A declining markets is the last stage of market or product development, in which annual revenues are in steady decline due to some combination of market saturation, decline in size of the target market, and/or introduction of a replacement product or technology.

Is the natural process of the products/markets life cycle and should be properly managed to avoid killing a product before its time and maximize the benefits to the company.

Effects of declining markets

• Reduced or eliminated new sales.
• Decreasing margins: Lower volume means lower margin (Fixed Costs are covered with less units).

BreakEven Analysis

- BE Point:  UP*Volumen = FC + VC*Volume

- At this breakeven point, the product/service should does not create any aconomic benefit and should be offered.

Managing the Decline

Proper management of the decline should prepare for the BE event.

• Evaluate options to make variable all the cost (externalization)
• Evaluate options to reduce FC.
• Evaluate effects of change in pricing

Process

• Entrench: Focus on/Harvest main strongest products. Divest or Abandon the wekest products
• Divestment: Sale of a Going Concern.
• Abandonement: Deletion of product Line. If divestment is not an option and UP < UFC + VC
• Harvest: Maximize profits.

Alternative Path

Consolidation:  If company in strong financial position, can consolidate ie. in the short term can maximize market share, with the expectation of maximize profit once has captured a bigger market.

Entrench/Harvesting

It is a planned withdrawal while maximizing profit in the process. It starts with an abandonment of the weakest positions (products) to focus on the strongest products.

The firm makes only short-term investments to keep its position from deteriorating too rapidly. It avoids long-term investments, and uses  its competitive position as a cash cow for funding promising ventures in other markets.