Page 315 - DMGT408DMGT203_Marketing Management

Marketing Management/Essentials of Marketing

Notes Self Assessment

Fill in the Blanks:
13. A …………………… strategy could be very favourable when a small sub-segment is less
attractive to larger firms.

14. …………………… strategy focuses on acquiring new customers in these underdeveloped
or new segments.

13.6 Strategic Options for Declining Markets

Most product-markets enter a decline phase in their life cycle, but not all markets decline at the
same time. Excess capacity is a burden and competitors fight to hold volume. They differ in their
levels of strengths and weaknesses. Here again the basic dimensions of product-market
attractiveness and competitive strengths hold good and determine the suitable strategy choice.
According to Kathryn R. Harrington, attractiveness of declining markets depends on a set of
three factors: (1) conditions of demand including the rate and reliability of forecasted future
decrease in volume, (2) exit barriers (ease with which weaker competitors can leave the market),
and (3) rivalry and intensity of future competition within the market.
Demand conditions have a significant effect on strategy choice. Demand decline occurs due to
several reasons, such as technological advances create substitute products, demographic shifts
can lead to shrinking markets, changes in customer needs, preferences, and lifestyles, and high
rise in the cost of consumables or complementary products.
The reasons of demand decline influence both the speed and predictability of that decline. For
example, demographic shifts are likely to cause gradual decline in demand, but a shift due to
technologically superior alternative can be very fast. Obviously, it is easy to predict a switch to
superior substitute, while it is difficult to predict a change in customer tastes.

A slow and gradual decline gives enough time to weaker businesses to withdraw from the
market. For those who stay, overcapacity is not a problem and cut-throat competitive actions
are less likely to obtain profits, but not so if the decline is quick and erratic. In case the decline
is predictable and certain, it is easy to withdraw conveniently and overcapacity does not become
a problem. But if the uncertainty is high about whether the demand might decline, or increase,
overcapacity may lead to predatory competitive actions.
Exit barriers are the second important factor that influences strategy choice. If the exit barriers are
high, it is less favourable for a competitor to exit the product-market. Weaker businesses find it
difficult to leave a product-market as demand falls, excess capacity builds, and competitors
engage in aggressive price cuts and even promotional efforts in attempting to increase their
volume and keep their units costs low. This leads to volatile competitive behaviour of firms.

Rivalry and intensity of future competition is the third factor to consider in making a strategic choice.
In a declining market, there may still be some pockets with significant demand but it may be
unwise to pursue them in the face of future intense competitive rivalry. Other factors, such as
bargaining power of customers and their ease of switching to substitutes, and diseconomies of
scale may not be favourable to get involved in intense price competition.
Decision to Divest

During the product-market decline stage, a firm finds the situation unattractive and it has a
relatively weak competitive position. The business sees an opportunity of recovering a major
portion of its investment by selling its business in the early stages of product-market decline

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