Discuss the four basic strategic approaches for competing in declining market?

Answer 1

The range of strategies can be conveniently expressed in

terms of four basic approaches to competing in decline, which the firm

can pursue individually. These alternative declining strategies are.

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1. Leadership: The leadership strategy is directed at taking

advantage of a declining industry whose structure is such that the

remaining firms are above - average profitability and leadership is

feasible vis - a - vis competitors. The firm aims at being firms

remaining in the industry. Once this position is attained the firm

switches to a holding position or controlled harvest strategy, depending

on the subsequent pattern of industry sales. The premise underlying this

strategy is that by achieving leadership the firm is in a superior position

to hold position or harvest than it would be otherwise.

Tactical steps that can contribute to executing the leadership strategy

are the following:

a. Investing in aggressive competitive actions in pricing, marketing or

other areas designed to build market share and ensure rapid retirement

of capacity from the purchasing market share by acquiring competitors

or competitors product lines at prices above their opportunities for sale;

this has the effect of reducing competitors exit.

b. Purchasing and retiring competitors capacity, which again lowers exit

barriers for competitors and insures that their capacity is not sold within

the industry; a leading firm in the mechanical sensor industry repeatedly

offers to buy the assets of its weakest competitors for this reason.

2. Niche: The reason of this strategy is to identify a segment (or

demand pocket) of the declining industry that will not only maintain

stable demand or decay slowly but also has structural characteristics

allowing high returns. The firm then invests in building its position in

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this segment. It may find it desirable to take some of the actions listed

under the leadership strategy in order to reduce competitors' exit

barriers or reduce uncertainty concerning this segment. Ultimately the

firm may either switch to a harvest or divest strategy.

3. Harvest: In the harvest strategy, the firm seeks to optimize cash flow

from the business. It does this by eliminating or severely curtailing new

investment, cutting maintenance of facilities, and taking advantage of

whatever residual strengths the business has in order to raise prices or

reap benefits of past goodwill in continued sales, even though

advertising and research have been curtailed. Other common harvest

tactics include the following:

* Reducing the number of models.

* shrinking the number of channels employed;

* Eliminating small customers;

* Eroding service in terms of delivery time (inventory), speed of

repair, or sale assistance.

The harvest strategy presupposes some genuine past strengths on

which the firm can live, as well as an industry environment in the

decline phase that does not degenerate into bitter warfare. Without

some strengths, the firm's price increases, reduction in quality, cessation

of advertising, or other tactics, will be met with severely reduced sales.

If the industry structure leads to great volatility during the decline

phase, competitors will seize on the firm's lack of investment to grab

market share or bid down prices, thereby eliminating the advantages to

the firm of lowering expenses through harvesting. Also, some

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businesses are hard to harvest because there are few options for

incremental expense reduction; an extreme example is one in which the

plant will quickly fail to operate if not maintained.

4. Quick divestment: This strategy rests on the premise that the firm

can maximize its net investment recovery from the business by selling it

early in decline, rather than by harvesting and selling it later or by

following one of the other strategies. Selling the business early usually

maximizes the value the firm can realize from the sale of the business,

because the earlier the business is sold, the greater is the uncertainty

about whether demand will indeed subsequently decline and the more

likely other markets for the assets, like foreign countries, are not

glutted.

In some situations it may be desirable to divest the business before

decline, or in the maturity phase. Once decline is clear, buyers for the

assets inside and outside the industry will be in a stronger bargaining

position. On the other hand, selling early also entails the risk that the

firm's forecast of the future will prove incorrect.

Divesting quickly may force the firm to confront exit barriers like image

and interrelationships, although being early usually mitigates these

factors to some extent. The firm can use a private label strategy or sell

product lines to competitors to help ease some of these problems.

Tapasya Sharma

student of IMT