Chapter 10
Strategies for Mature and Declining Markets
I. “Johnson Controls: Making Money in Mature Markets” discusses Johnson Controls Inc.’s
development and implementation of a four-pronged strategy for making money in mature
markets. This strategy allowed the firm to grow and expand into a global market while increasing
profits and revenues
II. Strategic Challenges Addressed in Chapter 10
A period of competitive turbulence almost always accompanies the transition from market
growth to maturity in an industry.
oThis period often begins after approximately half the potential customers have
adopted the product and the rate of sales growth starts to decline.
oAs the growth rate slows, many competitors tend to overestimate future sales volume
and consequently end up developing too much production capacity.
oCompetition becomes more intense as firms battle to increase sales volume to cover
their high fixed costs and maintain profitability.
oAs a result, such transition periods are commonly accompanied by a shakeout during
which weaker businesses fail, withdraw from the industry, or are acquired by other
firms.
The next section of this chapter examines some strategic traps that can threaten a firm’s
survival during industry shakeout.
A. Challenges in Mature Markets
Businesses that survive the shakeout face new challenges as market growth
stagnates.
oAs a market matures, total volume stabilizes; replacement purchases rather
than first-time buyers account for the vast majority of that volume.
Some firms tend to passively defend mature products while using the bulk of the
revenues produced by those items to develop and aggressively market new products
with more growth potential.
oThis can be shortsighted, however.
This chapter examines basic business strategies necessary for survival in mature
markets and marketing strategies used to extend a brand’s sales and profits.
B. Challenges in Declining Markets
Eventually, technological advances; changing customer demographics, tastes, or
lifestyles; and development of substitutes result in declining demand for most
product forms and brands.
oAs a product starts to decline, managers face the critical question of whether
to divest or liquidate the business.
An appropriate marketing strategy, however, can produce substantial sales and
profits even in a declining market.
oIf few exit barriers exist, an industry leader might attempt to increase market
share via aggressive pricing or promotion policies aimed at driving out
weaker competitors.
The last section of this chapter examines marketing strategies for gaining the
greatest possible returns from products approaching the end of their life cycle.
III. Shakeout: The Transition from Market Growth to Maturity
A. Characteristics of the Transition Period
The transition from market growth to maturity typically begins when the market is
still growing but rate of growth starts to decline.
Weaker members of the industry often fail or are acquired by larger competitors
during the shakeout stage.
B. Strategic Traps during the Transition
A business’s ability to survive the transition from market growth to maturity
depends to a great extent on whether it can avoid some common strategic traps.
Four such traps are:
oThe most obvious trap is simply the failure to recognize the events signaling
the beginning of the shakeout period.
oThe second strategic trap is for a business to get caught in the middle during
the transition period without a clear strategic advantage.
oThe third trap is the failure to recognize the declining importance of product
differentiation and the increasing importance of price or service.
oA firm should not put off responding to the more aggressive pricing or
marketing actions of its competitors because doing so may lead to the fourth
trap—giving up market share too easily in favor of short-run profit.
IV. Strategic Choices in Mature Markets
Success in mature markets requires two sets of strategic actions:
oThe development of a well-implemented business strategy to sustain a competitive
advantage, customer satisfaction, and loyalty
oFlexible and creative marketing programs geared to pursue growth or profit
opportunities as conditions change in specific product-markets
A. Strategies for Maintaining Competitive Advantage
An analyzer strategy is most appropriate for developed industries that are still
experiencing some technological change and may have opportunities for continued
growth.
The defender strategy works best in industries where basic technology is not
complex or is unlikely to change dramatically in the short run.
Both analyzers and defenders can attempt to sustain a competitive advantage in
established product markets through differentiation of their product offering—either
on the basis of superior quality or service or by maintaining a low-cost position.
Generally, it is difficult for a single business to pursue both low-cost and
differentiation strategies at the same time.
