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