Conditions of Demand Framework
Demand decline
The process by which demand declines and the characteristics of the market segments that remain have a major influence on competition in the decline phase. The framework considers the degree of uncertainty perceived by competitors about whether demand will continue to decline, the rate and pattern of decline, and the structure of remaining demand pockets.
- The degree of uncertainty perceived by competitors about demand decline affects competition
- The rate and pattern of decline influence the volatility of the industry
- The structure of remaining demand pockets determines the profitability of the remaining competitors
- Assess the degree of uncertaintyDetermine the level of uncertainty perceived by competitors about demand declinePro tipConsider the industry's history and trendsWarningUncertainty can lead to bitter warfare among competitors
- Analyze the rate and pattern of declineExamine the rate at which demand is declining and the pattern of declinePro tipConsider the impact of short-run factors on the analysisWarningA slow decline can be masked by short-run factors
- Evaluate the structure of remaining demand pocketsAssess the characteristics of the remaining market segmentsPro tipConsider the prospects for profitability in each segmentWarningSome segments may be more favorable than others
The rayon industry experienced a decline in demand due to the rise of synthetic fibers. The industry's uncertainty about future demand led to bitter warfare among competitors.
The acetylene industry declined due to the rise of ethylene as a substitute. The industry's certainty about future decline led to an orderly withdrawal of capacity.
The framework is based on the concept that demand decline can lead to increased competition and decreased profitability. By understanding the conditions of demand, businesses can make informed decisions about their strategy in a declining industry.