STRATEGIES FOR MATURE AND DECLINING MARKETS · 1 MKTG402 Spring’14 Harmancioglu 1 STRATEGIES FOR...

1

MKTG402 Spring’14 Harmancioglu 1

STRATEGIES FOR MATURE AND

DECLINING MARKETS


Decline Stage of the Product Life Cycle

Time (years)

Pro

fit

pe

r u

nit

(r

ea

l d

oll

ars

)P

rod

uc

tc

ate

go

rys

ale

s(r

ea

ld

oll

ars

)

Introduction

Decline or

extension

MaturityCompetitive

turbulenceGrowth

Profit/unit

Sales

Life-cycle

extension

2


Decline Stage of the PLC

Summary of Characteristics, Objectives, & Strategies

SALES

COSTS

PROFITS

MKTG OBJECTIVES

Product

Price

Declining

Low cost per customer

Declining

Reduce expenditures and milk the brand

Phase out weak items

Cut price

Distribution Selective: phase out unprofitable outlets

Promotion Reduce to minimum level


Early Warnings of a Coming Decline

• Excess capacity

• Lack of technical change (stable product and process

technology)

• Declining number of competitors, but some entry as new firms

get assets “on sale.”

• High average age of resources.

• Aggressive price competition.

3


Factors Affecting the Attractiveness

of Declining Market Environments

• Conditions of demand & the predictability of decline

• Exit barriers

• Intensity of future competitive rivalry & the strategies of

surviving firms (dictates your actions in terms of divestiture or

acquisition)


Strategies for Declining Markets

• Harvest

– Maximize short-term cash flow

– Maintain or increase margins

• Maintenance

– Maintain market share for the short-term

• Profitable survivor

– Increase share of the declining market

– Dominate by encouraging others to leave

• Niche

– Strengthen share position in one or a few segments (Focused

domination)

4



• Harvest


• Maintenance




• Niche

– Strengthen share position in one or a few segments

• Leading share position

• Existing base of loyal customers

• Few strong competitors

• Future rivalry not intense

• Low exit barriers

• Decline likely to be slow & steady


• Harvest


• Maintenance




• Niche




• Future direction uncertain


5



• Harvest


• Maintenance




• Niche


• Slow and steady market decline

• Substantial pockets of demand will continue to exist


• Superior resources or competencies necessary to

encourage competitors to exit


• Low exit barriers



• Harvest


• Maintenance




• Niche


• Niches will remain in the market

• Strong competitors absent from the

target market

• Sustainable competitive advantage in

niche

6


COMPANY’S COMPETITIVE POSITION

Strengths in

remaining demand

pockets

Lacks strength in

remaining demand

pockets

Fa

vo

rab

leU

nfa

vo

rab

le


PROFITABLE

SURVIVOR

or

NICHE

HARVEST

or

DIVEST

NICHE

or

HARVEST

DIVEST

QUICKLY

IND

US

TR

Y E

NV

IRO

NM

EN

T•

Rate

of

Dec

lin

e

•P

oc

ke

ts o

f D

em

an

d

•P

ric

e P

res

su

re


Marketing Actions for Strategies

in Declining Markets• Harvest

– Eliminate R&D expenditures and capital investments

– Reduce marketing and sales budgets

– Reduce production costs

– Raise price if necessary to maintain margins

• Maintenance

– Design service programs

– Continue trade promotion

– Focus salesforce efforts

– Lower prices if necessary to maintain share

7


Marketing Actions for Strategies

in Declining Markets (continued)


– Signal competitors

– Introduce line extensions

– Lower prices if necessary to increase share

– Consider agreements to produce replacement parts

• Niche

– Continued product and process R&D

– Produce for private labels

– Focus advertising, sales promotion, etc

– Maintain distribution channels


Turn Customer Service Into Profitability

• How do you measure the value of your company?

The customers are the firm’s only source of revenue.

• Customer relationship management: to maximize the

firm’s value by acquiring, developing and retention of

most profitable customers.

• Three levels of contact with the customer:

acquisition, development and retention.

