Strategies for Mature and Declining Markets

Strategies for Mature and Declining Markets

Chapter 16

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

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Strategic Choices in Mature Markets

• It is not always easy to tell when a market has reached maturity.

• Variations in brands, marketing programs, and customer groups can mean that different brands and market segments reach maturity at different times.

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• As the maturity stage progresses, a variety of threats and opportunities can disrupt an industry’s stability:– Shifts in customer needs or preferences,– Product substitutes,– Increased raw material costs,– Changes in government regulations,– The entry of low-cost producers or– Mergers and acquisitions.

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• Success in mature markets requires two sets of strategic actions: – The development of a well-implemented

business strategy to sustain a competitive advantage, customer satisfaction, and loyalty;

– Flexible and creative marketing programs geared to pursue growth or profit opportunities as conditions change in specific product-markets.

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• Strategies for maintaining competitive advantage– Both analyzer and defender strategies may be

appropriate for units with a leading, or at least a profitable, share of one or more major segments in a mature industry.

– Analyzer: Appropriate for developed industries that are still experiencing some technological change and may have opportunities for continued growth.

– Defender: Works where the basic technology is not very complex or is unlikely to change dramatically.

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Analyzer StrategyThe analyzer strategy is a balanced strategy, it is neither as risky as the prospector strategy nor as conservative as the defender strategy. Analyzers will invest in research and development, though not as heavily as prospectors. They will usually allow other firms to test the waters with a new technology or market before entering it themselves. Firms using an analyzer strategy will often maintain a portfolio of businesses, each with varying degrees of risk, to balance firm risks.

Defender StrategyThe defender strategy is essentially the opposite of the prospector strategy. It is a low-risk strategy that involves selecting stable, mature markets and defending them. Firms using a defender strategy will tend to be less innovative than prospectors and will not invest a lot in research and development. Instead, firms using the defender strategy are more likely to exploit existing technology with only minor developments.

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• Both analyzers and defenders can attempt to sustain a competitive advantage in established product-markets: – Through differentiation of their product

offering or – By maintaining a low-cost position.

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The Process of Customer Value Management

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• Dimensions of product quality:– Performance– Durability– Conformance with specifications– Features– Reliability– Serviceability– Fit and finish– Brand name– Make

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• Dimensions of service quality– Tangibles– Reliability– Responsiveness– Assurance– Empathy

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• Are the dimensions the same for service quality on the Internet?– 11 dimensions of perceived e-service quality

are: access, ease of navigation, efficiency, flexibility, reliability, personalization, security/privacy, responsiveness, assurance/trust, site aesthetics, and price knowledge.

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• Five gaps that can lead to dissatisfaction with service delivery:– Gap between the customer’s expectations and the

marketer’s perceptions.– Gap between management perceptions and service

quality specifications.– Gap between service quality specifications and

service delivery.– Gap between service delivery and external

communications.– Gap between perceived service and expected

service.

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Determinants of Perceived Service Quality

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• Methods of maintaining a low-cost position:– A no-frills productA no-frills or no frills service or product is one for which the non-essential

features have been removed to keep the price low. The use of the term "frills" refers to a style of fabric decoration. Something offered to customers for no additional charge may be designated as a "frill" - for example, free drinks on airline journeys, or a radio installed in a rental car.[1] No-frills businesses operate on the principle that by removing luxurious additions, customers may be offered lower prices.[2]

– Innovative product design– Cheaper raw materials– Innovative production processes– Low-cost distribution– Reductions in overhead

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• Measuring customer satisfaction– Measures of customer satisfaction should

examine customers’ expectations and preferences concerning the various dimensions of product and service quality performance, and their perceptions concerning how well the firm is meeting those expectations.

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• Satisfaction measures need to be supplemented with examinations of customer behavior such as:– measures of the annual retention rate,– frequency of purchases, and– the percentage of a customer’s total

purchases captured by the firm.

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• Are all customers equally valuable?– The ability of firms to tailor different levels of

service and benefits to different customers based on each person’s potential to produce a profit has been facilitated by the growing popularity of the Internet.

– Increased stratification of consumer society.– Ethical and strategic questions.

