What pricing strategy should be adopted in the decline phase?

A classic example is video formats. Betamax was replaced by VHS, which later gave way to the DVD. Subsequently, Bluray took the lead, until digital streaming completely displaced physical formats in the second decade of the 21st century.

This process is accompanied by a continuous reduction in prices and margins, a trend that had already begun in the maturity phase.

How the market responds to the decline
In industries where productive assets cannot easily be adapted to new uses, the companies that remain must lower prices in order not to lose the few customers that remain and to cover their fixed costs. This happens because supply remains almost the same while demand decreases.

By contrast, in sectors where technology is reusable, companies can reallocate their production capacity to other, more profitable markets. In this case, the drop in demand is balanced by a reduction in supply, and prices remain stable or may even rise. If the process continues, a single company may end up dominating the market, which also allows prices to increase at the end of the cycle.

The market for photographic film rolls is a representative example of this dynamic and helps illustrate the three strategies a company can adopt when facing decline.

Withdrawal
The first option is to completely exit the market. The company decides to stop participating in that industry and focus its resources on more promising sectors.

This may involve the disappearance of the brand or its sale to third parties. One example is AGFA, which sold its photography business units and left the category. Although its brands still exist, they no longer belong to the original German group.

Harvest
The second option is harvesting. In this case, the company significantly reduces its investment in the category but continues operating to extract the remaining value from the market. Over time, this strategy usually also ends in withdrawal, through liquidation or sale of assets.

Kodak adopted this strategy before declaring bankruptcy. It continued selling photographic rolls as long as opportunities remained in certain niches and markets.

Consolidation
The third strategy is consolidation. Some companies decide to stay in the market to capture all residual value during a long decline process.

A clear example is Fuji, which in 2006 announced that it would remain in the photographic film business until it became the last brand standing. Its bet is that there will always be demand from professional or hobbyist photographers who value the developing experience. With less competition, prices may even rise, and Fuji will be there to benefit.

What comes next
Up to this point, we have explored pricing tactics and strategies for individual products. However, what happens when pricing decisions for one product affect others, such as in the case of complementary or substitute solutions?

This opens a new dimension in pricing strategy, which will be addressed in the next stage of the analysis.