revitalized MarketingRevitalized Marketing

Super Premium ArenaSuper Premium Arena

New ProductsNew Products

Governmental-Stimulated Growth

Governmental-Stimulated Growth

Exploitation of Growth Submarkets

Exploitation of Growth Submarkets

Figure 15.1

New ApplicationsNew Applications Revitalized Markets

Revitalized Markets

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Milk or Harvest

• Conditions Favoring a Milking Strategy

• Implementation Problems

• When the Premises are Wrong

• Forecasting and Managing the Flow of Funds from Milking

• The Hold Strategy

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Strategies for Declining or Stagnant Industries

Favorable

Unfavorable

StrongStrong WeakWeak

Invest orhold

Milk or exit

ExitMilk or exit

Business Position in Key Segments

Ind

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En

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• R

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Dec

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• P

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Dem

and

• P

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Pre

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Figure 15.2

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The Investment Decision in a Declining Industry

Some Strategic Uncertainties• Market Prospects

1. Is the rate of decline orderly and predictable?

2. Are there pockets of enduring demand?

3. What are the reasons for the decline – is it temporary?

• Competitive Intensity

4. Are there dominant competitors with unique skills or competencies?

5. Are there many competitors unwilling to exit or contract gracefully?

6. Are customers brand loyal? Is there product differentiation?

7. Are there price pressures?

Figure 15.3

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The Investment Decision in a Declining Industry

Figure 15.3

Some Strategic Uncertainties• Performance/Strengths

8. Is the business profitable? What are its future prospects?9. What is the market-share position and trend?

10. Does the business have some SCAs with respect to key segments?11. Can the business manage costs in the face of declining sales?

• Interrelationships with Other Businesses12. Is there synergy with other businesses?13. Is the business compatible with the firm’s current strategic thrust?14. Can the firm support the cash needs of the business?

• Implementation barriers15. What are the exit barriers?16. Can the organization manage all the investment options?

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Six Phases of Hostility

Phase 1 - Margin pressure

Phase 2 - Share shifts

Phase 3 - Product proliferation

Phase 4 - Self-defeating cost reduction

Phase 5 - Consolidation and shakeout

Phase 6 - Rescue

Figure 15.4

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Strategies That Win in Hostile Markets

• Focus on large customers

• Differentiate on reliability

• Cover broad spectrum of price points

• Turn price into a commodity

• Have an effective cost structure

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Key Learnings

• One strategic option in a declining or stagnant industry is to create a growth context, revitalizing the industry by seeking new markets, technologies, applications-marketing tactics, government-stimulated demand, and growth submarkets.

• Another option is to be the profitable survivor by strengthening a leadership position and encouraging others to exist, perhaps by buying their assets.

• A milking or harvesting strategy (generating cash flow by reducing investment and operation expenses) works when the involved business is not crucial to the firm financially or synergistically. For milking to be feasible, though, sales must decline in an orderly way.

• The exit decision can be optimal, even though it is psychologically and professionally painful and usually must face organizational barriers. A proactive divestiture policy will be better than waiting until the situation deteriorates to the point that the decision is obvious.

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Key Learnings

• The investment decision in declining markets should rely on an analysis of market prospects, competitive intensity, business strengths, interrelationships with other businesses in the firm, and implementation barriers.

• Hostile markets, caused by too many competitors as well as declining demand, typically go through phases: margin pressures, share shifts, product proliferation, self-defeating cost reductions, consolidation, and rescue.

• Two strategies to gain above-average returns in hostile markets are represented by Golds (number one or two firms with economies of scale and substantial presence) and Silvers (number three or lower firms that focus on a smaller segment, usually at the high end of the market.

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“Nothing is more difficult, and therefore more precious, than to be

able to decide.”

- Napoleon Bonaparte

Ch15 Deciling Nd Hostile Mrkt

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