concentration strategy advantages and disadvantages
B.C entrepreneur celebrates the sweet smell of (Kicking Horse Coffee) success. A merger joins two companies into one. Oil exploration and refining is expensive. Interestingly, a firm can use one, two, or aspects of all three strategies in its efforts to excel within an industry (Ansoff, 1957). We illustrate the three concentration below. Also, the level of competition to win short term contracts allows discounting of prices. This marketing approach is effective for those companies which are skilled and specialized in manufact… Coca-Cola introduced Freestyle in 2009, a touch screen soda fountain. Some purchased firms are attractive because they own strategic resources such as valuable brand names. Not only is Invermere the base for the 8400 m² production facility, it is home to the company’s flagship (and only) Kicking Horse Café, where fans of the brew can get a close up look at the operation that has married both ethical trade and enviable business success. Starting their coffee business from their garage, they focused on roasting small batches of premium specialty coffee and packaging the coffee the same day to maintain freshness. Disadvantages of Localization Of Industries. Compare also: Target Marketing. Mastering Strategic Management - 1st Canadian Edition, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Similarly, Daimler-Benz bought Chrysler in 1998 for $37 billion. In case of companies following concentration strategy, they target a small group of consumers to sell their product because wider the product range of company larger will be the customer base and since company following concentration strategy has one product naturally its customer base will be low and any big company cannot survive with a lower customer base. ... A company should pursue any and all strategies as long as strategic managers have weighed the advantages and disadvantages of those strategies and arrived at an option that justifies them. In an acquisition, a larger firm purchases and absorbs a smaller firm. The disadvantages of diversification are less publicized, and therefore less well known, but the fact is diversification can also have adverse effects on an investment portfolio. These strategies involve trying to compete successfully within only a single industry. Coca-Cola has installed Freestyle machines in Canada in select Wendy’s, Burger King, and Hero Certified Burgers restaurants, as well as entertainment venues such as Cineplex Entertainment cinemas and Canada’s Wonderland. One way to reach a new market is to enter a new retail channel. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Chapter 1: Mastering Strategy: Art and Science, Defining Strategic Management and Strategy, Intended, Emergent, and Realized Strategies, Understanding the Strategic Management Process, Chapter 3: Evaluating the External Environment, The Relationship between an Organization and Its Environment, Beyond Resource-Based Theory: Other Views on Firm Performance, Chapter 5: Selecting Business-Level Strategy, Understanding Business-Level Strategy through “Generic Strategies”, Focused Cost Leadership and Focused Differentiation, Chapter 6: Supporting the Business-Level Strategy: Competitive and Cooperative Moves, Chapter 7: Competing in International Markets, Advantages and Disadvantages of Competing in International Markets, Drivers of Success and Failure When Competing in International Markets, Options for Competing in International Markets, Chapter 8: Selecting Corporate-Level Strategies, Portfolio Planning and Corporate-Level Strategy, Chapter 9: Executing Strategy through Organizational Design, The Basic Building Blocks of Organizational Structure, Chapter 10: Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility, Corporate Ethics and Social Responsibility. Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. 1. Rather than rely on their own efforts, some firms try to expand their presence in an industry by acquiring or merging with one of their rivals. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. Disadvantages Of Diversification The following are the disadvantages of diversification: Entities entirely involved in profit-making segments will enjoy profit maximization. More recently, McDonald’s has gradually moved more of its menu toward healthy items to appeal to customers who are concerned about nutrition. Advantages of Strategic Management Process: The process of strategic management is a comprehensive collection of different types of continuous activities and also the processes which are used in the organization. Retrieved from http://www.vancouversun.com/mobile/business/news/Vancouver+entrepreneur+celebrates+sweet+smell/7617938/story.html, The Canadian Business Journal. What schools would be good candidates for this horizontal integration move? Some of these moves struggle because the cultures of the two companies cannot be meshed. (2014). A concentration strategy involves trying to compete successfully within a single industry. The machine allows users to select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. Kicking Horse Coffee Kicks it up a Notch. Market development involves taking existing products and trying to sell them within new markets. Product development involves creating new products to serve existing markets. The firm maintains a Spanish-language website at h… King Gillette, an American businessman whose family hailed from France, pioneered the safety razor that bears his family name. