What are four basic strategic approaches for competing in a 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.

HR PANI