Strategies in Declining Product Markets free essay sample

There are many reasons why a market goes into decline, such as new technologies, changing customer characteristics or preferences, and the development of substitute products. (Cant Machado; 273) Promac Paints have successfully established itself in the building and painting market and have grown tremendously within a ten-year period. The launching of a revolutionary and inexpensive coating may possibly pose as a substantial threat to Promac Paints’ strong position in the market and may move Promac Paints into the declining stage of its product life cycle. Because of this, Promac Paints will have to consider the relative attractiveness of the market and decide on which strategies to follow in this possible declining phase. Before an organisation considers whether to divest or liquidate, it is important to analyse a market for its relative attractiveness, since not all markets decline at the same rate or in the same manner. (Cant Machado; 273) 2. Determining the Relative Attractiveness of the Declining Market 2. We will write a custom essay sample on Strategies in Declining Product Markets or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 1. Factors Affecting the Relative Attractiveness of a Declining Market Promac Paints should consider three factors to help establish the attractiveness of a declining market: †¢ Conditions of Demand This entails establishing the rate of decline which will determine whether there can be orderly withdrawal, or if quick and drastic action is needed. (Cant Machado; 273) †¢ Exit barriers that affect the attractiveness of an industry Higher exit barriers will make the painting industry less attractive during the declining phase. †¢ The intensity of future competitive rivalry If the remaining competitive rivalry will be intense, it may not be worthwhile to remain in the market. 2. 2. Relative attractiveness of the Declining market for Promac Paints With the introduction of a new revolutionary and inexpensive paint, quick action might be necessary due to the technological innovation. Promac paints however do have a large base of loyal customers which may help them generate profits to help prolong their survival. In essence, paint is not seen as having a specialised nature, but promac paints have managed to specialise their product offering and easily understandable packaging. Promac paints’ customers have grown accustomed to knowing what product to choose by just looking at the colour band on the product. The exit barriers will be high for companies whose main focus and source of income is their paint products. Therefore it will definitely be a good idea for Promac to remain in business as long as possible. Businesses, like Builders warehouse, that do not focus on paint products as much and whose long-term survival is not as directly dependent on this will most probably not be as interested in remaining in the market and rather focus time and money on supplying more of their other products. Therefore the intensity of competitive rivalry may be a bit lower than previously. This can mean that it may be worth it for Promac Paints to remain in the market. 3. Strategies in the Decline Phase 3. 1. Possible Strategies that can be implemented †¢ Divest or liquidate If the market is highly unattractive, an organisation may choose to quit the industry by selling off its interests or liquidating them altogether. In making up its mind quickly, it may be able to sell off to other competitors who may still want to remain in the industry, and thus be able to recover some of its investment. Cant Machado: 275) †¢ A hold or maintenance strategy An organisation decides to maintain the investment levels by maintaining product quality, production or consumer loyalty. (Cant Machado: 275) †¢ A harvesting strategy An organisation will maximise the cash flow over the short term by reducing the investment and costs. It will try to manage its products and profitability while the volumes decline. (Cant Machado: 275) †¢ A niche strategy Here an organisation may identify one or more submarkets that are both sizeable and show some volume stability. Cant Machado: 275) †¢ Be a profitable survivor If the market characteristics are still relatively attractive, then an organisation may choose an aggressive strategy of trying to attain or maintain a leadership position. (Cant Machado: 276) 3. 2. Strategies Promac Paints Can Consider During the Decline Phase Because Promac Paints has a well established client base, it will be a good idea to consider remaining in the market in one or another way. Promac Paints should therefore focus on maintaining its favourable position in its current market. They can investigate the option of improving their current products to be able to compete with the new technology in some way and to invest in product innovation to see if there are possibilities of improving or matching this new technology. This should be done cost effectively to also be able to offer products at an affordable price to consumers. Depending on the feasibility of product innovation, Promac Paints can either choose to be a profitable survivor or to follow a niche strategy. The reason for this is that some customer do not accept new products as easily and may want to continue using the products they are accustomed to and know works well for them. If Promac Paints succeed in improving the new technology in some way, it will also be a good idea to continue offering the old product to this niche market and current customer base to give them time to grow accustomed to and to try out the new product. 4. Conclusion: Why Promac Paints can be a Profitable survivor in the Paint Industry By being the follower with the new technology, Promac Paints will have lower risks and can save costs by rather than having to educate customers on the benefits of this new and improved technology, inform them of the added advantages their product offering can offer them. Also, because Promac Paints focus on supplying quality products that satisfy the perceived value for money criterion demanded by the customer base, the impact of the price of the new inexpensive paint may be lowered to some extent. Promac can therefore continue to communicate the value of using their products, whether improved or not, instead of this new paint. Promac Paints have managed to become a respected and favoured paint provider in different market segments and have established itself firmly in the paint industry. With excellent profit margins and a large and loyal client base, Promac Paints are in the position to retain a profitable part of its market even with the introduction of a revolutionary and affordable paint. It will however in the long run be vital for Promac Paints to offer a paint similar or better than the current new paint. If not, the remaining client base will start shrinking to the extent that being in business may no longer be profitable.