Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international markets. An attempt to gain additional share of existing markets using existing products. Advantages and Disadvantages of Market Penetration Strategy/Pricing Market penetration strategy takes advantage of low prices to increase product demand and increase market share. What’s your view on this? Originally from Vancouver, B.C., Jones Soda Co. takes a novel approach to product development. 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 … Market development involves taking existing products and trying to sell them within new markets. Retrieved from http://www.vancouversun.com/mobile/business/news/Vancouver+entrepreneur+celebrates+sweet+smell/7617938/story.html, The Canadian Business Journal. B.C entrepreneur celebrates the sweet smell of (Kicking Horse Coffee) success. (2014). 2014. Advantages of Decentralization. Advantages and disadvantages of strategy? McDonald’s has pursued market penetration in recent years by using Latino themes within some of its advertising. Starbucks engages in market development by selling their beans and bottled drinks in grocery stores. This measure not only translates into an increase in overall … 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). Concentration Strategy Advantages and Disadvantages Vinish Parikh. Some purchased firms are attractive because they own strategic resources such as valuable brand names. 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. 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). approach in which a firm purposes to establish and market an exclusive product for various consumer segments Figure 8.5 image description: Horizontal Integration. What is Concentration Strategy? These strategies involve trying to compete successfully within only a single industry. 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. Excessive dependence: Concentration of industries would lead to the establishment of several industries in a particular place. Generally, the acquired company is smaller than the firm that purchases it. Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. Retrieved from http://www.ota.com/pics/media_photos.171.img_filename.pdf, Fair Trade USA (2013, May 10). What are the advantages and disadvantages of four firm concentration ratio (CR4) and Hirfindahl-Hirschman Index (HHI) -- must give both advantages and disadvantages for … It is an arrangement in which the supply chain of a company is owned by that company. 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. (2011, March 12). Interestingly, a firm can use one, two, or aspects of all three strategies in its efforts to excel within an industry (Ansoff, 1957). These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. 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. 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. The selection would depend upon the organization and its market. 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. Oil exploration and refining is expensive. Jones Soda’s 2006 set focus on the flavors of Thanksgiving. When the acquisition was undone in 2007, Daimler recouped only $1.5 billion worth of value—a mere 4 percent of what it paid. This marketing approach is effective for those companies which are skilled and specialized in manufact… 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 earning profits due to specialization in producing a product. 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. UFC buys out Strikeforce in another step toward global domination. This type of marketing can be a great success for those companies who have limited resources. 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. Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. When one company purchases another company. A concentration strategy is a type of approach that is used in both business and investment situations. Kicking Horse Coffee, The 411. The machine features over 125 different Coca-Cola drink products, and custom flavors. Vancouver Sun. What might you advise this company’s executives to do differently? Now Kicking Horse Coffee can reach consumers that don’t or can’t visit its one coffeehouse in Invermere. (2014). The soft drink industry is an example of frequent product development efforts. Crystal is a seasoned writer and researcher with over 10 years of experience. Compare also: Target Marketing. In an acquisition, a larger firm purchases and absorbs a smaller firm. See Also: Organizational Structure Advantages of Centralization. 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. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages … Perhaps the most obvious reason to compete in international markets is gaining access to new customers. It helps organisations carry out a comprehensive assessment of its environments and develop and implement strategies in line with them. Fair Trade USA reports that organic coffee imports to the United States and Canada increased in 2012 by 18 percent over 2011. Each winter, the firm introduces a holiday-themed set of unusual flavors. 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. Bevnet. Retrieved from http://fairtradeusa.org/press-room/press_release/fair-trade-certified-coffee-imports-hit-record-high-2012. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. 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. It has been a mainstay of the town since the company started in 1996. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. 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. Ansoff, H. I. PepsiCo Eyes Summer Launch for New “Real Sugar” Colas. 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). (pop. 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. Mergers typically involve similarly sized companies. Figure 8.2: Attribution information for all included images is in the chapter conclusion. 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. Disadvantages. A concentration strategy involves trying to compete successfully within a single industry. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. 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. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Mergers and acquisitions: A guide to creating value for stakeholders. 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). Kicking Horse Coffee, based in the relatively tiny and remote town of Invermere, B.C. Apple engages in market development by allowing customers in Starbucks stores to connect directly to iTunes store and Starbucks Now Playing content. 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. 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. The company ships anywhere in Canada, and its products are available through Amazon.ca and Amazon.com. about 3,000), sells only organic fair trade coffee and organic fair trade Indian chai. 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 terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. 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. Diversification vs. