It has been a mainstay of the town since the company started in 1996. 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. This marketing approach is effective for those companies which are skilled and specialized in manufact… An acquisition takes place when one company purchases another company. Starbucks engages in market development by selling their beans and bottled drinks in grocery stores. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. Meaning. Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. The selection would depend upon the organization and its 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. The CEO, Elana Rosenfeld, has been recognized several times for her achievements in business. 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. Figure 8.5 image description: Horizontal Integration. The flavors of Christmas were the focus of 2007’s set, which included Sugar Plum, Christmas Tree, Egg Nog, and Christmas Ham. Suppose the president of your college or university decided to merge with or acquire another school. 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. One way to reach a new market is to enter a new retail channel. 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. Retrieved from http://www.ota.com/pics/media_photos.171.img_filename.pdf, Fair Trade USA (2013, May 10). In the case of focus differentiation, one advantage is that very high prices can be charged. Figure 8.2: Attribution information for all included images is in the chapter conclusion. Oil exploration and refining is expensive. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. Some purchased firms are attractive because they own strategic resources such as valuable brand names. 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. Market development involves taking existing products and trying to sell them within new markets. McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. (2014). The machine allows users to select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. Therefore, diversification limits the growth opportunities for an entity. None of these holiday flavours are expected to be big hits, of course. (2012, November 28). Pursuing a concentration strategy by acquiring or merging with a rival. Harvard Business Review, 35(5), 113–124. 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. In order to understand more about concentration strategy, one should look at the advantages and disadvantages of concentration strategy –. 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. Disadvantages of Localization Of Industries. ... 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. SI.com. UFC buys out Strikeforce in another step toward global domination. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. This type of marketing can be a great success for those companies who have limited resources. Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international markets. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). What’s your view on this? All is not well with the concentration of industries. 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. 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. McDonald’s, Starbucks, and Subway are three firms that have relied heavily on concentration strategies to become dominant players. 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. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Kraft Foods Retrieved from http://en.wikipedia.org/wiki/Kraft_Foods, Figure 8.2 image description: Concentration Strategies. Some purchased firms have market share that is attractive. 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. For many firms, concentration strategies are very sensible. 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. 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. List of the Advantages of a Focus Strategy 1. Executives in charge of each of these six corporations believed that greater efficiency could be achieved by combining forces with a former rival. mountain pass and river), Kootenay Crossing, and Grizzly Claw (Kicking Horse Coffee, 2014). Canada’s Organic Market National Highlights, 2013. In the case of focus differentiation, one advantage is that very high prices can be charged. The winners were Candy Cane, Gingerbread, Pear Tree, and Egg Nog. The following problems are faced by the industries due to the concentration in a single place. Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 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. Mastering Strategic Management – 1st Canadian Edition. Is the ten-blade razor coming soon? UFC buys out Strikeforce in another step toward global domination. The company ships anywhere in Canada, and its products are available through Amazon.ca and Amazon.com. (2011, March 12). Here are the advantages and disadvantages of the focus strategy to examine. A concentration strategy is a type of approach that is used in both business and investment situations. Here are the advantages and disadvantages of the focus strategy to examine. 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. 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. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. Retrieved from http://fairtradeusa.org/press-room/press_release/fair-trade-certified-coffee-imports-hit-record-high-2012. Growing with the market brings competitive advantage. Can you identify a struggling company that could benefit from market penetration, market development, or product development? These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. 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. Advantages of each approach. Given that so many mergers and acquisitions fail, why do you think that executives keep making horizontal integration moves? In 2013, Jones Soda created a poutine-flavored, limited-edition soft drink, which got international popular culture attention. 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. 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). approach in which a firm purposes to establish and market an exclusive product for various consumer segments 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. 1. December 30, 2018. Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. (2014). Henry, D. (2002, October 14). 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. 3. In recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. Understanding Thought Patterns: A Key to Corporate Leadership? Despite the potential benefits of mergers and acquisitions, their financial results often are very disappointing. McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. The joining of two similarly sized companies into one company. Compare also: Target Marketing. 