Chapter 16 Strategies for Mature and Declining Markets

Chapter 16 Strategies for Mature and Declining Markets Mc. Graw-Hill/Irwin Copyright © 2010 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

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. 16 -2

Strategic Choices in Mature Markets • 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. 16 -3

Strategic Choices in Mature Markets • 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 productmarkets. 16 -4

Strategic Choices in Mature Markets • 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. 16 -5

Strategic Choices in Mature Markets • 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. 16 -6

The Process of Customer Value Management 16 -7

Strategic Choices in Mature Markets • Dimensions of product quality: – Performance – Durability – Conformance with specifications – Features – Reliability – Serviceability – Fit and finish – Brand name – Make 16 -8

Strategic Choices in Mature Markets • Dimensions of service quality – Tangibles – Reliability – Responsiveness – Assurance – Empathy 16 -9

Strategic Choices in Mature Markets • 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. 16 -10

Strategic Choices in Mature Markets • 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. 16 -11

Determinants of Perceived Service Quality 16 -12

Strategic Choices in Mature Markets • Methods of maintaining a low-cost position: – A no-frills product – Innovative product design – Cheaper raw materials – Innovative production processes – Low-cost distribution – Reductions in overhead 16 -13

Strategic Choices in Mature Markets • 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. 16 -14

Strategic Choices in Mature Markets • 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. 16 -15

Strategic Choices in Mature Markets • 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. 16 -16

Marketing Strategies for Mature Markets • Marketing strategies to maintain market share in growth markets: – Fortress defense – Flanker brands – Niche strategy 16 -17

Marketing Strategies for Mature Markets • 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. 16 -18

Marketing Strategies for Mature Markets • 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. 16 -19

Marketing Strategies for Mature Markets • 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. 16 -20

Marketing Strategies for Mature Markets • 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. 16 -21

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. 16 -22

Strategies for Declining Markets • 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. 16 -23

Strategies for Declining Markets • 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. 16 -24

Strategies for Declining Markets • 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. 16 -25

Strategies for Declining Markets • 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. 16 -26

Strategies for Declining Markets • 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. 16 -27

Strategies for Declining Markets • 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. 16 -28

Strategies for Declining Markets • 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. 16 -29

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. 16 -30

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. 16 -31

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. 16 -32

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. 16 -33