Demand in the industry is falling

Symptom: Demand in the industry is falling.

Implications for the market:

  • Falloff in demand is the primary cause of hostility in the market.

  • In a demand falloff, every supplier–even the best–will see a reduction in its margins and returns as volume falls for everyone.

    • As customers cut back their demand levels, they–at least initially–reduce purchases from all of their suppliers.

    • It takes some time for customers to shift purchases to take advantage of the better suppliers.

    • As a result, at least for a time, even the best companies will have overcapacity, and the reduction in margins and returns will be industrywide.

  • The best companies will often decide that it is less painful to reduce volume than to initiate discounts in order to hold volume steady for themselves as it declines for their peers. However, if hostility persists all competitors will eventually reduce prices.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Hostility in a Differentiated Market"
    A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.

  • "Overcapacity: Threat or Opportunity?"
    Overcapacity is a problem that occurs in service, as well as manufacturing industries. When it strikes, the problem affects most functions in a company, and astute managements in a wide range of industries have found common formulas to outperform competition in markets with overcapacity.

  • "Entering A Different Dimension"
    Understanding key differences between hostile and non-hostile markets can help leaders make the transition between the two.