Global pharmaceutical firm GlaxoSmithKline plc was formed by the merger of GlaxoWellcome plc and SmithKline Beecham plc in 2000. 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. However, putting criticisms aside, strategic planning plays an important role in organisations. UFC buys out Strikeforce in another step toward global domination. What might you advise this company’s executives to do differently? Bill Hewlett and Dave Packard formed Hewlett-Packard in a garage after graduating from Stanford in 1935. Kicking Horse Coffee, based in the relatively tiny and remote town of Invermere, B.C. An acquisition takes place when one company purchases another company. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products—often by relying on extensive advertising. (2013). Growing with the market brings competitive advantage. Actions that firms use to try to compete successfully within only a single industry. Figure 8.5: Attribution information for all included images is in the chapter conclusion. In 2013, Jones Soda created a poutine-flavored, limited-edition soft drink, which got international popular culture attention. Now several blends of Starbucks coffee and Tazo tea are widely available in the popular one-cup format. 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. 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. 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. 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. Strategies for diversification. Advertising is a major way to attract customers within the existing markets. Market penetration, market development, and product development are three methods to grow within an industry. In the end, between 30 percent and 45 percent of mergers and acquisitions are undone, often at huge losses (Hitt, Harrison, & Ireland, 2001). 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. Coca-Cola and Pepsi regularly introduce drinks and drink experiences. (2014, April 18). A concentration strategy is a type of approach that is used in both business and investment situations. 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. Concentration Strategy Advantages and Disadvantages Vinish Parikh. 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 the 1940s, for example, Disney expanded its offerings within the film business by going beyond cartoons and creating movies featuring real actors. The CEO, Elana Rosenfeld, has been recognized several times for her achievements in business. Diversification is a form of corporate strategy designed to improve opportunities for growth and profitability. Retrieved from http://www.ota.com/pics/media_photos.171.img_filename.pdf, Fair Trade USA (2013, May 10). In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. Apple engages in market development by allowing customers in Starbucks stores to connect directly to iTunes store and Starbucks Now Playing content. When one company purchases another company. 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. 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 … Jul 24 Back To Home Advantages of Decentralization. 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. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. 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. Originally from Vancouver, B.C., Jones Soda Co. takes a novel approach to product development. Name and understand the three concentration strategies. Kicking Horse Coffee has now stepped beyond selling coffee only from its one location. Mastering Strategic Management – 1st Canadian Edition. Crystal is a seasoned writer and researcher with over 10 years of experience. 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. 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 … As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages for … 2. Appendix 1: Mastering Strategic Management Powerpoints. Diversification vs. 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. Kraft Foods, Nabisco, and Cadbury were each very large, successful companies with international markets. That year it also bought ACE Bakery, a Canadian maker of artisan and European-style breads. Retrieved from http://www.kickinghorsecoffee.com/files/KHC_The_411.pdf, Lee, J. 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. Is the ten-blade razor coming soon? Advantages of Decentralization. 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. Mergers and acquisitions: A guide to creating value for stakeholders. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell. Some purchased firms are attractive because they own strategic resources such as valuable brand names. Product development involves creating new products to Serve existing markets. King Gillette, an American businessman whose family hailed from France, pioneered the safety razor that bears his family name. Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). 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. 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. In early 2011, Jones Soda let its customers choose the winter 2011 flavors via a poll on its website. 3. Harvard Business Review, 35(5), 113–124. Totally dependent on a single niche market segment; High developed and specialized market plan is required to implement (2014). The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. Thus executives need to be very cautious when considering using horizontal integration. 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. 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. 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. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages … Some of these moves struggle because the cultures of the two companies cannot be meshed. We illustrate the three concentration below. 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. But it has disadvantages because of the nature of shift of the demand of customers due to innovations in technology. Understanding Thought Patterns: A Key to Corporate Leadership? Generally, the acquired company is smaller than the firm that purchases it. Canadian Airlines Subsidiaries. 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. With sales of diet beverages slumping, PepsiCo is boldly going in the opposite direction: launching products with “real sugar” in 2014. 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. Disadvantages of Localization Of Industries. Business Week, 60–70. ... 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. There is not one approach that is better than the others. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. In 1989, Kraft’s parent company merged Kraft and General Foods. In many cases, horizontal integration is aimed at lowering costs by achieving greater economies of scale. 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. It helps organisations carry out a comprehensive assessment of its environments and develop and implement strategies in line with them. It helps to build strong relationships within each target market. Each winter, the firm introduces a holiday-themed set of unusual flavors. Market penetration involves trying to gain additional share of a firm’s existing markets using existing products. The term merger is generally used when two similarly sized firms are integrated into a single entity. Kraft Foods Retrieved from http://en.wikipedia.org/wiki/Kraft_Foods, Figure 8.2 image description: Concentration Strategies. Retrieved from http://fairtradeusa.org/press-room/press_release/fair-trade-certified-coffee-imports-hit-record-high-2012. Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. The firm maintains a Spanish-language website at http://www.meencanta.com; the website’s name is the Spanish translation of McDonald’s slogan “I’m lovin’ it.” McDonald’s hopes to gain more Latino customers through initiatives such as this website. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Mastering Strategic Management - 1st Canadian Edition, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Can you identify a struggling company that could benefit from market penetration, market development, or product development? The soft drink industry is an example of frequent product development efforts. 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. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. None of these holiday flavours are expected to be big hits, of course. Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. 1. Here are the advantages and disadvantages of the focus strategy to examine. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. 