• Building the LV of customer assets involves leveraging

information to shift the focus of the marketing mix

strategies from a broad and short term perspective to a

selective and long term view.

– Ex. Discount cards to monitor preferences --

B&N if you purchase >$100, Preferred Reader

8


Customer Lifetime Value

• The customers who display a high degree of preference

for certain products form the most attractive acquisition

candidates.

• Most potential & profitable customers: they spend more,

attract other customers, less costly to deal with, less

sensitive to price

– if not potential, then they have to have preference for your

product or you can reposition it

– if not profitable, then they will consume marketing resources

without much return

A customer who in the past has purchased shirts from İpekyol may be a

good prospect for sweaters, and will receive a special targeted catalog

or email.

A bank teller suggests that a customer open a savings account if the

customer’s account balance is over $2000.


Customer Acquisition

• Customer acquisition begins with understanding the

company’s existing and potential customers in detail.

• The customers who display a high degree of preference for

certain products form the most attractive acquisition

candidates.

• On the other hand, customers that are likely to generate low

profits consume marketing resources without much return.

9


Customer Development

• The next challenge is to apply the correct marketing tools and levers to maximize individual relationships.

• Customer development starts with an assessment of the current value of franchise.

• The most attractive development candidates --- those that have the greatest potential to increase their purchasing level or shift their preference to higher margin products.

• A shift from a broad and short termed perspective to a selective and long term view.


Customer Retention

• Retention efforts should be focused on keeping the most

profitable customers.

• Customers that provide long-term profitability: A smaller

but faster growing set of customers who required higher

margin, value-added services

• Companies invest heavily on knowing those customers

and using that information to increase the value of each

relationship.

10


Customer Lifetime Value

• Depends on:

– The cost to acquire the customer.

– The annual profits the customer generates for the firm

(Revenue – Costs of serving the customer)

– The number of years the customer is likely to purchase from

the firm

CLV = m* L – AC

where m is the contribution margin generated from a customer in a year,

L is the expected purchasing life of a customer,

AC is the up-front cost of acquiring a customer.

The formula suggests that the most valuable customers:

• are less expensive to acquire,

• generate more profit to the firm in each period in which they

choose to be a customer, and

• choose to be customers for longer periods of time.


Important Metrics

• Churn rate (CR): the percentage of customers who end their

relationship with the company in a given period.

• Retention rate (RR): the percentage of customers who

continue their relationship with the firm in a given period.

RR = 1 – CR

• Survival probability (s): the probability that a customer has

relationship with a firm during a given period.

– modeled as decreasing over time.

𝑠1 = 1

𝑠2 = 𝑠1 * RR

𝑠2 = 𝑠3 * RR

…

𝑠𝑡 = 𝑅𝑅𝑡−1

11


Important Metrics

• Expected purchasing life (L): the number of periods that a

customer is expected to continue the relationship with the

firm.

where m and AC are as previously defined,

t represents the period ( month or year),

st is the probability that a customer maintains a relationship

with the firm in period t,

m * st is equivalent to the expected contribution margin

generated by the costumer in period t.

L = 1

𝐶𝑅 = 𝑅𝑅𝑡−1∞

𝑡=1

CLV = (𝑚 ∗ 𝑠 𝑡 )∞

𝑡=1 − 𝐴𝐶


Incorporating Time Value

Different market segments

CLV ( market segment) = CLV of an average customer *

# of customers in segment

Represents the discounted

expected contribution margin from

a customer in period t.

CLV = 𝑅𝑅∞

𝑡𝑡=1

𝑚∗ 𝑅𝑅𝑡−1

(1+𝑖)𝑡−1 − 𝐴𝐶

𝑚∗ 𝑅𝑅𝑡−1

(1 + 𝑖)𝑡−1

STRATEGIES FOR MATURE AND DECLINING MARKETS · 1 MKTG402 Spring’14 Harmancioglu 1 STRATEGIES FOR...

Documents

Transcript of STRATEGIES FOR MATURE AND DECLINING MARKETS · 1 MKTG402 Spring’14 Harmancioglu 1 STRATEGIES FOR...