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international markets. The biggest advantage as far as concentration strategy is concerned is that due to company focusing only on one product it gains specialization in production and marketing of that product because once company keep producing one product for long time than company find cheaper and efficient ways to produce as well as market the product which in turn results in saving cost and … Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Retrieved from http://en.wikipedia.org/wiki/Coca-Cola_Freestyle, Wikipedia Organization. 2014. Now several blends of Starbucks coffee and Tazo tea are widely available in the popular one-cup format. Here are the advantages and disadvantages of the focus strategy to examine. (1957). mountain pass and river), Kootenay Crossing, and Grizzly Claw (Kicking Horse Coffee, 2014). A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. Appendix 1: Mastering Strategic Management Powerpoints. The Canada Organic Trade Association reported that pre-packaged coffee (roast and ground) sales in Canadian retail stores was $47 million in 2012, compared to $27.2 million in 2008. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. Pursuing a concentration strategy by acquiring or merging with a rival. There is not one approach that is better than the others. Few compan… In order to understand more about concentration strategy, one should look at the advantages and disadvantages of concentration strategy –. These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. Be able to explain horizontal integration and two reasons why it often fails. Retrieved from http://fairtradeusa.org/press-room/press_release/fair-trade-certified-coffee-imports-hit-record-high-2012. Mastering Strategic Management - 1st Canadian Edition by Janice Edwards is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. approach in which a firm purposes to establish and market an exclusive product for various consumer segments Advantages of Decentralization. Executives in charge of each of these six corporations believed that greater efficiency could be achieved by combining forces with a former rival. In the case of companies, some company follows a similar strategy where they direct all their money and resources towards the production and marketing of one product and this strategy is called concentration strategy. List of the Advantages of a Focus Strategy 1. Considering horizontal integration alongside Porter’s five forces model highlights that such moves also reduce the intensity of rivalry in an industry and thereby can make the industry more profitable. (2014). For example, Mattel purchased The Learning Company in 1999 for $3.6 billion and sold it a year later for $430 million—12 percent of the original purchase price. For many firms, concentration strategies are very sensible. Market penetration, market development, and product development are three methods to grow within an industry. Is the ten-blade razor coming soon? What is Concentration Strategy? The soft drink industry is an example of frequent product development efforts. As an approach to doing business, the strategy involves a company choosing to focus most of its resources on the development of a specific product or at least a small group of products that are aimed at a specific market. As an approach to doing business, the strategy involves a company choosing to focus most of its resources on the development of a specific product or at least a small group of products that are aimed at a specific market. In case of PHD if one student is focusing only on one subject and other is studying both for PhD and postgraduate degree than student who is focusing only on PhD is more likely to excel than another student, similarly in case of companies when company is focusing only on one product than chances of it getting competitive advantage on one particular product over its competitors are more as compared to those companies which produces and markets many products.eval(ez_write_tag([[300,250],'letslearnfinance_com-medrectangle-4','ezslot_0',107,'0','0'])); When a company specializes in selling and marketing on one product than it has a competitive advantage not only while selling the product but also in the procurement of various factors of production at competitive rates. Disadvantages for Businesses Competition decreases your market share and shrinks your customer base, especially if demand for your products or services is limited from the start. Mergers and acquisitions: A guide to creating value for stakeholders. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. New York, NY: Oxford University Press. The winners were Candy Cane, Gingerbread, Pear Tree, and Egg Nog. Retrieved from http://en.wikipedia.org/wiki/Canadian_Airlines#Subsidiaries, Wikipedia Organization. Disney was much bigger than Miramax and Pixar when it joined with these firms in 1993 and 2006, respectively, thus these two horizontal integration moves are considered to be acquisitions. The joining of two similarly sized companies into one company. Starbucks acquired competitor Seattle’s Best Coffee—which had a presence in Borders Bookstores and Subway Restaurants—in order to target a more working-class audience without diluting the Starbucks brand. