Marketing Strategies Decline Stage

The sales of most product forms and brands eventually decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All of these factors lead ultimately to overcapacity, increased price cutting, and profit erosion. As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budget and reduce their prices further.

In a study of company strategies in declining industries, Harrigan identified five possible decline strategies:

1. Increasing the firm's investment (to dominate the market or strengthen its competitive position);

2. Maintaining the firm's investment level until the uncertainties about the industry are resolved;

3. Decreasing the firm's investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm's investment in lucrative niches;

4. Harvesting ("milking") the firm's investment to recover cash quickly; and

5. Divesting the business quickly by disposing of its assets as advantageously as possible.28

The appropriate decline strategy depends on the industry's relative attractiveness and the company's competitive strength in that industry. Procter & Gamble has, on a number of occasions, successfully restaged disappointing brands that were competing in strong markets. One example is its "not oily" hand cream called Wondra, which came packaged in an inverted bottle so the cream would flow out from the bottom. Although initial sales were high, repeat purchases were disappointing. Consumers complained that the bottom got sticky and that "not oily" suggested it would not work well. P&G carried out two restagings for this product: First, it reintro-duced Wondra in an upright bottle, and later, it reformulated the ingredients so they would work better. Sales then picked up.

If the company were choosing between harvesting and divesting, its strategies would be quite different. Harvesting calls for gradually reducing a product's or busi-ness's costs while trying to maintain its sales. The first costs to cut are R&D costs and plant and equipment investment. The company might also reduce product quality, sales force size, marginal services, and advertising expenditures. It would try to cut these costs without letting customers, competitors, and employees know what is happening. Harvesting is an ethically ambivalent strategy, and it is also difficult to execute. Yet harvesting can substantially increase the company's current cash flow.29

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Responses

  • amaranth
    How to increase sales in decline stage?
    1 year ago

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