"Life is like riding a bicycle. To keep your balance, you must keep moving." This famous quote by Albert Einstein is especially relevant when considering the growth of a business in a stagnant or declining market.
In a growing market, companies can increase sales with little effort, thanks to the natural rise in demand. But in a shrinking or stagnant market, growth depends on capturing market share from competitors. Naturally, competition intensifies, and maintaining a steady sales volume requires considerable effort. Furthermore, in a declining market, maintaining sales levels automatically translates into an increased market share. Here, we explore effective strategic approaches for business development in stagnant or declining markets.
WHY MARKETS DECLINE OR STAGNATE
A market can decline or stagnate mainly for two primary reasons, each with unique implications for business strategy:
- Economic and financial crisis. In such times, market decline is accelerated, and changes happen rapidly, although they are temporary. Once the crisis passes, the market returns with a reconfiguration of players: some gain market share, others lose it or are forced out. Generally, sales decline due to reduced purchasing power and a decrease in consumer confidence.
- Technological and consumer behavior changes. Rapid technological advancements and evolving consumer preferences can reshape markets. New technologies or products may lead to the emergence of new sectors, while more gradual shifts in consumer behavior can create long-term changes, often unnoticed initially.
In a stagnant market without drivers for growth, strengthening positions through operational or tactical improvements alone is challenging. Strategic changes are essential.
STRATEGIC OPTIONS FOR A DECLINING OR STAGNANT MARKET
Developing and implementing a well-designed strategy can help companies thrive in even the most challenging market conditions. Here are the top strategic options for business growth in stagnant or declining markets:
- Focus on promising market segments. Even in a shrinking market, certain segments may still experience growth. A dynamic company that targets these segments can maintain or even increase its market share.
- Enhance product quality and renew offerings. This option can "revive" demand, encouraging customers to buy more frequently. Product differentiation helps avoid price cuts and provides a competitive advantage that is hard for rivals to replicate.
- Reduce costs through innovative methods. Process optimization, automation, outsourcing, strategic partnerships, and portfolio streamlining can deliver significant competitive advantages. The goal is to achieve lower costs, enabling price cuts without impacting profitability.
- Focus on key success factors. In a declining market, resources should be directed toward critical business functions to secure a competitive edge. Once success is assured in these areas, profits can be reinvested to improve other essential functions.
- Diversify the business. If the market downturn appears to be long-term, diversification can create new growth opportunities. However, this decision should be carefully analyzed to avoid risks that could undermine the main business.
- Increase market share by eliminating weaker competitors. Competing with a weakened rival can lead to increased market share. This strategy, however, requires caution to avoid price conflicts and resource-draining price wars.
These options are not mutually exclusive and can be combined based on the firm’s strategic goals: maintaining positions, expanding the business, or minimizing losses.
AVOIDING COMMON MISTAKES IN DECLINING OR STAGNANT MARKETS
Businesses often make avoidable errors in stagnant or declining markets. Here’s how to avoid them:
- Avoiding reckless cost-cutting. While it may be tempting to cut costs drastically during a downturn, reducing marketing investments can erode brand presence and result in lost market share. Analyzing the effectiveness of each marketing channel and emphasizing clear customer benefits can help maintain competitiveness without overspending.
- Avoiding price reductions without strategy. Although price cuts can drive quick sales, they often damage profitability and brand perception. Strategic price reductions should be carefully planned, ensuring that the company’s cost structure supports such decisions.
- Avoiding unjustified diversification. Diversifying without proper analysis can strain resources and jeopardize the primary business. Diversification should only be pursued when the company is strong in its core market, has sufficient resources, and a clear plan for new market entry. More about business diversification here.
- Avoiding misguided brand extensions. Extending a well-established brand into new categories can dilute its core identity and weaken its market position. Assessing the long-term impact on brand image before expanding into new product categories can help protect the brand’s strength and relevance.
CONCLUSION: ADAPTING YOUR BUSINESS STRATEGY FOR GROWTH IN CHALLENGING MARKETS
The right business strategy can turn market challenges into opportunities. By staying agile and strategically focusing on promising market segments, product innovation, operational efficiency, and key success factors, businesses can grow sustainably even in stagnant or declining markets. Analyzing each market shift with a clear strategic focus can give any company the tools to not only survive but thrive.