Post on 22-Apr-2018
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MKTG402 Spring’14 Harmancioglu 1
STRATEGIES FOR MATURE AND
DECLINING MARKETS
MKTG402 Spring’14 Harmancioglu 2
Decline Stage of the Product Life Cycle
Time (years)
Pro
fit
pe
r u
nit
(r
ea
l d
oll
ars
)P
rod
uc
tc
ate
go
rys
ale
s(r
ea
ld
oll
ars
)
Introduction
Decline or
extension
MaturityCompetitive
turbulenceGrowth
Profit/unit
Sales
Life-cycle
extension
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Decline Stage of the PLC
Summary of Characteristics, Objectives, & Strategies
SALES
COSTS
PROFITS
MKTG OBJECTIVES
Product
Price
Declining
Low cost per customer
Declining
Reduce expenditures and milk the brand
Phase out weak items
Cut price
Distribution Selective: phase out unprofitable outlets
Promotion Reduce to minimum level
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Early Warnings of a Coming Decline
• Excess capacity
• Lack of technical change (stable product and process
technology)
• Declining number of competitors, but some entry as new firms
get assets “on sale.”
• High average age of resources.
• Aggressive price competition.
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Factors Affecting the Attractiveness
of Declining Market Environments
• Conditions of demand & the predictability of decline
• Exit barriers
• Intensity of future competitive rivalry & the strategies of
surviving firms (dictates your actions in terms of divestiture or
acquisition)
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Strategies for Declining Markets
• Harvest
– Maximize short-term cash flow
– Maintain or increase margins
• Maintenance
– Maintain market share for the short-term
• Profitable survivor
– Increase share of the declining market
– Dominate by encouraging others to leave
• Niche
– Strengthen share position in one or a few segments (Focused
domination)
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Strategies for Declining Markets
• Harvest
– Maximize short-term cash flow
• Maintenance
– Maintain market share for the short-term
• Profitable survivor
– Increase share of the declining market
• Niche
– Strengthen share position in one or a few segments
• Leading share position
• Existing base of loyal customers
• Few strong competitors
• Future rivalry not intense
• Low exit barriers
• Decline likely to be slow & steady
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• Harvest
– Maximize short-term cash flow
• Maintenance
– Maintain market share for the short-term
• Profitable survivor
– Increase share of the declining market
• Niche
– Strengthen share position in one or a few segments
Strategies for Declining Markets
• Leading share position
• Future direction uncertain
• Few strong competitors
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Strategies for Declining Markets
• Harvest
– Maximize short-term cash flow
• Maintenance
– Maintain market share for the short-term
• Profitable survivor
– Increase share of the declining market
• Niche
– Strengthen share position in one or a few segments
• Slow and steady market decline
• Substantial pockets of demand will continue to exist
• Leading share position
• Superior resources or competencies necessary to
encourage competitors to exit
• Few strong competitors
• Low exit barriers
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Strategies for Declining Markets
• Harvest
– Maximize short-term cash flow
• Maintenance
– Maintain market share for the short-term
• Profitable survivor
– Increase share of the declining market
• Niche
– Strengthen share position in one or a few segments
• Niches will remain in the market
• Strong competitors absent from the
target market
• Sustainable competitive advantage in
niche
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COMPANY’S COMPETITIVE POSITION
Strengths in
remaining demand
pockets
Lacks strength in
remaining demand
pockets
Fa
vo
rab
leU
nfa
vo
rab
le
Strategies for Declining Markets
PROFITABLE
SURVIVOR
or
NICHE
HARVEST
or
DIVEST
NICHE
or
HARVEST
DIVEST
QUICKLY
IND
US
TR
Y E
NV
IRO
NM
EN
T•
Rate
of
Dec
lin
e
•P
oc
ke
ts o
f D
em
an
d
•P
ric
e P
res
su
re
MKTG402 Spring’14 Harmancioglu 12
Marketing Actions for Strategies
in Declining Markets• Harvest
– Eliminate R&D expenditures and capital investments
– Reduce marketing and sales budgets
– Reduce production costs
– Raise price if necessary to maintain margins
• Maintenance
– Design service programs
– Continue trade promotion
– Focus salesforce efforts
– Lower prices if necessary to maintain share
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Marketing Actions for Strategies
in Declining Markets (continued)
• Profitable survivor
– Signal competitors
– Introduce line extensions
– Lower prices if necessary to increase share
– Consider agreements to produce replacement parts
• Niche
– Continued product and process R&D
– Produce for private labels
– Focus advertising, sales promotion, etc
– Maintain distribution channels
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Turn Customer Service Into Profitability
• How do you measure the value of your company?