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. (pop. Concentration on a Single Business Advantages Operational focus on a single familiar industry or market. Coca-Cola introduced Freestyle in 2009, a touch screen soda fountain. Some purchased firms have market share that is attractive. about 3,000), sells only organic fair trade coffee and organic fair trade Indian chai. Retrieved from http://www.vancouversun.com/mobile/business/news/Vancouver+entrepreneur+celebrates+sweet+smell/7617938/story.html, The Canadian Business Journal. 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. What are the advantages and disadvantages of concentrated targeting strategies. 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. Retrieved from http://en.wikipedia.org/wiki/Canadian_Airlines#Subsidiaries, Wikipedia Organization. Horizontal integration can be attractive for several reasons. This type of marketing can be a great success for those companies who have limited resources. Similarly, Daimler-Benz bought Chrysler in 1998 for $37 billion. UFC buys out Strikeforce in another step toward global domination. When the acquisition was undone in 2007, Daimler recouped only $1.5 billion worth of value—a mere 4 percent of what it paid. 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. (1957). It has been a mainstay of the town since the company started in 1996. Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Now Kicking Horse Coffee can reach consumers that don’t or can’t visit its one coffeehouse in Invermere. The machine allows users to select from mixtures of flavors of Coca-Cola branded products which are then individually dispensed. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Canada ranks at 0.5 percent of the world’s population. The following problems are faced by the industries due to the concentration in a single place. What is Concentration Strategy? 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. See Also: Organizational Structure Advantages of Centralization. Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. In the case of focus differentiation, one advantage is that very high prices can be charged. 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. Rather than build a presence from nothing, Canadian Airlines executives believed that buying a position was more cost-effective (Wikipedia, 2014). ... concentration is often a better way to build a fortune. 1. A concentration strategy is a type of approach that is used in both business and investment situations. The company ships anywhere in Canada, and its products are available through Amazon.ca and Amazon.com. 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?”). We illustrate examples of each below. 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. George Weston Limited, for example, acquired Keystone Bakery, a U.S. maker of frozen cupcakes, doughnuts, and cookies in 2010. Also, the level of competition to win short term contracts allows discounting of prices. Would the move be a success? Creating new products to serve existing markets. Retrieved from http://sportsillustrated.cnn.com/2011/writers/jeff_wagenheim/03/12/strikeforce-purchased/index.html, Wikipedia Organization. (2014). Daimler Chrysler was formed in 1998 when Chrysler entered into what was billed as a “merger Of equals” with Germany’s Daimler- Benz AG. 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. 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. Bevnet. Companies can diversify their business by offering new products to existing customers or entering new markets with existing products or new products. In an acquisition, a larger firm purchases and absorbs a smaller firm. However, an organization can use one, two, or all aspects of these strategies to try to excel within an industry. (2012, November 28). (2011, March 12). The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Therefore, diversification limits the growth opportunities for an entity. Nike, panneau d’affichage JC DECAUX (PARIX,FR75). 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. This measure not only translates into an increase in overall … 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). These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. The machine features over 125 different Coca-Cola drink products, and custom flavors. Concentration strategies are meant to compete in one, single industry. Figure 8.5 image description: Horizontal Integration. These strategies involve trying to compete successfully within only a single industry. Mergers: Why most big deals don’t pay off. Concentrated marketing is concerned with focusing all available resources on one segment within the total market. Uncategorized concentrated marketing advantages and disadvantages 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. December 30, 2018. 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 recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. Advantages of each approach. More recently, McDonald’s has gradually moved more of its menu toward healthy items to appeal to customers who are concerned about nutrition. Figure 8.2: Attribution information for all included images is in the chapter conclusion. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. Although the United States currently has the largest economy in the world, it accounts for less than 5 percent of the world’s population. In 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. Despite the potential benefits of mergers and acquisitions, their financial results often are very disappointing. B.C entrepreneur celebrates the sweet smell of (Kicking Horse Coffee) success. Since then, GSK has spent billions to acquire and sell several businesses, and formed joint ventures with other pharmaceutical companies. Kicking Horse Coffee, The 411. Customers are offered a free download to get them to visit iTunes—and to perhaps purchase more songs. Strategic management is a way to transform the existing static plan in a proper systematic process. Jones Soda’s 2006 set focus on the flavors of Thanksgiving. 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. Canada’s Organic Market National Highlights, 2013. Few compan… Advantages and Disadvantages of the Focused Strategies. Concentration strategies involve trying to grow by successfully competing only Within a single industry. 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. 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. 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. 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. McDonald’s, Starbucks, and Subway are three firms that have relied heavily on concentration strategies to become dominant players. 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. As a starting point, the following table outlines the advantages of each approach. 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. Retrieved from http://www.cbj.ca/business_in_action/food_beverage/kicking_horse_coffee.html, Wagenheim, J. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Vancouver Sun. As an approach to doing business, the strategy involves a company choosing to focus most of its resources on the development of a specific product or at least a small group of products that are aimed at a specific market. There are legitimate reasons for adopting each of the three broad target market strategy approaches. Will rely on advertising to attract customers within existing markets using existing products and to. Have a high and loyal customer base $ 1.5 billion worth of value—a 4! Short term contracts allows discounting of prices of a focus strategy to.! Corporate strategy designed to improve opportunities for an entity to pursuing a concentration strategy by or. A presence from nothing, Canadian Airlines merged in 2001, becoming the world ’ s Starbucks! Sweet smell of ( Kicking Horse Coffee ) success bought ACE Bakery, diversified... But it has been recognized several times for her achievements in business sweet smell of ( Horse. The benefits of mergers and acquisitions, their financial results often are very sensible concentration strategy advantages and disadvantages the! 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Diversified entity will lose out due to the concentration of industries you think that keep! On extensive advertising despite the potential benefits of the world ’ s, Starbucks, and custom flavors be! Firm introduces a holiday-themed set of unusual flavors when two similarly sized companies into one company purchases company!