Many companies operate in industries where demand is growing more slowly than the average for the economy or is completely negative. Winding down the business in order to obtain as much cash as possible, selling assets and preparing for the closure of the enterprise is a logical solution for weak companies with unclear long-term prospects. However, strong competitors can work productively even in a stagnant market. The stagnant state of demand is not a reason to consider the industry unattractive for investment. The sale of assets in a number of situations is advisable, and the curtailment of business and the cessation of activities can be considered as a last resort.
Companies in industries at a stage of stagnation or recession should set goals that correspond to the capabilities of the industry. In particular, indicators such as cash flow or return on investment, rather than sales volume or market share growth, which characterize the company’s activities in an emerging industry, play a priority role. Powerful companies are able to take market share away from weaker competitors, and the takeover of the latter or their withdrawal from the market allows the remaining companies to increase their market shares.
As a rule, companies in order to achieve success in industries at the stage of stagnation or recession choose one of the following competitive strategies [15 pp.268–269]:
A focused strategy to conquer the most promising segments of the industry. Stagnant or declining markets, like all others, consist of many segments and market niches. Often, one or more segments show high growth rates, despite the fact that the industry as a whole is in a downturn. An energetic company operating in such a segment and succeeding in meeting its needs can avoid falling sales and profits and even gain a competitive advantage. For example, Ben & Jerry’s and Haagen-Daw achieved success by focusing on the growing luxury and premium ice cream segment, although the ice cream market as a whole was in decline. The volume of sales and profits from the sale of expensive varieties of ice cream in supermarkets and specialized stores is much higher than in other market segments; Clear differentiation of goods due to improvement of its quality and updating. A significant improvement in quality and the supply of new product modifications can revive demand, create new fast-growing market segments or stimulate buyers to increase purchases. The development of new successful modifications of the product eliminates the need to focus on prices set by competitors. In addition, the strategy of differentiation in quality is good because it is difficult for competitors to reproduce it. Sony has built a solid business selling high-quality TVs in an industry that has been in low demand in all developed countries over the past few decades; Reducing costs, gaining industry leadership in terms of costs. Companies in stagnant or downturn industries can improve ROI and profitability by applying innovative cost-cutting techniques: eliminating redundant and inefficient links from a company’s value chain; outsourcing of functions and activities that are cheaper when performed by independent companies; restructuring of internal business processes based on electronic technologies that drastically reduce costs; consolidation of underutilized production facilities; Increase distribution channels to increase the volume of implementation that provides economies of scale; closure of high-cost outlets with small sales volumes; refusal to produce unpopular goods. For example, Nucor Steel has proven to be one of the most successful steel companies in the U.S. thanks to innovative technology and the creation of a culture of low-cost production.
These strategies are not mutually exclusive. Innovative versions of the product can create a fast-growing market segment. Increasing the efficiency of production allows you to reduce prices and thereby form a segment of price-sensitive consumers. It should be noted that all three of these strategies are variations of standard competitive strategies, adapted to the conditions of industries at the stage of stagnation or recession. More attractive than others are those stagnant industries in which sales volumes are declining relatively slowly and smoothly, there is a significant demand potential and profitable niches.
Common strategic mistakes that companies make in industries during a stagnation or downturn can be the following:
being drawn into a senseless price war to destroy a competitor; withdrawal of too much money from the business in a short period of time (which negatively affects the overall efficiency of the company); excessive optimism and unjustifiably high spending on various improvements in the hope of an early improvement.