Avoiding Strategic Traps When the Market is Transiting from Growth to Maturity

Fisher, Gaur, and Kleinberger (68) posit that, in the last five years, successful U.S retailers decided to reduce top-line growth when the growth rate of the retail markets started slowing, which helped the retailers grow their revenue faster than they did their operating expenses. In contrast, the less successful retailers that posted below-average total shareholder returns continued store expansion even after they had reached the point of diminishing returns. When the growth rate of the retail markets slowed, the less successful retailers realized a 0.9% average annual growth in operating profit, while the annual total shareholder returns averaged 2.9% (69). Successful retailers, on the other hand, posted impressive results; their operating profit grew at least 8% annually, while their total shareholder returns averaged 21.9% per year.

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Although all the retailers slowed the rate of opening new stores at the onset of the declining growth of the retail market, the retailers with higher total shareholder returns cut back new store openings by a greater margin. The successful retailers reduced their annual stores growth to 2%, while the less successful retailers grew their stores by 4.4% per year (70). When the successful retailers reduced the rate of opening new stores per year, they grew their earnings through operational improvements that boosted the turnover of the existing stores. Indeed, the successful retailers avoided what Walker, Jr. and Mullins (248) call the strategic traps during the transition from market growth to maturity. One strategic trap is the failure to acknowledge the onset of the shakeout period and scale down the operating capacity of the firm to a sustainable level (248).

In the last five years, successful U.S retailers recognized that the growth of the retail market had started slowing, and they reduced the rate of store expansion in order to stop new stores from cannibalizing the sales of existing stores. Another strategic trap is the failure to develop a distinct competitive advantage by the onset of the transition period. According to Walker, Jr. and Mullins (248), during the growth phase of a market, businesses can prosper without a clear competitive advantage, but we cannot say the same of the period when the market is transiting from growth to maturity. The successful retailers that Fisher, Gaur, and Kleinberger (73) analyzed had developed clear capabilities that conferred them distinct competitive advantage during the transition phase, which enabled them to leverage existing stores to attain earnings growth. For instance, by the time the growth of the retail market started slowing, the successful U.S retailers had developed human resource management capabilities that helped them hire them right sales people, train them well, select the appropriate technology to make the sales people effective, and assign sales people to various sections of stores and different times.

The human resource management capabilities gave the successful retailers a competitive advantage in customer service, which helped sustain the customer patronage of the growth phase. Some retailers human resource management capabilities were so advanced that they were subjecting all applicants to online tests measuring, among others, their disposition towards the tasks they are applying for, and their fit with the company culture. The retailers did not stop at testing applicants; over time, they refined the tests by administering them to some of their employees and finding how the employees performance on the tests correlated with their actual productivity. Data from one retailer showed that the development of human resource management capabilities had enabled it to hire sales people who made more sales per hour, besides having employees that worked for the retailer for a longer period than the typical employee did before the retailer had developed the human resource management capabilities (73).

An additional benefit of developing advanced human resource management capabilities is that it enabled the retailers to have regular, actionable data that facilitates the execution of the operating strategy for example, by having data on employee productivity, some of the successful retailers could assign the sales people with the highest sales per hour to work the most productive shifts (73). Walker, Jr. and Mullins (248) also note that firms that perform poorly after the transition of a market to maturity equally fail to recognize that product differentiation has declined in importance, while price or service has increased in importance it is apparent that the firms Fisher, Gaur, and Kleinberger (68) analyzed were successful in avoiding this strategic trap. In the last five years, the successful U.S retailers recognized the increasing importance of service by removing non-value-added tasks from the responsibilities of sales people.

With the sales people freed from non-value-added tasks, they could devote more time to assisting shoppers, which, in turn, improved the performance of the sales personnel. No firm shows how to improve the performance of sales personnel better than Foot Locker does (73). Foot Locker was successful in bucking the trend in majority of the shoe stores, where the sales personnel make numerous trips to the back room to see if products are available and retrieve the items that a customer finds appealing (73). The numerous trips consume time the sales personnel would otherwise spend doing productive things, and if a customer is impatient, he/she will leave the shoe store without purchasing anything. Foot Locker decided to give its sales personnel scan guns in a bid to reduce the time they take off the floor.

With the scan guns, Foot Lockers sales personnel can check the products stocked in the back room, in the online store, and in other stores, and while at it, they do not have to leave the customers side Foot Locker estimates that the efficiency gains from this change have increased turnover by at least 2% (73). It is usual to find that, once a business builds its success on other forms of product differentiation, such as technological superiority, it disregards strategies that could help it preempt the loss of competitiveness once market maturity erodes the appeal of the original points of differentiation. Ultimately, once the market reaches maturity, the market leaders during the growth phase find themselves battling the serious onslaught of market challengers a battle that the leader can hardly win because the challenger saw the signs of the market shift and adopted the strategies that the market leader disregarded. Overall, it pays if a firm defies conventional wisdom and halt growth once the market shows the signs of transition from growth to maturity.

Works Cited

Fisher, Marshall, Vishal Gaur, and Herb Kleinberger. "Strategy Curing the Addiction to Growth Lessons from the Retail Industry." Harvard Business Review. 95.1 (2017): 68-74. Print.

Walker, Jr., Orville C. and John W, Mullins. Marketing Strategy: A Decision-Focused Approach. New York: McGraw Hill, 2013. Print.