Final answer:
Customer loyalty can decrease during the decline phase of a product due to shifts in tastes, reduced consumer population, income drops for normal goods, and lower prices of substitutes. Customers may switch to competitors or reduce overall spending, forcing companies to make decisions regarding their workforce in response to demand changes.
Step-by-step explanation:
During the decline phase of a product or service, a company may witness a shift in customer loyalty. This is often because consumers' tastes change, leading to lesser popularity for the product. Additionally, the potential population likely to buy may drop due to demographic changes or shifting preferences. In the case of a normal good, if consumers' income drops, their spending capacity diminishes, which can also erode loyalty as they may switch to cheaper alternatives or forgo purchases altogether. Furthermore, loyalty can be challenged when the price of substitutes falls, making competitors' offers more attractive.
For example, consider a market where a particular brand of toothbrush becomes less popular due to a taste shift. The population interested in buying that toothbrush decreases. At the same time, if there's an economic downturn leading to a drop in income, customers who regard the toothbrush as a normal good might reduce their spending on such items. Lastly, if competing toothbrush brands lower their prices, customers may switch their loyalty to these less expensive substitutes.
In terms of broader economic implications, as demand decreases, companies may face difficult decisions related to their workforce. During a recession, firms are hesitant to lay off workers due to the potential costs of rehiring and retraining if the demand slump is temporary. They may instead initially retain workers, resorting to measures like overtime, until they are confident that the market has recovered or that the decline is persistent.