Chapter Fifteen

Strategies in Declining and

Hostile Markets
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Strategies in Declining and Hostile Markets PPT 15-1

 “Anyone can hold the helm when the
sea is calm.”
- Publilius Syrus
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Strategies in Declining and Hostile Markets PPT 15-2

 “Where there is no wind, row.”
- Portuguese proverb
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Strategies in Declining and Hostile Markets PPT 15-3

 “There is nothing so useless as
doing effectively that which
should not be done at all.”
- Peter Drucker
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Strategies in Declining and Hostile Markets PPT 15-4

 Routes to Revitalizing a
Stagnant Market
NewMarkets
New Markets

NewProducts
New Products

SuperPremium
Super PremiumArena
Arena

NewApplications
Applications Revitalized
New
Markets
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RevitalizedMarketing
Revitalized Marketing

Governmental-Stimulated
Governmental-Stimulated
Growth
Growth

Exploitationof
Exploitation of Growth
Growth
Submarkets
Submarkets
Strategies in Declining and Hostile Markets Figure 15.1 PPT 15-5
 Milk or Harvest

• Conditions Favoring a Milking Strategy

• Implementation Problems
• When the Premises are Wrong
• Forecasting and Managing the Flow of Funds from
Milking
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• The Hold Strategy

Strategies in Declining and Hostile Markets PPT 15-6

 Strategies for Declining or
Stagnant Industries

Business Position in Key Segments

Strong
Strong Weak
Weak

Invest or
Industry Environment

Favorable Milk or exit

hold
• Pockets of Demand
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• Rate of Decline

• Price Pressure

Unfavorable Milk or exit Exit

Strategies in Declining and Hostile Markets Figure 15.2 PPT 15-7

 The Investment Decision in a
Declining Industry

Some Strategic Uncertainties

• Market Prospects
1. Is the rate of decline orderly and predictable?
2. Are there pockets of enduring demand?
3. What are the reasons for the decline – is it temporary?
• Competitive Intensity
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4. Are there dominant competitors with unique skills or competencies?

5. Are there many competitors unwilling to exit or contract gracefully?
6. Are customers brand loyal? Is there product differentiation?
7. Are there price pressures?

Strategies in Declining and Hostile Markets Figure 15.3 PPT 15-8

 The Investment Decision in a
Declining Industry
Some Strategic Uncertainties
• Performance/Strengths
8. Is the business profitable? What are its future prospects?
9. What is the market-share position and trend?
10. Does the business have some SCAs with respect to key segments?
11. Can the business manage costs in the face of declining sales?

• Interrelationships with Other Businesses

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12. Is there synergy with other businesses?

13. Is the business compatible with the firm’s current strategic thrust?
14. Can the firm support the cash needs of the business?

• Implementation barriers
15. What are the exit barriers?
16. Can the organization manage all the investment options?
Strategies in Declining and Hostile Markets Figure 15.3 PPT 15-9
 Six Phases of Hostility

Phase 1 - Margin pressure

Phase 2 - Share shifts
Phase 3 - Product proliferation
Phase 4 - Self-defeating cost reduction
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Phase 5 - Consolidation and shakeout

Phase 6 - Rescue

Strategies in Declining and Hostile Markets Figure 15.4 PPT 15-10

 Strategies That Win in Hostile
Markets

• Focus on large customers

• Differentiate on reliability
• Cover broad spectrum of price points
• Turn price into a commodity
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• Have an effective cost structure

Strategies in Declining and Hostile Markets PPT 15-11

 Key Learnings
• One strategic option in a declining or stagnant industry is to create a growth
context, revitalizing the industry by seeking new markets, technologies,
applications-marketing tactics, government-stimulated demand, and growth
submarkets.

• Another option is to be the profitable survivor by strengthening a leadership

position and encouraging others to exist, perhaps by buying their assets.

• A milking or harvesting strategy (generating cash flow by reducing investment

and operation expenses) works when the involved business is not crucial to the
firm financially or synergistically. For milking to be feasible, though, sales must
decline in an orderly way.
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• The exit decision can be optimal, even though it is psychologically and

professionally painful and usually must face organizational barriers. A proactive
divestiture policy will be better than waiting until the situation deteriorates to the
point that the decision is obvious.

Strategies in Declining and Hostile Markets PPT 15-12

 Key Learnings
• The investment decision in declining markets should rely on an analysis of
market prospects, competitive intensity, business strengths, interrelationships
with other businesses in the firm, and implementation barriers.

• Hostile markets, caused by too many competitors as well as declining demand,

typically go through phases: margin pressures, share shifts, product
proliferation, self-defeating cost reductions, consolidation, and rescue.

• Two strategies to gain above-average returns in hostile markets are

represented by Golds (number one or two firms with economies of scale and
substantial presence) and Silvers (number three or lower firms that focus on a
smaller segment, usually at the high end of the market.
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Strategies in Declining and Hostile Markets PPT 15-13

 Ancillary Slides
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Strategies in Declining and Hostile Markets PPT 15-14

 “Nothing is more difficult, and
therefore more precious, than to be
able to decide.”
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- Napoleon Bonaparte

Strategies in Declining and Hostile Markets PPT 15-15

 “Once you learn to quit, it becomes habit.”
- Vince Lombardi
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Strategies in Declining and Hostile Markets PPT 15-16

 “Don’t let adverse facts stand in
the way of a good decision.”
- Colin Powell
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Strategies in Declining and Hostile Markets PPT 15-17