In business, strategic withdrawal means simply quitting

Often press tells stories of companies effecting strategic withdrawal. It is simply a euphemism for quitting, conveyed in a business-like manner. Strategic withdrawal is a permanent affair as there is no going back on it. How does a firm carry out strategic withdrawal and with what purpose is the theme of this blog post.

Rationalizing is the driving force behind making decisions on withdrawing strategically. It basically means cost cutting or cutting the loss so that the firm can preserve whatever that can be salvaged. Strategic withdrawal is carried out by firms in three areas: product, segment and market:

Product

Firms can either close down a specific product line or series of inter-connected products. The following are key reasons cited for this type of strategic withdrawal:

1. Product has become obsolescent in terms of technology or the perceived uses of the specific product are no longer valid

2. Market trends have moved out of this product as either customer needs have changed or their tastes got shifted

3. Issues related to production such as snags, glitches that make the product faulty.

4. Severe market competition bedevils the firm such that the product becomes a laggard with high cost incurred in manufacturing it.

National Electric Vehicle Sweden (NEVS) closing down SAAB vehicle line in 2011 is an apt example.

Segmentation

Strategic withdrawal from particular segment takes place when demand is skidding and profitability is hitting the ground. Brand acceptance and/or customer loyalty declining along with and availability of similar products at affordable prices are other causes. The French Luxury brand Louis Vuitton closed several stores in China lately.

Market

Withdrawing strategically from specific market is caused by one or more of the following reasons:

1. Customer base remains stagnant or narrowing down

2. Customer default on the increase

3. Overall profitability is on the red

4. Survivability is under threat due to aggressive competitor posture.

Colgate abandoning domestic market to go international is a good illustration.

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist