2.02 – How You Should Respond to a Flat or Shrinking Market
Responding to a Flat or Shrinking Market
When faced with a flat or declining market, consider implementing these strategic adjustments:
Reduce Retail Stores and Major Investments
Minimize losses by scaling back on physical locations and other significant expenditures.
Expand Online Sales
Move your sales online to reach a broader market. Investing in e-commerce infrastructure can quickly and effectively expand your reach. Ensure you have efficient order fulfillment and shipping processes to maintain profit margins.
Eliminate Low-Margin Products From Physical Stores
Move these products to online sales only. This reduces waste from unsold inventory while maintaining a wide product range for customers. Major retailers like Walmart and Target successfully use this strategy to maximize revenue per square foot and lower overhead costs.
Explore New Sales Channels
Identify other places to sell your products, such as new distributors, intermediaries, online platforms, and collaborators. Consider renegotiating terms with existing partners to increase your margins. This benefits them by maintaining your business relationship and reducing the need to find new clients.
Focusing on growth markets helps you grow sales and profit potential simultaneously. Slow-growth and no-growth markets are highly competitive, often forcing price cuts that damage profit margins. Smart marketers strategically focus on growth markets and monitor growth rates to stay alert to slowdowns that may signal a need to shift strategies.
Reinventing Your Business
Proactively reinventing your business is critical to maintaining profitability and sustainability. Never assume you can coast on past successes. Continuous innovation and adaptation are essential for long-term growth.
Add Services to Support Your Products
Identify services that appeal to your customer base or specific segments to create new revenue streams. For example:
Utility companies offer subscription-based services like home delivery of air filters, surge protection for appliances, and more, increasing customer lifetime value and revenue.
Software companies use licensing or SaaS (software as a service) models to ensure a steady revenue flow instead of relying on one-time sales. This approach typically results in higher long-term revenue.
Assess Geographic Targets
Evaluate the economic health and growth potential of your target areas. If your current market isn’t growing, look for nearby markets with stronger population growth and economic prospects. Consider the workforce’s skills and cost in these areas. For example, Utah has become a hub for high-tech and software companies due to its highly educated workforce and lower cost of living compared to Silicon Valley, allowing companies to operate more profitably without sacrificing quality.
By staying proactive and adaptable, you can navigate flat or shrinking markets and continue to grow your business. Implementing these strategies ensures you remain competitive and poised for long-term success.
