What happens during the shakeout stage of the industry life cycle?
What will be an ideal response?
As the industry moves into the shakeout stage of the industry life cycle, the rate of growth declines. Demand was largely satisfied in the prior growth stage. Given the large market size achieved from the growth stage, any additional market demand in the next stage is limited. Demand now consists of replacement or repeat purchases only. This limited market demand in turn increases competitive intensity within the industry.
Firms begin to compete directly against one another for market share, rather than trying to capture a share of an increasing pie. As rivals vie for a shrinking pie and competitive intensity is increasing, the weaker firms are forced out of the industry. This is the reason why this phase of the industry life cycle is called the shakeout stage: Only the strongest competitors survive increasing rivalry as firms begin to cut prices and offer more services, all in an attempt to capture more of a shrinking market. The winners in this increasingly competitive environment are generally firms that stake out a strong position as cost leaders.
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