Stagnant Industry

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New answer on Sep 01, 2020
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Anonymous A asked on Aug 21, 2020

If an industry is stagnant, do you focus more on costs or revenues to raise profits?

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Udayan
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replied on Aug 21, 2020
Top rated McKinsey Case & PEI coach/Multiple real offers/McKinsey EM in New York /6 years McKinsey recruiting experience

This question needs a lot more context. In general here are the rules for stagnant industries

  • If you are in a dying industry your best move always is to look for other avenues to grow - this can be related industries, or even completely new ones (for example cigarette companies buying all sorts of companies in other industries to diversify)
  • The other option is to innovate so that you have a product that is desirable and can charge a premium and get market share and grow that way. Ideally the innovation is good enough to encourage new users (if we stick with tobacco then an example can be vaping which has a percieved lower risk and many new growth avenues)
  • Assuming both aren't options you are basically riding the wave till the industry dies (one good example of this is the asbestos industry in India).
  • Typically dying industries do not have the options to increase prices (I assume that is what you meant by revenue) so it ends up being cost cutting. However this can vary depending on factors like how many competitors are there and how elastic the demand for your product is

Hope this helps,

Udayan

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Antonello
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replied on Sep 01, 2020
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Hi, it depends on the case. Data are crucial here to prioritize and take decisions. If you have a specific case in mind please share and we try to discuss it :)

Best,
Antonello

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Ian
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updated an answer on Aug 21, 2020
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This is not the right question! It's really not that simple.

Like in any case, you need to determine what is big, what is changing, and what can be changed.

So, is the industry overall seeing falling R or rising C? If so, what is the segmentation? And, within that segmentation what is big, what is changing, and what can we affect.

If we can't "fix" either of these, can we grow our way out of this in a new market? Classic BCG matrix...milk our Cash Cow in this stagnant market and find a Star. Or, if it's a Dog, get rid of it and find a Star.

Your question is literally solving an entire case. And for that, we need a lot of questions, a robust framework, and more charts/graphs/information provided!

Possible solutions (i.e. essentially everything):

  1. Lower prices
  2. Make product better (and raise prices)
  3. Create a new product that meets customer needs
  4. Buy up competition (and raise prices)
  5. Cut costs
  6. Enter a geography in this industry
  7. Enter a new industry in this geography
  8. Enter a new geography and a new industry
  9. Buy another company in a promising industry/geography
  10. Merge with competition
  11. +++++

(edited)

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Udayan gave the best answer

Udayan

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