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. (1957). Some purchased firms have market share that is attractive. There are legitimate reasons for adopting each of the three broad target market strategy approaches. There is not one approach that is better than the others. 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. (2012, November 28). The flavors of Christmas were the focus of 2007’s set, which included Sugar Plum, Christmas Tree, Egg Nog, and Christmas Ham. In the case of focus differentiation, one advantage is that very high prices can be charged. Retrieved from http://www.cbj.ca/business_in_action/food_beverage/kicking_horse_coffee.html, Wagenheim, J. 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. ... 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. Suppose the president of your college or university decided to merge with or acquire another school. 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). Growing with the market brings competitive advantage. 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 … (2013). 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. 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. Disadvantages of Localization Of Industries. In the end, between 30 percent and 45 percent of mergers and acquisitions are undone, often at huge losses (Hitt, Harrison, & Ireland, 2001). 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. Mastering Strategic Management - 1st Canadian Edition, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Concentration strategies are meant to compete in one, single industry. Product development involves creating new products to serve existing markets. What are the advantages and disadvantages of concentrated targeting strategies. Understanding Thought Patterns: A Key to Corporate Leadership? The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. Advertising is a major way to attract customers within the existing markets. However, a diversified entity will lose out due to having limited investment in the specific segment. Advantages and Disadvantages of the Focused Strategies. Kicking Horse Coffee has now stepped beyond selling coffee only from its one location. Trying to sell existing products within new markets. Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. 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. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. Jul 24 Back To Home Advantages of Decentralization. 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. Few compan… 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. 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. 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. Market penetration, market development, and product development are three methods to grow within an industry. Can you identify a struggling company that could benefit from market penetration, market development, or product development? 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. Market development involves taking existing products and trying to sell them within new markets. 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 … Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 2014). Here are the advantages and disadvantages of the focus strategy to examine. that comes in the coffees, with names like Kicking Horse (after a famous and historic B.C. Be able to explain horizontal integration and two reasons why it often fails. In 1989, Kraft’s parent company merged Kraft and General Foods. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. More recently, McDonald’s has gradually moved more of its menu toward healthy items to appeal to customers who are concerned about nutrition. What schools would be good candidates for this horizontal integration move? The winners were Candy Cane, Gingerbread, Pear Tree, and Egg Nog. Would the move be a success? The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. New York, NY: Oxford University Press. For a focus strategy to be successful, businesses and brands must actively listen when hearing about the needs and concerns of their targeted demographic. Harvard Business Review, 35(5), 113–124. 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. For many firms, concentration strategies are very sensible. Nike, panneau d’affichage JC DECAUX (PARIX,FR75). 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. Creating new products to serve existing markets. 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. Mergers: Why most big deals don’t pay off. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. 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. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. Coca-Cola introduced Freestyle in 2009,  a touch screen soda fountain. Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). Here are the advantages and disadvantages of the focus strategy to examine. December 30, 2018. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. 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. Name and understand the three concentration strategies. 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. 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. 1. A concentration strategy is a type of approach that is used in both business and investment situations. Coca Cola Freestyle. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). Business Week, 60–70. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages for … However, an organization can use one, two, or all aspects of these strategies to try to excel within an industry. That year it also bought ACE Bakery, a Canadian maker of artisan and European-style breads. Horizontal integration can be attractive for several reasons. 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. Some of these moves struggle because the cultures of the two companies cannot be meshed. Uncategorized concentrated marketing advantages and disadvantages Totally dependent on a single niche market segment; High developed and specialized market plan is required to implement Its beans are now sold at food stores across Canada, including Loblaws, Overwaitea, Thrifty Foods, Sobeys, Shoppers Drug Mart, and London Drugs. 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. In the case of focus differentiation, one advantage is that very high prices can be charged. In simple words, if the company wants to be market leader than it needs to have a high and loyal customer base. Mastering Strategic Management – 1st Canadian Edition. The following problems are faced by the industries due to the concentration in a single place. 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. 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. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. UFC buys out Strikeforce in another step toward global domination. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. 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. 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