Managers should be able to understand the meaning and nature of a maturing industry.
Knowledge about the maturing; industry would help them identify the fundamental changes that have occurred in the market environment.
Understanding the changes would facilitate them to adopt appropriate strategic options in the industry. Keeping this background in view, following issues concerning a maturing sector would be covered in this section:
- Meaning and nature of the maturing industry.
- Market maturity and fundamental changes in the maturing industry’s competitive environment.
- Strategy options in a maturing industry.
Meaning and Nature of Maturing Industry
An emerging industry sometimes grows rapidly, and at some point in time, it may reach a point where further growth slackens significantly.
When further growth is halted, it occurs due to saturation in the market demand for products produced by the firms in the industry. When an industry is in such a situation, it is called a maturing industry.
According to Thompson and Strickland, a maturing industry is an industry that is moving from rapid growth to significantly lower growth. It means that a maturing industry gradually moves down to slow growth.
According to their views, in a maturing industry, at least three issues become dominant:
- nearly all potential buyers are already users of the industry’s products;
- market demand consists mainly of replacement sales to existing users; and
- growth in the industry depends on the industry’s ability to attract new buyers and motivate existing buyers to increase their use of products.
Fundamental Changes in the Maturing Industry’s Competitive environment
Some fundamental changes occur in a maturing industry’s competitive environment due to market maturity. Michael Porter identified these changes as follows;
- Growth in buyer demand slows down. This generates head-to-head competition for market share.
- Buyers become more sophisticated. They start hard bargaining on repeat purchases.
- Competition produces a greater emphasis on cost and service. All competitors try to reduce costs and improve services to customers.
- The industry experiences a slowdown in capacity expansion because of slow growth.
- It becomes difficult for the producers to create new product innovations, and eventually, they may not be able to sustain buyer excitement.
- International competition increases because growth-minded companies try to find out ways to enter into foreign markets.
- Industry profitability falls temporarily or permanently. This happens due to slower growth, increased competition, and occasional periods of overcapacity.
- Competition becomes very stiff. As a result of this, competitors feel the urge to go for mergers or acquisitions rather than going for competition against each other. The resultant outcome is that the weak and inefficient firms are driven out of the industry.
What May be the Strategy Options in a Maturing Industry?
A firm operating in a maturing .industry needs to adopt appropriate strategic moves to survive in the industry. Before the firm explores possible strategic moves, it must understand the dynamics of the industry environment.
The maturing-industry dynamics include such elements as;
- head-to-head competition among the competitors,
- strong bargaining by customers on product prices and attributes,
- a need for the best combination of price and service,
- the problem in capacity expansion,
- a hard struggle for further product innovation,
- increased international competition,
- failing profitability, and
- industry consolidation due to merger and acquisition.
Keeping all these in view, a firm in a maturing industry may adopt any of the following strategic moves to strengthen its competitive position.
Pruning the product line
A firm hardly has a competitive advantage in all areas of activities and in everything. Thus, it is not a business-wisdom to continue with such products in which the firm does not enjoy a competitive advantage.
This necessitates pruning (eliminating) unprofitable or very-less profitable product-items from the product line. Pruning marginal products results in cost savings. It also allows management to give more concentration on profitable products.
Greater emphasis on value chain innovation
In the industry-value-chain, the major parties involved are suppliers, producers, and distributors, Tripartite collaboration among these parties can produce excellent business results.
To streamline the various value chain activities, they can collaborate on the use of internet technology. Their collaboration on the implementation of cost-saving innovations can also lead to improving market competitiveness.
Overall, streamlining the industry-value-chain can have a positive impact on costs, product and service quality, the capability to produce customized product versions, and the production cycle.
A firm may pursue a strategy of reducing costs in all activities of the firm. Driving down unit costs of products is an ‘absolute must’ in a maturing industry.
Costs- can be reduced, through procuring raw materials and components at a cheaper price, eliminating low-value activities from the firm’s value chain, reorganizing/reengineering business processes within the firm, dropping some of the intermediaries from the marketing channel, better supply chain management, using computerized systems instead of manual systems whenever feasible and the like.
Strengthening resources and capabilities
A mature market is full of stiffening competitive pressures. To combat these pressures, a firm needs to build new capabilities as well as strengthen its resource base.
The firm can do it by adding new competencies making the competencies harder to imitate (by rivals), and making the firm’s core competencies more adaptable to customers’ requirements.
Increasing sales to existing customers
in a mature market, it is difficult to increase the number of customers who are already customers of competing brands.
So, a strategy should be geared towards retaining the present customers and persuading them to increase their purchases. It is better for a firm to increase the average sales per existing customer than trying to ‘steal away’ customers of the competitors.
For example, a restaurant may increase its average sales to its customers by adding CD/VCD Comer, cyber cafe, mobile prepaid card counter, and even a book comer.
If available, a firm in a mature market can acquire weak firms (usually managerially poor) to expand market share. An acquisition may also provide a firm greater opportunities for greater economies of scale in production and marketing.
A successful firm may opt for entering into foreign markets if the domestic market matures. However, before deciding on going international, a firm must look for those international markets where there is a potential for growth in the future.