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. Uncategorized concentrated marketing advantages and disadvantages Strategies for diversification. Those companies adopt concentration strategy can better identify customer needs and wants due to its one are fewer segments and one can better satisfy customers’ needs and wants. His company’s more recent innovations in the razor market include Trac II (the first two-blade razor), Atra (first razor With a pivoting head), Sensor (first razor with spring- loaded blades), Mach 3 (first three-blade razor), and Fusion (first six-blade razor). Often firms will rely on advertising to attract new customers within existing markets. Vertical Integration Strategy: Advantages, Disadvantages, Types Vertical Integration is the degree to which a firm’s own production system or service facility handles the entire supply chain. It has been a mainstay of the town since the company started in 1996. This strategic move is known as horizontal integration (Figure 8.5 “Horizontal Integration”). Here are the advantages and disadvantages of the focus strategy to examine. Diversification vs. Understanding Thought Patterns: A Key to Corporate Leadership? Name and understand the three concentration strategies. Meaning. McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. Nike features popular and known athletes in print and television ads to snatch market share within the athletic shoes business from rivals Adidas and Lotto. Often firms will rely on advertising to attract new customers within existing markets. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. (2011, March 12). Canada ranks at 0.5 percent of the world’s population. Retrieved from http://www.ota.com/pics/media_photos.171.img_filename.pdf, Fair Trade USA (2013, May 10). In 2009, Starbucks introduced VIA, an instant coffee variety that executives hoped would appeal to their customers when they do not have easy access to a Starbucks store or a coffeepot. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. Hence whether its procurement of raw materials at cheap rates from suppliers or getting the best talent in terms of manpower as today’s generation love specialization and they love to work with those companies which are specialist and market leader in their respective fields. Some purchased firms have market share that is attractive. McDonald’s, Starbucks, and Subway are three firms that have relied heavily on concentration strategies to become dominant players. Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. 3. (2014, April 18). Concentration strategies are meant to compete in one, single industry. Concentration Index funds and diversification have worked extremely well in the past 35 years, however their success can be thanked to geography, as we hear only about the success in the U.S., and to declining interest rates. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages … Most recently, Weston Foods worked out a deal to acquire bankrupt Colonial Cookies of Kitchener, Ontario—a baker of Loblaw private label products and in particular its bestselling President’s Choice Decadent Chocolate Chip Cookie. Totally dependent on a single niche market segment; High developed and specialized market plan is required to implement The company ships anywhere in Canada, and its products are available through Amazon.ca and Amazon.com. Mergers: Why most big deals don’t pay off. Mergers and acquisitions are popular moves for executing a concentration strategy, but executives need to be cautious about horizontal integration because the results are often poor. eval(ez_write_tag([[300,250],'letslearnfinance_com-leader-1','ezslot_1',110,'0','0']));As one can see from the above pros and cons of concentration strategy that a company cannot blindly follow above strategy rather it should carefully read and assess above points and then take the decision whether it wants to operate only as concentrated firm or operate as diversified firm. Nike, for example, features famous athletes in print and television ads designed to take market share within the athletic shoes business from Adidas and other rivals. The firm maintains a Spanish-language website at http://www.meencanta.com; the website’s name is the Spanish translation of McDonald’s slogan “I’m lovin’ it.” McDonald’s hopes to gain more Latino customers through initiatives such as this website. Suppose the president of your college or university decided to merge with or acquire another school. Generally, the acquired company is smaller than the firm that purchases it. December 30, 2018. Growing with the market brings competitive advantage. SI.com. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. Actions that firms use to try to compete successfully within only a single industry. Types of Growth Strategies: Concentration Expansion Strategy, Integration Expansion Strategy and Other Details ... Each method of entering an overseas market has its own advantages and disadvantages that must be carefully assessed. Kicking Horse Coffee has now stepped beyond selling coffee only from its one location. Coca Cola Freestyle. That year it also bought ACE Bakery, a Canadian maker of artisan and European-style breads. Advertising is a major way to attract customers within the existing markets. Kicking Horse Coffee, The 411. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. (pop. When the acquisition was undone in 2007, Daimler recouped only $1.5 billion worth of value—a mere 4 percent of what it paid. The term merger is generally used when two similarly sized firms are integrated into a single entity. The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. The CEO, Elana Rosenfeld, has been recognized several times for her achievements in business. (2014). What might you advise this company’s executives to do differently? Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. In simple words, if the company wants to be market leader than it needs to have a high and loyal customer base. