concentration strategy advantages and disadvantages

Some purchased firms are attractive because they own strategic resources such as valuable brand names. 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. Coca Cola Freestyle. Starting from a need to find good coffee for themselves—when grocery stores only stocked commercial ground brands—Kicking Horse Coffee founders Elana Rosenfeld and Leo Johnson kick-started the trend for whole bean, organic, fair trade coffee in Canada. Horizontal integration can be attractive for several reasons. (2012, November 28). (2011, March 12). What might you advise this company’s executives to do differently? 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. Features of Bank Reconciliation Statement, Normal and Inferior Goods and Its Examples, Porter Five Forces Model Advantages and Disadvantages, Why Socialism is different from Communism. Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy. Canadian Airlines Corporation was formed in 1987 when Pacific Western Airlines purchased Canadian Pacific Airlines (which operated as CP Air for a number of years), which in turn had recently acquired Eastern Provincial Airways and Nordair. Appendix 1: Mastering Strategic Management Powerpoints. 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. Selling goods and services to the other 95 percent of people on the planet can be very appealing, especially for companies whose home market is saturated (Figure 7.3 “Why Compete in New Markets?”). 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. The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. 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. Given that so many mergers and acquisitions fail, why do you think that executives keep making horizontal integration moves? 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). The selection would depend upon the organization and its market. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. 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. Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. Product development involves creating new products to Serve existing markets. Today, Kicking Horse Coffee roasts over 1,800 tonnes of coffee annually from the Invermere facility and enjoys revenue of about $25 million a year with predicted growth of 10 percent annually; growth which reflects the consumer demand for premium organic coffee. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. Jones Soda’s 2006 set focus on the flavors of Thanksgiving. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages … Be able to explain horizontal integration and two reasons why it often fails. Disadvantages Of Diversification The following are the disadvantages of diversification: Entities entirely involved in profit-making segments will enjoy profit maximization.However, a diversified entity will lose out due to having limited investment in the specific segment. Figure 8.5 image description: Horizontal Integration. Since then, GSK has spent billions to acquire and sell several businesses, and formed joint ventures with other pharmaceutical companies. George Weston Limited, for example,  acquired Keystone Bakery, a U.S. maker of frozen cupcakes, doughnuts, and cookies in 2010. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. All is not well with the concentration of industries. 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 … Concentrated Marketing is a market coverage and Market Segmentation strategy in which the product and marketing message is aimed at a (few) well-defined segments of the consumer population in a market. In recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. 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. There is not one approach that is better than the others. (pop. Advantages and disadvantages of strategy? Retrieved from http://www.cbj.ca/business_in_action/food_beverage/kicking_horse_coffee.html, Wagenheim, J. Mastering Strategic Management – 1st Canadian Edition. 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. 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. Retrieved from http://www.bevnet.com/news/2014/pepsico-eyes-summer-launch-for-new-real-sugar-colas/, Canada Organic Trade Association. 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. In early 2011, Jones Soda let its customers choose the winter 2011 flavors via a poll on its website. It is an arrangement in which the supply chain of a company is owned by that company. Retrieved from http://sportsillustrated.cnn.com/2011/writers/jeff_wagenheim/03/12/strikeforce-purchased/index.html, Wikipedia Organization. Kicking Horse Coffee Kicks it up a Notch. approach in which a firm purposes to establish and market an exclusive product for various consumer segments Concentration strategies involve trying to grow by successfully competing only Within a single industry. Some purchased firms have market share that is attractive. Although the United States currently has the largest economy in the world, it accounts for less than 5 percent of the world’s population. In the case of focus differentiation, one advantage is that very high prices can be charged. 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. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products—often by relying on extensive advertising. Advertising is a major way to attract customers within the existing markets. Air Canada and Canadian Airlines merged in 2001, becoming the world’s twelfth-largest airline in the first decade of the 21st century. We will examine Broader societal expectations advantages and disadvantages of both frameworks and then we will depict how these two paradigms may enhance each A high-performing firm in this paradigm is the one other. Pursuing a concentration strategy by acquiring or merging with a rival. ... 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. 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. December 30, 2018. This fact is justified by the fact that the company is much easier and more efficient to meet the requirements of a strategically narrow segment than its competitors who operate on a larger scale - the entire sector. Creating new products to serve existing markets. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. involves trying to gain additional share of a firm’s existing markets using existing products. Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 2014). PepsiCo is also expected to take a significant step toward reducing the sugar and calorie content of its drinks via its partnership with flavor supplier Senomyx. The beverages are in regular, vanilla, and wild cherry flavors and are labeled with the nostalgic PepsiCo logo. 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. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. This strategic move is known as horizontal integration (Figure 8.5 “Horizontal Integration”). In the case of focus differentiation, one advantage is that very high prices can be charged. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. Each winter, the firm introduces a holiday-themed set of unusual flavors. Despite the potential benefits of mergers and acquisitions, their financial results often are very disappointing. This marketing approach is effective for those companies which are skilled and specialized in manufact… 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. See Also: Organizational Structure Advantages of Centralization. What is Concentrated Marketing? However, a diversified entity will lose out due to having limited investment in the specific segment. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. The following problems are faced by the industries due to the concentration in a single place. Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. When you put all eggs in one basket and that basket falls than all your eggs similarly biggest problem with concentration strategy is that there is a lack of diversification and since company is dependent on one product any problem in the demand for product which may be due to change in technology, change in consumer taste, government policy and other factors can result in complete slowdown in sales as well as profits as far as company is concerned.eval(ez_write_tag([[250,250],'letslearnfinance_com-box-4','ezslot_2',108,'0','0'])); Demand for product cannot be infinite as everything has its limit and when company is selling only one product than it cannot grow in the same way as diversified firm can grow because the scope for demand in case of diversified firm is higher and there is no risk of saturation of demand which is the case with the company following concentration strategy. By now consumers are well aware of the benefits of fair trade—fair labour conditions, direct trade, democratic and transparent organizations, and community development—and organic products. Few compan… 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 … The machine features over 125 different Coca-Cola drink products, and custom flavors. Advantages: concentration of resources, meets narrowly defined segment, small firms can compete and strong positioning Disadvantages: segments too small or changing and large competitors may market to … Concentration Strategy Advantages and Disadvantages Vinish Parikh. Now several blends of Starbucks coffee and Tazo tea are widely available in the popular one-cup format. A merger joins two companies into one. In 2013, Jones Soda created a poutine-flavored, limited-edition soft drink, which got international popular culture attention. PepsiCo Eyes Summer Launch for New “Real Sugar” Colas. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. (2014, April 18). Understanding Thought Patterns: A Key to Corporate Leadership? A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. Also, the level of competition to win short term contracts allows discounting of prices. Disadvantages. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Diversification vs. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Now Kicking Horse Coffee can reach consumers that don’t or can’t visit its one coffeehouse in Invermere. 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. that comes in the coffees, with names like Kicking Horse (after a famous and historic B.C. An attempt to gain additional share of existing markets using existing products. Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Other acquisitions fail because the buyer pays more for a target company than that company is worth and the buyer never earns back the premium it paid. Meaning. Advantages of Decentralization. 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. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. Compare also: Target Marketing. What is Concentration Strategy? 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. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). 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. Market penetration, market development, and product development are three methods to grow within an industry. 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