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Marketing Strategies for Mature Markets

• Marketing strategies to maintain market share in growth markets:– Fortress defense– Flanker brands extension of an existing brand to create another product or

brand with increased market share. The new product may be a different size, flavor, or type but still falls within the same category of products. For example, Ocean Spray juice may create new fruit juice flavors as a flanker brand.

Niche strategy

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• Strategies for extending volume growth• Increased penetration strategy

– Discovering why nonusers are uninterested.– Developing and selling integrated systems

that help improve the basic product’s performance or ease of use.

– Offering services that improve its performance or ease of use for the potential customer.

– Expanding distribution or developing more convenient and accessible channels.

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• Extended use strategy– Increasing the amount of product used by the

average customer by increasing frequency of use or developing new and more varied ways to use the product.

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• Market expansion strategy– Strengthening a firm’s position in new or

underdeveloped domestic geographic markets can lead to experience-curve benefits and operating synergies.

– Smaller regional competitors might consider domestic geographic expansion.

– Firms may identify and develop entirely new customer or application segments.

– Domestic market expansion by producing private-label brands for large retailers.

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• Global market expansion—sequential strategies– For firms with leading positions in mature

domestic markets, less-developed markets in foreign countries often present the most viable opportunities for geographic expansion.

– The most common expansion route involves moving from Japan to developing countries to developed countries.

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Strategies for Declining Markets

• Three sets of factors help determine the strategic attractiveness of declining product markets:– Conditions of demand,– Exit barriers, and– Factors affecting the intensity of future

competitive rivalry.

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• Conditions of demand– Technological advances produce substitutes

often with higher quality or lower cost.– Demographic shifts.– Change in needs, tastes, or lifestyles.– Cost of inputs or complementary products.

• Exit barriers– The higher the exit barriers, the less

hospitable a product-market will be.

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• Intensity of future competitive rivalry– Size and bargaining power of the customers

who continue to buy the product,– Customers’ ability to switch to substitute

products or to alternative suppliers, and– Any potential diseconomies of scale involved

in capturing an increased share of the remaining volume.

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• Divestment or liquidation– The firm that divests early runs the risk that its

forecast of the industry’s future may be wrong.

– Quick divestment may not be possible if the firm faces high exit barriers.

– By planning early for departure, the firm may be able to reduce some of those barriers before the liquidation is necessary.

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• Marketing strategies for remaining competitors

• Harvesting strategy– The objective is to generate cash quickly by

maximizing cash flow over a relatively short term.

– This typically involves:• Avoiding any additional investment in the business,• Greatly reducing operating expenses, and• Raising prices.

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• Maintenance Strategy– The business continues to pursue the same

strategy that brought it success during the market’s mature stage.

– Often results in reduced margins and profits in the short term.

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• Profitable survivor strategy– Investing enough to increase share position

and establishing itself as the industry leader for the remainder of the market’s decline.

– The key to the success is to encourage other competitors to leave the market early.

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• Niche Strategy– May be viable if one or more substantial

segments will either remain as stable pockets of demand or decay slowly.

– Even smaller competitors can sometimes successfully pursue this strategy.

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Take-Aways

• Strategic choices in mature, or even declining, markets are by no means always bleak. Many of the world’s most profitable companies operate largely in such markets.

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Take-Aways

• A critical marketing objective for all competitors in a mature market is to maintain the loyalty of existing customers. To accomplish that goal, firms must pursue improvements in the perceived value those customers receive from their offerings—either by differentiating themselves on the basis of superior quality or service, by lowering costs and prices, or both.

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Take-Aways

• An important secondary objective for some firms, particularly share leaders, in mature markets is to stimulate further volume growth by taking actions to convert nonusers into users, to increase use frequency among current users, or to expand into untapped or under-developed markets.

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Take-Aways

• Declining markets can still offer attractive opportunities for sales revenues and profits. – Their attractiveness—and the appropriate

marketing strategy to follow—depends on, among other things, the pace and certainty of market decline, the presence of exit barriers, the firm’s competitive strengths, and the likely intensity of future competition.

Strategies for Mature and Declining Markets

Business

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