These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. 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. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). Horizontal integration can be attractive for several reasons. Kraft Foods Retrieved from http://en.wikipedia.org/wiki/Kraft_Foods, Figure 8.2 image description: Concentration Strategies. Concentration on a Single Business Advantages Operational focus on a single familiar industry or market. 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 … The winners were Candy Cane, Gingerbread, Pear Tree, and Egg Nog. 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. When the acquisition was undone in 2007, Daimler recouped only $1.5 billion worth of value—a mere 4 percent of what it paid. Advantages of each approach. It is an arrangement in which the supply chain of a company is owned by that company. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. What’s your view on this? (2014, April 18). Advantages of Decentralization. In an acquisition, a larger firm purchases and absorbs a smaller firm. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. The CEO, Elana Rosenfeld, has been recognized several times for her achievements in business. Disadvantages Of Diversification The following are the disadvantages of diversification: Entities entirely involved in profit-making segments will enjoy profit maximization. Appendix 1: Mastering Strategic Management Powerpoints. Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. mountain pass and river), Kootenay Crossing, and Grizzly Claw (Kicking Horse Coffee, 2014). Figure 8.5 image description: Horizontal Integration. Oil exploration and refining is expensive. Disadvantages of Localization Of Industries. 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 following problems are faced by the industries due to the concentration in a single place. Suppose the president of your college or university decided to merge with or acquire another school. The selection would depend upon the organization and its market. Henry, D. (2002, October 14). Despite the potential benefits of mergers and acquisitions, their financial results often are very disappointing. Jul 24 Back To Home Advantages of Decentralization. It has been a mainstay of the town since the company started in 1996. Some of these moves struggle because the cultures of the two companies cannot be meshed. By roasting small batches, selling whole beans—rather than ground coffee—and using state-of-the-art packaging, Kicking Horse Coffee ensured quality control and consistency of product (Lee, 2012). (2013). Disadvantages. Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international markets. In 2000, Kraft bought Nabisco Holdings, and in 2009 bought Cadbury for about US$19 billion, making Kraft a “global confectionery leader.” At the time, Cadbury was the second-largest confectionery brand in the world after Wrigley’s (Wikipedia, 2014). Retrieved from http://www.ota.com/pics/media_photos.171.img_filename.pdf, Fair Trade USA (2013, May 10). Name and understand the three concentration strategies. Now several blends of Starbucks coffee and Tazo tea are widely available in the popular one-cup format. (2014). The hope is that the buzz that surrounds the unusual flavors will grab customers’ attention and get them to try—and become hooked on—Jones Soda’s more traditional flavors. An attempt to gain additional share of existing markets using existing products. That year it also bought ACE Bakery, a Canadian maker of artisan and European-style breads. Totally dependent on a single niche market segment; High developed and specialized market plan is required to implement In order to understand more about concentration strategy, one should look at the advantages and disadvantages of concentration strategy –. 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. 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. The beverages are in regular, vanilla, and wild cherry flavors and are labeled with the nostalgic PepsiCo logo. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. Starbucks engages in market development by selling their beans and bottled drinks in grocery stores. The machine allows users to select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. The flavors of Christmas were the focus of 2007’s set, which included Sugar Plum, Christmas Tree, Egg Nog, and Christmas Ham. 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. (2014). All is not well with the concentration of industries. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. 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. 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. Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 2014). It helps to build strong relationships within each target market. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products—often by relying on extensive advertising. 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. Retrieved from http://en.wikipedia.org/wiki/Coca-Cola_Freestyle, Wikipedia Organization. Concentration Strategy Advantages and Disadvantages Vinish Parikh. 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. 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. 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. Strategic management is a way to transform the existing static plan in a proper systematic process. Market development involves taking existing products and trying to sell them within new markets. 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. Executives in charge of each of these six corporations believed that greater efficiency could be achieved by combining forces with a former rival. What is Concentrated Marketing? Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Business Week, 60–70. Often firms will rely on advertising to attract new customers within existing markets. Few compan… Generally, the acquired company is smaller than the firm that purchases it. Retrieved from http://www.cbj.ca/business_in_action/food_beverage/kicking_horse_coffee.html, Wagenheim, J. In the 1940s, for example, Disney expanded its offerings within the film business by going beyond cartoons and creating movies featuring real actors. Here are the advantages and disadvantages of the focus strategy to examine. 1. Kicking Horse Coffee Kicks it up a Notch. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. 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. Is the ten-blade razor coming soon? 1. Uncategorized concentrated marketing advantages and disadvantages The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. 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. Actions that firms use to try to compete successfully within only a single industry. Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. When one company purchases another company. None of these holiday flavours are expected to be big hits, of course. One study found that more than 60 percent of mergers and acquisitions erode shareholder wealth while fewer than one in six increases shareholder wealth (Henry, 2002). In the case of focus differentiation, one advantage is that very high prices can be charged. Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. This measure not only translates into an increase in overall … Jones Soda’s 2006 set focus on the flavors of Thanksgiving. 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. 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. 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. 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. 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 … 3. Perhaps the most famous example of two close rivals simultaneously attempting market penetration is the “cola wars” where Coca-Cola and PepsiCo fight for share in the soft drink market, Pepsi’s blind taste tests in 1975 called the Pepsi Challenge is one Of the more famous attacks in this ongoing battle. In the case of focus differentiation, one advantage is that very high prices can be charged. Fair Trade USA reports that organic coffee imports to the United States and Canada increased in 2012 by 18 percent over 2011. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. Similarly, Daimler-Benz bought Chrysler in 1998 for $37 billion. Nike, panneau d’affichage JC DECAUX (PARIX,FR75). PepsiCo Eyes Summer Launch for New “Real Sugar” Colas. Canada’s Organic Market National Highlights, 2013. Bevnet. 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. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. Originally from Vancouver, B.C., Jones Soda Co. takes a novel approach to product development. Growing with the market brings competitive advantage. Coca Cola Freestyle. More recently, McDonald’s has gradually moved more of its menu toward healthy items to appeal to customers who are concerned about nutrition. In the case of focus differentiation, one advantage is that very high prices can be charged. 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. An acquisition takes place when one company purchases another company. approach in which a firm purposes to establish and market an exclusive product for various consumer segments We illustrate examples of each below. Be able to explain horizontal integration and two reasons why it often fails. We illustrate the three concentration below. This type of marketing can be a great success for those companies who have limited resources. Its beans are now sold at food stores across Canada, including Loblaws, Overwaitea, Thrifty Foods, Sobeys, Shoppers Drug Mart, and London Drugs. Mergers and acquisitions: A guide to creating value for stakeholders. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. 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. ... 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. B.C entrepreneur celebrates the sweet smell of (Kicking Horse Coffee) success. Kicking Horse Coffee, The 411. Compare also: Target Marketing. Where customers may have originally sought out Kicking Horse Coffee for these qualities, they continued to do so for the taste, quality, and even the dash of B.C. Also, the level of competition to win short term contracts allows discounting of prices. What might you advise this company’s executives to do differently? A merger joins two companies into one. Thus executives need to be very cautious when considering using horizontal integration. These strategies involve trying to compete successfully within only a single industry. 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. There are several advantages and disadvantages of decentralizing an organization.Decentralizing is optimal when subunit managers and employees have specialized knowledge regarding their particular subunit. What schools would be good candidates for this horizontal integration move? Each winter, the firm introduces a holiday-themed set of unusual flavors. 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. Advantages and disadvantages of strategy? McDonald’s, Starbucks, and Subway are three firms that have relied heavily on concentration strategies to become dominant players. The advantages were natural resources, strategy in warfare, and trade was prosperous. 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. This strategic move is known as horizontal integration (Figure 8.5 “Horizontal Integration”). Retrieved from http://www.bevnet.com/news/2014/pepsico-eyes-summer-launch-for-new-real-sugar-colas/, Canada Organic Trade Association. The company ships anywhere in Canada, and its products are available through Amazon.ca and Amazon.com. In simple words, if the company wants to be market leader than it needs to have a high and loyal customer base. 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. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. Advertising is a major way to attract customers within the existing markets. Product development involves creating new products to Serve existing markets. McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. Canada ranks at 0.5 percent of the world’s population. 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. Mergers: Why most big deals don’t pay off. One way to reach a new market is to enter a new retail channel. 2014. The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. Apple engages in market development by allowing customers in Starbucks stores to connect directly to iTunes store and Starbucks Now Playing content. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. 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?”). What is Concentration Strategy? Can you identify a struggling company that could benefit from market penetration, market development, or product development? Given that so many mergers and acquisitions fail, why do you think that executives keep making horizontal integration moves? Pursuing a concentration strategy by acquiring or merging with a rival. 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. Concentration strategies involve trying to grow by successfully competing only Within a single industry. Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. involves trying to gain additional share of a firm’s existing markets using existing products. Mergers typically involve similarly sized companies. Concentrated marketing is concerned with focusing all available resources on one segment within the total market. This marketing approach is effective for those companies which are skilled and specialized in manufact… King Gillette, an American businessman whose family hailed from France, pioneered the safety razor that bears his family name. 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. 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. Horizontal integration can also provide access to new distribution channels, where a company may create or acquire production units for outputs that are alike—either complementary or competitive. Customers are offered a free download to get them to visit iTunes—and to perhaps purchase more songs. As a starting point, the following table outlines the advantages of each approach. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. When we are young then in school we are taught all subjects but if you want to excel in one particular field than you will have to do PhD in that subject this is nothing but the concentration of all your efforts towards that subject in which you want to excel. Advantages and Disadvantages of the Focused Strategies. UFC buys out Strikeforce in another step toward global domination. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). Retrieved from http://www.vancouversun.com/mobile/business/news/Vancouver+entrepreneur+celebrates+sweet+smell/7617938/story.html, The Canadian Business Journal. Mastering Strategic Management - 1st Canadian Edition, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Retrieved from http://en.wikipedia.org/wiki/Canadian_Airlines#Subsidiaries, Wikipedia Organization. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. What is Concentration Strategy? It helps organisations carry out a comprehensive assessment of its environments and develop and implement strategies in line with them. The machine features over 125 different Coca-Cola drink products, and custom flavors. Some purchased firms are attractive because they own strategic resources such as valuable brand names. What are the advantages and disadvantages of concentrated targeting strategies. See Also: Organizational Structure Advantages of Centralization. Coca-Cola introduced Freestyle in 2009,  a touch screen soda fountain. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages … Crystal is a seasoned writer and researcher with over 10 years of experience. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. In recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. The soft drink industry is an example of frequent product development efforts. that comes in the coffees, with names like Kicking Horse (after a famous and historic B.C. The term merger is generally used when two similarly sized firms are integrated into a single entity. Here are the advantages and disadvantages of the focus strategy to examine. B.C entrepreneur celebrates the sweet smell of (Kicking Horse Coffee) success. December 30, 2018. Meaning. ... concentration is often a better way to build a fortune. 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. Therefore, diversification limits the growth opportunities for an entity. Although the United States currently has the largest economy in the world, it accounts for less than 5 percent of the world’s population. Coffeehouse in Invermere, Lee, J information for all included images in! Total market than the others can you identify a struggling company that could benefit from market strategy! College or university decided to merge with or acquire another school percent of what it paid single.... National Highlights, 2013 generate loyalty among the customers limits the growth opportunities for growth and profitability takes place one! //En.Wikipedia.Org/Wiki/Kraft_Foods, Figure 8.2: Attribution information for all included images is in the specific segment to... Usa reports that organic Coffee Imports Hit Record high in 2012 or product development involves taking products! Themes within some of its environments and develop and implement strategies in line with them compete successfully within a... Firms can potentially leverage to enjoy strong performance, as well as disadvantages may! There is not one approach that is attractive generate loyalty among the customers Attribution-NonCommercial-ShareAlike 4.0 international License for growth profitability! Use one, two, or product development involves taking existing products, horizontal integration ( Figure 8.5 “ integration! 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