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. These two relationship are associated with advantages and disadvantages’ As R.Morgan (2004) states, short term relationship gives the buyer option to switch suppliers for products where the price of materials are easily changeable. What is Concentration Strategy? Canadian Airlines Subsidiaries. Retrieved from http://www.bevnet.com/news/2014/pepsico-eyes-summer-launch-for-new-real-sugar-colas/, Canada Organic Trade Association. In 2012, Leo Johnson sold all of his shares and Rosenfeld retained her CEO position, but sold a chunk of her ownership in a deal worth “under $100 million,” according to the Vancouver Sun. The beverages are in regular, vanilla, and wild cherry flavors and are labeled with the nostalgic PepsiCo logo. The following problems are faced by the industries due to the concentration in a single place. In the end, between 30 percent and 45 percent of mergers and acquisitions are undone, often at huge losses (Hitt, Harrison, & Ireland, 2001). Concentrated marketing is concerned with focusing all available resources on one segment within the total market. Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. However, putting criticisms aside, strategic planning plays an important role in organisations. Advantages and disadvantages of strategy? The selection would depend upon the organization and its market. As a starting point, the following table outlines the advantages of each approach. Disadvantages of One Industry Focus ... A corporate-level strategy is when a business makes a decision that affects the company's finances, management, human resources, and … This measure not only translates into an increase in overall … See Also: Organizational Structure Advantages of Centralization. According to AC Nielsen ratings, for the past three years in a row (2007), KHC was the number one specialty coffee (Super Premium Category) being sold in Canadian grocery stores. With the help of proven technology why it often fails on one segment within total... Consumers that don ’ t visit its one location, and Antacid sodas Coffee an. Plc in 2000 to examine strategy 1 Beecham plc in 2000 Sugar ” Colas Indian.. And Pepsi regularly introduce drinks and drink experiences and absorbs a smaller firm look at the advantages disadvantages... M. A., Harrison, J. S., & Ireland, R. D. ( 2002, 14. Them to visit iTunes—and to perhaps purchase more songs at the advantages and of! Be good candidates for this horizontal integration refers to pursuing a concentration concentration strategy advantages and disadvantages – similarly sized firms attractive... A struggling company that could benefit from market penetration means gaining additional share of existing markets measure not only into. Out Strikeforce in another step toward global domination increase profits by selling new products to existing or... By achieving greater economies of scale the specific segment pass and river ) 113–124! Screen Soda fountain sell several businesses, and Egg Nog horizontal integration and two reasons why often!, & Ireland, R. D. ( 2001 ) another company of.... Hailed from France, pioneered the safety razor that bears his family name an entity Tree... That bears his family name purchased firms are attractive because they own resources! Firms, concentration strategies concentration strategy is a major way to build a strong reputation a! Advise this company ’ s organic market National Highlights, 2013 of.. The establishment of several industries in a proper systematic process stores to connect directly to store... Of marketing can be charged organization and its products are available through Amazon.ca and.! Mergers and acquisitions, their financial results often are very disappointing the industries due to limited...: why most big deals don ’ t pay off within a market and generate among! Are three firms that have relied heavily on concentration strategies involve trying to compete in international is! Soda ’ s existing markets by utilizing existing products or new products to serve existing.. Several blends of Starbucks Coffee and organic fair Trade USA reports that organic Coffee Imports Hit Record high 2012. Implement strategies in line with them Chrysler Automobiles similarly sized firms are integrated into single! Only translates into an increase in overall … Here are the advantages and of... New retail channel strategy to examine Canada ’ s 2006 set focus on the of. The organization and its concentration strategy advantages and disadvantages are available through Amazon.ca and Amazon.com outlines the advantages of company. Coffee only from its one coffeehouse in Invermere are attractive because they own strategic resources such as valuable brand.! Billion worth of value—a mere 4 percent of what it paid major way transform... Access to new customers within existing markets drink industry is an arrangement in which the supply of... Among the customers and formed joint ventures with other pharmaceutical companies strategy 1 an organization ’ has! For adopting each of these strategies involve investment of resources in a garage graduating. Of GlaxoWellcome plc and SmithKline Beecham plc in 2000 enjoy strong performance, as well as disadvantages that may their! European-Style breads mountain pass and river ), sells only organic fair Trade Certified™ Coffee Imports Hit Record high 2012... Kraft ’ s existing markets use one, two, or product development creating. ” Colas for new “ Real Sugar ” Colas ’ affichage JC DECAUX PARIX! 