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. Coca Cola Freestyle. Would the move be a success? Mergers and acquisitions: A guide to creating value for stakeholders. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. Be able to explain horizontal integration and two reasons why it often fails. 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. (pop. 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. However, an organization can use one, two, or all aspects of these strategies to try to excel within an industry. 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. Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. Business Week, 60–70. Appendix 1: Mastering Strategic Management Powerpoints. Advertising is a major way to attract customers within the existing markets. Market development involves taking existing products and trying to sell them within new markets. 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. Thus executives need to be very cautious when considering using horizontal integration. 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. An attempt to gain additional share of existing markets using existing products. Some of these moves struggle because the cultures of the two companies cannot be meshed. What schools would be good candidates for this horizontal integration move? Actions that firms use to try to compete successfully within only a single industry. Coca-Cola introduced Freestyle in 2009,  a touch screen soda fountain. Originally from Vancouver, B.C., Jones Soda Co. takes a novel approach to product development. 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. Its beans are now sold at food stores across Canada, including Loblaws, Overwaitea, Thrifty Foods, Sobeys, Shoppers Drug Mart, and London Drugs. Kicking Horse Coffee Kicks it up a Notch. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. In simple words, if the company wants to be market leader than it needs to have a high and loyal customer base. Crystal is a seasoned writer and researcher with over 10 years of experience. 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. 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. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. In the 1940s, for example, Disney expanded its offerings within the film business by going beyond cartoons and creating movies featuring real actors. Market penetration, market development, and product development are three methods to grow within an industry. Ansoff, H. I. These strategies involve trying to compete successfully within only a single industry. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Air Canada and Canadian Airlines merged in 2001, becoming the world’s twelfth-largest airline in the first decade of the 21st century. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. involves trying to gain additional share of a firm’s existing markets using existing products. A merger joins two companies into one. Concentration on a Single Business Advantages Operational focus on a single familiar industry or market. 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). What is Concentrated Marketing? The advantages were natural resources, strategy in warfare, and trade was prosperous. Diversification vs. Figure 8.5: Attribution information for all included images is in the chapter conclusion. The concentration strategy, in contrast to other competition strategies, focuses primarily on the good service of a specific market segment, the implementation of strategic goals relating not to the entire sector, but only to a given segment. 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. Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Generally, the acquired company is smaller than the firm that purchases it. (1957). Bevnet. 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. The term merger is generally used when two similarly sized firms are integrated into a single entity. In early 2011, Jones Soda let its customers choose the winter 2011 flavors via a poll on its website. 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. Daimler Chrysler was formed in 1998 when Chrysler entered into what was billed as a “merger Of equals” with Germany’s Daimler- Benz AG. In 1989, Kraft’s parent company merged Kraft and General Foods. 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. 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. Perhaps the most obvious reason to compete in international markets is gaining access to new customers. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. (2013). 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. Concentration strategies are meant to compete in one, single industry. 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. Disadvantages. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. 2014. It helps to build strong relationships within each target market. 2. 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. 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). There is not one approach that is better than the others. New York, NY: Oxford University Press. In an acquisition, a larger firm purchases and absorbs a smaller firm. Trying to sell existing products within new markets. Apple engages in market development by allowing customers in Starbucks stores to connect directly to iTunes store and Starbucks Now Playing content. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages for … Concentration strategies involve trying to grow by successfully competing only Within a single industry. PepsiCo Eyes Summer Launch for New “Real Sugar” Colas. Name and understand the three concentration strategies. Advantages and Disadvantages of the Focused Strategies. that comes in the coffees, with names like Kicking Horse (after a famous and historic B.C. However, putting criticisms aside, strategic planning plays an important role in organisations. What might you advise this company’s executives to do differently? 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. Totally dependent on a single niche market segment; High developed and specialized market plan is required to implement In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. 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. What are the advantages and disadvantages of four firm concentration ratio (CR4) and Hirfindahl-Hirschman Index (HHI) -- must give both advantages and disadvantages for … 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. Advantages and disadvantages of strategy? Product development involves creating new products to serve existing markets. Although the United States currently has the largest economy in the world, it accounts for less than 5 percent of the world’s population. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). 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