Concentrated marketing is concerned with focusing all available resources on one segment within the total market. 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. Disadvantages of Localization Of Industries. For many firms, concentration strategies are very sensible. Mergers and acquisitions: A guide to creating value for stakeholders. Customers are offered a free download to get them to visit iTunes—and to perhaps purchase more songs. It has been a mainstay of the town since the company started in 1996. An acquisition takes place when one company purchases another company. The CEO, Elana Rosenfeld, has been recognized several times for her achievements in business. That year it also bought ACE Bakery, a Canadian maker of artisan and European-style breads. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. Market penetration, market development, and product development are three methods to grow within an industry. 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. 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). 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 benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Jul 24 Back To Home Advantages of Decentralization. Kraft Foods Retrieved from http://en.wikipedia.org/wiki/Kraft_Foods, Figure 8.2 image description: Concentration Strategies. Often firms will rely on advertising to attract new customers within existing markets. ... concentration is often a better way to build a fortune. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Ansoff, H. I. 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. This was the reasoning behind several mergers of large oil companies, including Petro-Canada and Suncor in 1998, Exxon and Mobil in 1999, and Chevron and Texaco in 2001. In the case of focus differentiation, one advantage is that very high prices can be charged. 2. Can you identify a struggling company that could benefit from market penetration, market development, or product development? List of the Advantages of a Focus Strategy 1. In the case of focus differentiation, one advantage is that very high prices can be charged. 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. 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. Coca-Cola introduced Freestyle in 2009,  a touch screen soda fountain. In recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. Strategic management is a way to transform the existing static plan in a proper systematic process. Thus executives need to be very cautious when considering using horizontal integration. Trying to sell existing products within new markets. Also, the level of competition to win short term contracts allows discounting of prices. However, putting criticisms aside, strategic planning plays an important role in organisations. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. 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. 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. (2012, November 28). Now Kicking Horse Coffee can reach consumers that don’t or can’t visit its one coffeehouse in Invermere. Is the ten-blade razor coming soon? Product development involves creating new products to serve existing markets. Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. 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. Here are the advantages and disadvantages of the focus strategy to examine. Oil exploration and refining is expensive. Advantages and disadvantages of strategy? 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). 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. 1. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. This marketing approach is effective for those companies which are skilled and specialized in manufact… What are the advantages and disadvantages of concentrated targeting strategies. Growing with the market brings competitive advantage. 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. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. ... 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. Meaning. 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. 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. Disadvantages Of Diversification The following are the disadvantages of diversification: Entities entirely involved in profit-making segments will enjoy profit maximization. Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international 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. There are four sub-strategies of concentration strategies: (1) market penetration, (2) market development, (3) product development and (4) horizontal integration. We illustrate the three concentration below. 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. Each winter, the firm introduces a holiday-themed set of unusual flavors. Crystal is a seasoned writer and researcher with over 10 years of experience. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. In order to understand more about concentration strategy, one should look at the advantages and disadvantages of concentration strategy –. 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 … We illustrate examples of each below. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. Concentration Strategy Advantages and Disadvantages Vinish Parikh. UFC buys out Strikeforce in another step toward global domination. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. It is an arrangement in which the supply chain of a company is owned by that company. 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. about 3,000), sells only organic fair trade coffee and organic fair trade Indian chai. (2011, March 12). involves trying to gain additional share of a firm’s existing markets using existing products. December 30, 2018. In an acquisition, a larger firm purchases and absorbs a smaller firm. Strategies for diversification. The following problems are faced by the industries due to the concentration in a single place. Market development involves taking existing products and trying to sell them within new markets. 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. Kicking Horse Coffee Kicks it up a Notch. 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. Name and understand the three concentration strategies. The machine features over 125 different Coca-Cola drink products, and custom flavors. However, a diversified entity will lose out due to having limited investment in the specific segment. It helps organisations carry out a comprehensive assessment of its environments and develop and implement strategies in line with them. These products appear to be taking the place of the PepsiCo’s popular “Throwback” sodas, which included limited-edition, sugar-sweetened versions of its flagship cola and Mountain Dew, introduced in 2009, both of which were packaged in nostalgia-inspired cans and bottles. 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. In early 2011, Jones Soda let its customers choose the winter 2011 flavors via a poll on its website. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. Figure 8.5 image description: Horizontal Integration. When the acquisition was undone in 2007, Daimler recouped only $1.5 billion worth of value—a mere 4 percent of what it paid. Given that so many mergers and acquisitions fail, why do you think that executives keep making horizontal integration moves? Its beans are now sold at food stores across Canada, including Loblaws, Overwaitea, Thrifty Foods, Sobeys, Shoppers Drug Mart, and London Drugs. mountain pass and river), Kootenay Crossing, and Grizzly Claw (Kicking Horse Coffee, 2014). Henry, D. (2002, October 14). Mastering Strategic Management - 1st Canadian Edition, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. List of the Advantages of a Focus Strategy 1. 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. 1. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages for … The machine allows users to select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. The term merger is generally used when two similarly sized firms are integrated into a single entity. 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. None of these holiday flavours are expected to be big hits, of course. 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. Part of the motivation behind Canadian Airlines acquiring Wardair in 1989 was to give them access to new routes including long sought-after routes to the UK and Europe. These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. Actions that firms use to try to compete successfully within only a single industry. (pop. Advantages and Disadvantages of the Focused Strategies. Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). Nike, panneau d’affichage JC DECAUX (PARIX,FR75). Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. These two bottling giants are extending their product lines in an attempt to increase their own market share, and take market share away from each other and from their smaller rivals. Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. 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. 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. Similarly, Daimler-Benz bought Chrysler in 1998 for $37 billion. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. Mergers: Why most big deals don’t pay off. 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). An attempt to gain additional share of existing markets using existing products. Few compan… Concentration on a Single Business Advantages Operational focus on a single familiar industry or market. Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 2014). 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. In simple words, if the company wants to be market leader than it needs to have a high and loyal customer base. Fair Trade USA reports that organic coffee imports to the United States and Canada increased in 2012 by 18 percent over 2011. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Kicking Horse Coffee, based in the relatively tiny and remote town of Invermere, B.C. Often firms will rely on advertising to attract new customers within existing markets. Suppose the president of your college or university decided to merge with or acquire another school. Horizontal integration can be attractive for several reasons. 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. The soft drink industry is an example of frequent product development efforts. The joining of two similarly sized companies into one company. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products—often by relying on extensive advertising. Advantages of each approach. 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. Canadian Airlines Subsidiaries. A concentration strategy is a type of approach that is used in both business and investment situations. 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. This type of marketing can be a great success for those companies who have limited resources. Mergers typically involve similarly sized companies. In the end, between 30 percent and 45 percent of mergers and acquisitions are undone, often at huge losses (Hitt, Harrison, & Ireland, 2001). Canada ranks at 0.5 percent of the world’s population. Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Generally, the acquired company is smaller than the firm that purchases it. Uncategorized concentrated marketing advantages and disadvantages In 1989, Kraft’s parent company merged Kraft and General Foods. 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