At some point in time, business students around the world will most likely be confronted with the famous product and industry life cycle. This tool is mainly used as a marketing instrument. It offers advertising and investment directions for each of the three to five stages of the cycle. Everything in this theory seems obvious and clear, until the “decline” stage of the cycle is reached. The question is, is there really only one option, namely to harvest and then divest, in the last phase of the life cycle? Is the decrease in revenues and profits inevitable?
The past shows that this is not necessarily the case. Some companies actually did generate profits and proved to be quite successful in a difficult market environment. Take for example the fountain pen maker Mont Blanc. The market for fountain pens has been declining for decades due to technological change (invention of typewriters and computers) and also consumer preferences. However, Mont Blanc has set up a selective shrinkage (“niche”) strategy by attracting high-income professionals and promoting their fountain pens as a luxury good. As a result, the company has achieved stable revenues and high margins within a declining industry (Grant 2010).
In the following, this paper will examine what a declining industry is, what characteristics a declining industry shows and what strategic options companies within such an industry environment have.
Table of Contents
1. Introduction
2. Declining industries: characteristics and reasons
3. Strategic options in a declining industry environment
3.1 Factors influencing the attractiveness of a declining industry
3.2 Strategic options for companies in declining industries
4. Trajectories of industry change
5. Summary and conclusion
Research Objectives and Core Themes
This paper examines the strategic landscape of declining industries, focusing on defining their characteristics, identifying key structural determinants of their attractiveness, and analyzing viable strategic options for firms to achieve success despite shrinking market demand.
- Industry life cycle theory and the specific challenges of the "decline" phase.
- Structural factors influencing industry attractiveness, including demand conditions and exit barriers.
- Generic strategic frameworks (Leadership, Niche, Harvest, Divest) for firms in declining sectors.
- Approaches to understanding industry change trajectories, specifically evaluating threats to core activities and core assets.
Excerpt from the Book
3.1 Factors influencing the attractiveness of a declining industry
According to Harrigan and Porter (1983), there are three major factors which determine environmental attractiveness: The conditions of demand, the height of exit barriers and the determinants of rivalry.
The conditions of demand are important to analyze, since those factors determine the way companies assume future demand and profitability prospects, which in turn determines the intensity and type of competition within that phase of the life cycle. If the decline of demand is highly volatile, that means not foreseeable and uncertain, firms cannot plan and reduce their capacities in an orderly manner. Price wars and high competition with the goal to keep the competitive position might be the result. An example therefore would be the price wars of the baby food industry after the “Baby Boomers” phase was over. Furthermore, the attractiveness of an industry depends on the existence and structure of so-called “demand pockets”. For profit perspectives it is essential that those niches exist and customers are relatively price insensitive, as costs per unit increase with shrinking unit sales. The premium-cigar industry took advantage from those facts and generates profit even though the market is diminishing. A favorable demand pocket is also marked by non-existing substitution products and little bargaining power of the customer (Harrigan and Porter 1983).
Summary of Chapters
1. Introduction: This chapter introduces the concept of the product life cycle and challenges the assumption that the decline phase necessarily leads to divestment by highlighting successful case studies.
2. Declining industries: characteristics and reasons: This section defines the industry life cycle stages and outlines the specific indicators of a declining industry, such as reduced innovation and capacity adjustment needs.
3. Strategic options in a declining industry environment: This chapter analyzes structural factors influencing industry attractiveness and provides a comprehensive framework for four generic strategies: Leadership, Niche, Harvest, and Divest.
4. Trajectories of industry change: This section introduces McGahan’s approach to identifying threats to core assets and core activities, categorizing change into four distinct trajectories.
5. Summary and conclusion: This final chapter synthesizes the frameworks presented and emphasizes the necessity for companies to conduct rigorous environmental and competitive analysis before implementing strategic measures.
Keywords
Declining industries, Industry life cycle, Strategic management, Market decline, Exit barriers, Demand pockets, Competitive strategy, Leadership strategy, Niche strategy, Harvest strategy, Divestment, McGahan, Harrigan and Porter, Industry change trajectory, Core assets
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on strategic management within industries that are experiencing a decline phase in their life cycle, challenging the notion that harvesting or divestment are the only viable options.
What are the core thematic pillars of the work?
The core themes include the structural analysis of industry attractiveness, the evaluation of firm-specific competitive strength, and the application of strategic frameworks to sustain profitability in shrinking markets.
What is the central research question addressed?
The paper asks whether the decline in revenues and profits in an industry is inevitable, and investigates which strategic options allow companies to maintain success during this phase.
Which scientific methods are employed?
The work utilizes a literature-based analysis of established strategic management theories, particularly those of Harrigan, Porter, and McGahan, supplemented by case study applications.
What topics are discussed in the main body?
The main body covers the theoretical definition of declining industries, the structural factors of environmental attractiveness (demand, exit barriers, rivalry), four generic strategic options, and industry change trajectories.
Which keywords best characterize the study?
Key terms include declining industries, industry life cycle, strategic management, market decline, and specific strategy types like niche or harvest strategies.
How does the "Leadership" strategy function in a declining environment?
A leadership strategy aims to gain a dominant market position by increasing investment and acquiring competitor assets, often viable when demand pockets are expected to endure.
What constitutes a "threat to core assets" according to McGahan?
A threat to core assets occurs when the durable resources, such as specialized knowledge or brand capital, that previously provided a competitive edge no longer provide an advantage due to industry change.
Why might managerial resistance be considered an "exit barrier"?
Managerial resistance acts as a soft-factor exit barrier because managers often develop emotional attachments to their business units, which can lead to irrational loyalty and delay necessary divestment decisions.
- Arbeit zitieren
- Markus Karmann (Autor:in), 2012, Strategic Options in a declining industry environment, München, GRIN Verlag, https://www.hausarbeiten.de/document/193113
