Why is the ability to exploit economies of scale so important in mature industries?

Mature Industries

Mature industries can range from insurance to food distribution and although they're heterogeneric they can present several similarities from a strategic perspective. Mature industries occur when there is increasing market saturation and slowing growth with new demand being substituted by replacement demand as mature industries operate on a mass market level with their customers repeat buying.

Although mature industries may not be as glamorous and receive as much press coverage as their technology based counterparts, companies such as Coca Cola and Gillette have achieved higher profitability and growth than many technology based companies ever could. With other companies such as Nike footwear and MBNA banking having established strong positions in their industries through innovative strategies and have proven that maturity does not always mean little opportunity.

Companies within mature industries usually have reduced opportunities to achieve competitive advantage with these opportunities shifting from differentiation- based factors to cost-based factors.

The diagram shows that as more is produced, and so...

English: Economies of scale surd

Long-run average-cost curve with economies of scal...

With increasing competition the pricing policies are likely to become more aggressive as businesses try and hold their market share. Which means that to try and gain competitive advantage companies focus on reducing costs and then reducing the price consumers pay rather than trying to differentiate it's self from its competitors. This is because there is reduced scope for differentiation due to the increase in consumer knowledge and the availability of product information, partly due to the introduction of the Internet.

There is also more product innovation due to the standardisation of goods with companies competing by breathing new life into old products and introducing new features especially if there is increasing competition from new types of product. Another way businesses fight back against the introduction of new products is to introduce and establish their individual brand names.

Cost advantages gained through the spread of technology and introduction of...