A declining market sees the available market shrink. Initially, competition rises, and a decline in margins ensues. Overall margin decline is observed. Companies with a higher operational efficiency level can ride through this downturn phase.
Soon you find competitors drop off the market. These are companies with stressed balance sheets. Dropouts occur from lesser-known brands and small companies that cannot operate under stressed conditions.
The balance companies with strong balance sheets and efficient business processes remain. When the declining market reaches its bottom, the performing organizations with good quality, the best strategies, and high operational efficiency start investing in marketing.
These companies now target customer segments for the products and services of their choice and preference. You now begin to see these companies show higher profits. These companies now offer above-average returns.
The scenario that I have painted above is repeated again and again during each downturn and recession. For entrepreneurs, the advice is the following;
Conserve cash and invest in operational efficiency improvement when the market is declining. Reduce marketing spend during this phase. Do not try to catch the falling knife. You will get hurt.
When the bottom is reached, and competition from the small and poorly managed companies drops, start marketing operations. You will now see a rise in both sales and profits.
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