STRATEGIES FOR MATURE AND DECLINING MARKETS · 1 MKTG902 Summer’10 Harmancioglu 1 STRATEGIES FOR...

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MKTG902 Summer’10 Harmancioglu 1

STRATEGIES FOR MATURE AND

DECLINING MARKETS

Transition From Market Growth to Maturity to Decline

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Life-cycle

The Transition or Shake out Stage of the Generalized PLC

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Time (years)

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Introduction

Decline or extension

MaturityCompetitive turbulenceGrowth

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Transition From Market Growth to Maturity to Decline

The Maturity Stage of the Generalized Product Life Cycle

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Introduction



Common Strategic Traps During a Shakeout Period

• Failure to anticipate transition from growth to maturitymaturity

• No clear competitive advantage as growth slows• Assumption that an early advantage will insulate

firm from price or service competition


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Maturity Stage of the PLCSummary of Characteristics, Objectives, & Strategies

SALES Peak

COSTS

PROFITS

MKTG OBJECTIVES

Product

Low cost per customer

High

Maximize profits while defending market share

Diversify brand and models


Price Match or best competitors

Distribution Build more intensive distribution

Promotion Increase to encourage brand switching

Industry Maturity…

• …does not imply a lack of opportunity; nor does imply an absence of technological change.

• But… tends to reduce the # of opportunities for CA and shift these limited opportunities from differentiation-based to cost-based factors.


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Examples

• In Turkey…

• In Europe…


• Globally…

Key Success Factors in Mature Markets

• Opportunities for sustainable -- limited potential for differentiationcompetitive advantage are -- technology stable and well diffusedlimited -- ease of entry due to well developed industry

infrastructure and powerful distributorsinfrastructure and powerful distributors-- international competition: domestic cost

advantage vulnerable

• Sources of -- Economies of scalecost advantage -- Low-cost inputs

-- Low overheads

• Segment and customer -- As general industry environment deteriorates, selection important to locate attractive segments and


selection important to locate attractive segments and woo good customers

• Sources of differentiation -- Emphasis on image differentiation and advantagedifferentiation through complementary services.

• Sources of innovation -- Limited opportunity for product andprocess innovation but considerableopportunity for strategic innovation

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Innovation over the PLC

Product Innovationion

Strategic Innovation

Process InnovationRat

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Time

Sources of Strategic Innovation in Mature Industries

• Reconfiguring the value chain:Benetton and Zara in clothing– Benetton and Zara in clothing

– Southwest & Ryanair in airlines– Dell in PCs

• Redefining markets and products– Swatch in watches– Starbucks in coffee shops


– Barnes & Noble in book retailing

• Innovative approaches to differentiation– Virgin Atlantic in air travel– Sephora in cosmetics retailing

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Strategic Innovators• Who are they?

– New entrants• CNN in news broadcastingCNN in news broadcasting

– Existing firms on the periphery• Vans in clothing & shoes

– Firms from adjacent industries • Apple in consumer electronics

• Why not leading incumbents?Th t i d b “i d t i ”


– They are constrained by “industry recipes,” relationships with existing customers, investments in resources & capabilities linked to past strategies.

Strategies for Mature Markets

• For maintaining current market share:Fortress defense– Fortress defense

– Add flanker brands– Pursue niche strategy

• For extending volume growth– Increased penetration

• Convert current nonusers in target segment into users


– Extended use• Increase frequency of use among current users

– Market expansion• Develop differentiated positioning focused on

untapped or underdeveloped segments

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Marketing Actions for Accomplishing Growth Extension Objectives

• Increase penetration– Convert non-users (you really need an electric fryer)– Steal competitor’s customers (Shell gas is better)

• Extend usage– Increase repeat purchase (don’t wait until it dies)– Demonstrate new product applications (it dices too)– Lead market evolution (oval, crust-less pizza)

• Expand market focusReview segmentation scheme (after school activities)


– Review segmentation scheme (after-school activities)– Consider underserved segments (retirees)

Decline Stage of the Product Life Cycle

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Introduction



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Decline Stage of the PLCSummary of Characteristics, Objectives, & Strategies

SALES Declining

COSTS

PROFITS

MKTG OBJECTIVES

Product

Low cost per customer

Declining

Reduce expenditures and milk the brand

Phase out weak items


Product

Price

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)process technology)• Declining number of competitors, but some entry as

new firms get assets “on sale.”• High average age of resources.• Aggressive price competition.


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Adjusting Capacity

• The ease with which capacity can be adjusted to declining demand depends upon:declining demand depends upon:– The predictability of decline.– Barriers to exit:

• Asset specificity• Exit costs (severance, broken contracts, etc.)• Managerial commitment (emotional/moral reasons)

– Strategies of surviving firms (dictates your actions in


Strategies of surviving firms (dictates your actions in terms of divestiture or acquisition)

Factors Affecting the Attractiveness of Declining Market Environments

• Conditions of demandConditions of demand• Exit barriers• Intensity of future competitive rivalry


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Strategies for Declining Markets

• Harvest– Maximize short-term cash flow

• Maintenance– Maintain market share for the short-term

• Profitable survivor– Increase share of the declining market

• 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


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• Leading share position• Future direction uncertain• Few strong competitors








• Slow and steady market decline• Substantial pockets of demand will

continue to exist• Leading share position• Superior resources or competencies

necessary to encourage competitors to exit• Few strong competitors• Low exit barriers

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• Niches will remain in the market• Strong competitors absent from the

target market• Sustainable competitive advantage in

niche

COMPANY’S COMPETITIVE POSITION

Strengths in Lacks strength in


remaining demandpockets

remaining demand pockets

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Marketing Actions for Strategies in Declining Markets

• Harvest– Eliminate R&D expenditures and capital

investmentsinvestments– Reduce marketing and sales budgets– Reduce production costs– Raise price if necessary to maintain margins

• Maintenance – Design service programs

Continue trade promotion


– Continue trade promotion– Focus salesforce efforts– Lower prices if necessary to maintain share

Marketing Actions for Strategies in Declining Markets (continued)

• Profitable survivor– 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

STRATEGIES FOR MATURE AND DECLINING MARKETS · 1 MKTG902 Summer’10 Harmancioglu 1 STRATEGIES FOR...

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