The customers are the firm’s only source of revenue.
• Customer relationship management: to maximize the
firm’s value by acquiring, developing and retention of
most profitable customers.
• Three levels of contact with the customer:
acquisition, development and retention.
• Building the LV of customer assets involves leveraging
information to shift the focus of the marketing mix
strategies from a broad and short term perspective to a
selective and long term view.
– Ex. Discount cards to monitor preferences --
B&N if you purchase >$100, Preferred Reader
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Customer Lifetime Value
• The customers who display a high degree of preference
for certain products form the most attractive acquisition
candidates.
• Most potential & profitable customers: they spend more,
attract other customers, less costly to deal with, less
sensitive to price
– if not potential, then they have to have preference for your
product or you can reposition it
– if not profitable, then they will consume marketing resources
without much return
A customer who in the past has purchased shirts from İpekyol may be a
good prospect for sweaters, and will receive a special targeted catalog
or email.
A bank teller suggests that a customer open a savings account if the
customer’s account balance is over $2000.
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Customer Acquisition
• Customer acquisition begins with understanding the
company’s existing and potential customers in detail.
• The customers who display a high degree of preference for
certain products form the most attractive acquisition
candidates.
• On the other hand, customers that are likely to generate low
profits consume marketing resources without much return.
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MKTG402 Spring’14 Harmancioglu 17
Customer Development
• The next challenge is to apply the correct marketing tools and levers to maximize individual relationships.
• Customer development starts with an assessment of the current value of franchise.
• The most attractive development candidates --- those that have the greatest potential to increase their purchasing level or shift their preference to higher margin products.
• A shift from a broad and short termed perspective to a selective and long term view.
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Customer Retention
• Retention efforts should be focused on keeping the most
profitable customers.
• Customers that provide long-term profitability: A smaller
but faster growing set of customers who required higher
margin, value-added services
• Companies invest heavily on knowing those customers
and using that information to increase the value of each
relationship.
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Customer Lifetime Value
• Depends on:
– The cost to acquire the customer.
– The annual profits the customer generates for the firm
(Revenue – Costs of serving the customer)
– The number of years the customer is likely to purchase from
the firm
CLV = m* L – AC
where m is the contribution margin generated from a customer in a year,
L is the expected purchasing life of a customer,
AC is the up-front cost of acquiring a customer.
The formula suggests that the most valuable customers:
• are less expensive to acquire,
• generate more profit to the firm in each period in which they
choose to be a customer, and
• choose to be customers for longer periods of time.
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Important Metrics
• Churn rate (CR): the percentage of customers who end their
relationship with the company in a given period.
• Retention rate (RR): the percentage of customers who
continue their relationship with the firm in a given period.
RR = 1 – CR
• Survival probability (s): the probability that a customer has
relationship with a firm during a given period.
– modeled as decreasing over time.
𝑠1 = 1
𝑠2 = 𝑠1 * RR
𝑠2 = 𝑠3 * RR
…
𝑠𝑡 = 𝑅𝑅𝑡−1
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Important Metrics
• Expected purchasing life (L): the number of periods that a
customer is expected to continue the relationship with the
firm.
where m and AC are as previously defined,
t represents the period ( month or year),
st is the probability that a customer maintains a relationship
with the firm in period t,
m * st is equivalent to the expected contribution margin
generated by the costumer in period t.
L = 1
𝐶𝑅 = 𝑅𝑅𝑡−1∞
𝑡=1
CLV = (𝑚 ∗ 𝑠 𝑡 )∞
𝑡=1 − 𝐴𝐶
MKTG402 Spring’14 Harmancioglu 22
Incorporating Time Value
Different market segments
CLV ( market segment) = CLV of an average customer *
# of customers in segment
Represents the discounted
expected contribution margin from
a customer in period t.
CLV = 𝑅𝑅∞
𝑡𝑡=1
𝑚∗ 𝑅𝑅𝑡−1
(1+𝑖)𝑡−1 − 𝐴𝐶
𝑚∗ 𝑅𝑅𝑡−1
(1 + 𝑖)𝑡−1