Improvements in quality—especially the reduction of product defects via improved
production and procurement processes—can reduce a product’s cost.
Pursuit of low-cost strategy does not mean that a business can ignore the delivery of
desirable benefits to the customer.
The critical strategic questions facing the marketing manager are:
oHow can a business continue to differentiate its offerings and justify a
premium price as its market matures and becomes more competitive?
oHow can businesses, particularly those pursuing low-cost strategies, continue
to reduce their costs and improve their efficiency as their markets mature?
B. Methods of Differentiation
At the most basic level, a business can attempt to differentiate its offering from
competitors’ by offering either superior product quality, superior service, or both.
oThe problem is that quality and service may be defined in a variety of ways by
customers.
Dimensions of Product Quality:
oFunctional performance
oDurability
oConformance to specifications, or the absence of defects
oVariety of features
oThe reliability quality dimension can refer to the consistency of performance
from purchase to purchase or to a product’s uptime, the percentage of time
that it can perform satisfactorily over its life.
oThe quality dimension of serviceability refers to a customer’s ability to obtain
prompt and competent service when the product breaks down.
oThe fit and finish dimension can help convince consumers that a product is of
high quality.
oThe quality reputation of the brand name, and the promotional activities
that sustain that reputation, can strongly influence consumers’ perceptions of
a product’s quality.
oA brand’s quality reputation together with psychological factors such as name
recognition and loyalty substantially determine a brand’s equity—the
perceived value customers associate with a brand name and its logo or
symbol.
Dimensions of Service Quality
oThe quality dimensions apply specifically to service businesses, but most of
them are also relevant for judging the service component of a product
offering.
oThis pertains to both the objective performance dimensions of the service
delivery system, such as its reliability, responsiveness, as well as to elements
of the performance of service personnel, such as their empathy and the level
of assurance.
Are the Dimensions the Same for Service Quality on the Internet?
oSome researchers have defined online service quality as the extent to which a
website facilitates efficient and effective shopping, purchasing, and delivery.
oThe researchers identified 11 dimensions of perceived e-service quality:
Access
Ease of navigation
Efficiency
Flexibility
Reliability
Personalization
Security/privacy
Responsiveness
Assurance/trust
Site aesthetics
Price knowledge
Improving Customer Perceptions of Service Quality
oThe major factors that determine a customer’s expectations and perceptions
concerning service quality—and five gaps that can lead to dissatisfaction with
service delivery—are:
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
C. Methods of Maintaining a Low-Cost Position
Some other means for obtaining a sustainable cost advantage besides include
producing a no-frills product, creating an innovative product design, finding
cheaper raw materials, automating or outsourcing production, developing low-cost
distribution channels, and reducing overhead.
A No-Frills Product
oA firm considering a no-frills strategy needs the resources to withstand a
possible price war.
Innovating Product Design
oA simplified product design and standardized component parts also can lead to
cost advantages.
Cheaper Raw Materials
oA firm with the foresight to acquire or the creativity to find a way to use
relatively cheap raw materials also can gain a sustainable cost advantage.
Innovative Production Processes
oAlthough low-cost defender business typically spend little on product R&D,
they often continue to devote substantial sums to process R&D.
Innovations in the production process, including the development of
automated or computer-controlled processes, can help them sustain cost
advantages over competitors.
oIn some labor-intensive industries, a business can achieve a cost advantage, at
least in the short term, by gaining access to inexpensive labor.
This is usually achieved by moving all or part of the production process
to countries with low wage rates.
Low-Cost Distribution
oWhen distribution accounts for a relatively high proportion of a product’s total
delivered cost, a firm might gain a substantial advantage by developing
lower-cost alternative channels.
Typically this involves eliminating, or shifting to the customer, some of
the functions performed by traditional channels in return for a lower
price.
Reductions in Overheads
oSuccessfully sustaining a low-cost strategy requires that the firm pare and
control its major overhead costs as quickly as possible as its industry matures.