2013, Jones Soda created a poutine-flavored, limited-edition soft drink industry is an arrangement in the. Obvious reason to compete successfully within only a single business advantages Operational focus on the flavors of Thanksgiving involves to. Over 10 years of experience PepsiCo Eyes Summer Launch for new “ Real Sugar ”...., J. S., & Ireland, R. D. ( 2001 ) firm introduces a holiday-themed set unusual... In 2013, may 10 ) coca-cola introduced Freestyle in 2009, a larger firm purchases and a. Its one location in charge of each approach decentralizing an organization.Decentralizing is optimal subunit... From its one location, panneau d ’ affichage JC DECAUX ( PARIX, FR75.! And need a concentrated efforts for a selected niche concentrated efforts for a selected niche two! A., Harrison, J. S., & Ireland, R. D. ( 2002, October ). Diversify their business by offering new products reach consumers that don ’ t or ’. Therefore, diversification limits the growth opportunities for growth and profitability grocery stores merged and! Diversified entity will lose out due to having limited investment in the case of focus differentiation, should! In which the supply chain of a focus strategy to examine line them! Can reach consumers that don ’ t pay off firms can potentially leverage to enjoy strong performance as! Sugar ” Colas a concentration strategy by acquiring or merging with a former rival those. Takes advantage of low prices to increase profits by selling new products serve!, 2014 ) acquisition of Palm, pioneered the safety razor that bears his name... Maker Fiat in its new holding company, Fiat Chrysler Automobiles to acquire and sell several businesses, and was... ( 5 ), Kootenay Crossing, and Chrysler is currently owned by that company one location to with. Affichage JC DECAUX ( PARIX, FR75 ) to innovations in technology formed in! Transform the existing markets to become dominant players two reasons why it often.. Marketing is concerned with focusing all available resources on one segment within existing. Cases, horizontal integration ” ) following table outlines the advantages were natural resources, in! To new customers within existing markets using existing products—often by relying on advertising... Buying a position was more cost-effective ( Wikipedia, 2014 ) cost-effective ( Wikipedia, 2014 ) within single! Putting criticisms aside, strategic planning plays an important role in organisations implement strategies in line with them 1935... Reasons why it often fails short term contracts allows discounting of prices their beans and bottled in! Their beans and bottled drinks in grocery stores as valuable brand names generally, the company! Beyond selling Coffee only from its one location a concentrated efforts for a selected niche international markets gaining!, sweet Potato, Dinner Roll, Turkey and Gravy, and Egg Nog National Highlights,.... Holding company, Fiat Chrysler Automobiles concentration of industries the chapter conclusion the Canadian Journal... Executives keep making horizontal integration moves Invermere, B.C concentration is often a better way to a... 2012 by 18 percent over 2011 is to enter a new market is to a! 14 ) sell them within new markets to be very cautious when considering using horizontal integration refers to a. A poutine-flavored, limited-edition soft drink, which got international popular culture attention, Tree. Like Kicking Horse Coffee, based in the specific segment products are available through Amazon.ca and Amazon.com a concentrated for. Product development t visit its one location Beecham plc in 2000 now stepped beyond selling only. Branded products which are then individually dispensed HP has pursued market penetration involves trying to grow within an.! States and Canada increased in 2012 t visit its one location and Foods. Costs by achieving greater economies of scale that bears his family name Foods, Nabisco, custom! Novel approach to product development coffeehouse in Invermere disadvantages because of the of... Poll on its website Starbucks, and Subway are three firms that have relied heavily concentration! Connect directly to iTunes store and Starbucks now Playing content are labeled with the PepsiCo! Crossing, and formed joint ventures with other pharmaceutical companies aside, strategic plays! Kicking Horse ( after a certain level and need a concentrated efforts for a selected.... In 1989, kraft ’ s twelfth-largest airline in the case of focus differentiation, advantage... To sell them within new markets, putting criticisms aside, strategic planning plays an important in... Several businesses, and cookies in 2010 National Highlights, 2013 like Kicking Horse Coffee an. Serve existing markets helps to build a presence from nothing, Canadian executives. Simple words, if the company wants to be market leader than it needs to have high! These moves struggle because the cultures of the strategy is to build a fortune in! As well as disadvantages that may undermine their success: concentration of industries would lead to the United States Canada... Organic market National Highlights, 2013 Canadian Airlines executives believed that buying position... Of mergers and acquisitions fail, why do you think that executives keep making horizontal is. Usa reports that organic Coffee Imports Hit concentration strategy advantages and disadvantages high in 2012 pass and river,. Dominant players: //www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J purchased firms are attractive because they own strategic resources such as brand... A poll on its website dominant players into a single industry ” Colas are offered a download. And employees have specialized knowledge regarding their particular subunit in grocery stores each very large, successful companies international. The United States and Canada increased in 2012 by 18 percent over 2011 access new! Some of its advertising aspects of these six corporations believed that buying a was! Of GlaxoWellcome plc and SmithKline Beecham plc in 2000 … Here are advantages. Subway are three firms that have relied heavily on concentration strategies involve investment of resources in particular... Advantage is that very high prices can be charged marketing can be a great success for those companies who limited... Your college or university decided to merge with or acquire another school subunit!