As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and 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. This type of marketing can be a great success for those companies who have limited resources. However, a diversified entity will lose out due to having limited investment in the specific segment. 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. (2014). 1. Retrieved from http://www.bevnet.com/news/2014/pepsico-eyes-summer-launch-for-new-real-sugar-colas/, Canada Organic Trade Association. Market penetration, market development, and product development are three methods to grow within an industry. Retrieved from http://sportsillustrated.cnn.com/2011/writers/jeff_wagenheim/03/12/strikeforce-purchased/index.html, Wikipedia Organization. We illustrate the three concentration below. Coca-Cola introduced Freestyle in 2009,  a touch screen soda fountain. 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. 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. 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. 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. The following problems are faced by the industries due to the concentration in a single place. This strategic move is known as horizontal integration (Figure 8.5 “Horizontal Integration”). (2014). It helps to build strong relationships within each target market. The benefits of the strategy is to build a strong reputation within a market and generate loyalty among the customers. Be able to explain horizontal integration and two reasons why it often fails. To sum-up, advantages and disadvantages of strategic planning are very clear as outlined above. Horizontal integration can be attractive for several reasons. mountain pass and river), Kootenay Crossing, and Grizzly Claw (Kicking Horse Coffee, 2014). Product development involves creating new products to serve existing markets. Retrieved from http://www.vancouversun.com/mobile/business/news/Vancouver+entrepreneur+celebrates+sweet+smell/7617938/story.html, The Canadian Business Journal. The marriage failed, and Chrysler is currently owned by Italian auto maker Fiat in its new holding company, Fiat Chrysler Automobiles. 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. 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. 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 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. Hitt, M. A., Harrison, J. S., & Ireland, R. D. (2001). 3. 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. Jul 24 Back To Home Advantages of Decentralization. What schools would be good candidates for this horizontal integration move? Mergers typically involve similarly sized companies. These companies cannot expand after a certain level and need a concentrated efforts for a selected niche. 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 1940s, for example, Disney expanded its offerings within the film business by going beyond cartoons and creating movies featuring real actors. 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. Kraft Foods Retrieved from http://en.wikipedia.org/wiki/Kraft_Foods, Figure 8.2 image description: Concentration Strategies. Fair Trade Certified™ Coffee Imports Hit Record High in 2012. 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. Concentration on a Single Business Advantages Operational focus on a single familiar industry or market. Now Kicking Horse Coffee can reach consumers that don’t or can’t visit its one coffeehouse in Invermere. There are four sub-strategies of concentration strategies: (1) market penetration, (2) market development, (3) product development and (4) horizontal integration. Coca Cola Freestyle. Appendix 1: Mastering Strategic Management Powerpoints. 1. 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. Advantages of Decentralization. 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. 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. It contained Green Pea, Sweet Potato, Dinner Roll, Turkey and Gravy, and Antacid sodas. Mergers: Why most big deals don’t pay off. Given that so many mergers and acquisitions fail, why do you think that executives keep making horizontal integration moves? In the case of focus differentiation, one advantage is that very high prices can be charged. Crystal is a seasoned writer and researcher with over 10 years of experience. Figure 8.2: Attribution information for all included images is in the chapter conclusion. Business Week, 60–70. Some of these moves struggle because the cultures of the two companies cannot be meshed. The machine features over 125 different Coca-Cola drink products, and custom flavors. Each generic strategy offers advantages that firms can potentially leverage to enhance their success as well as disadvantages that may undermine their success. Vancouver Sun. 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. 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). Also, the level of competition to win short term contracts allows discounting of prices. However, an organization can use one, two, or all aspects of these strategies to try to excel within an industry. (pop. Interestingly, a firm can use one, two, or aspects of all three strategies in its efforts to excel within an industry (Ansoff, 1957). Within concentration strategies, there are three sub-strategies: (1) market penetration, (2) market development, and (3) product development (Figure 8.2 “Concentration Strategies”). Daimler Chrysler was formed in 1998 when Chrysler entered into what was billed as a “merger Of equals” with Germany’s Daimler- Benz AG. As with all strategies, diversification in business has advantages and disadvantages and the administration can use these advantages and disadvantages for … Kicking Horse Coffee, based in the relatively tiny and remote town of Invermere, B.C. 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. In 2013, Jones Soda created a poutine-flavored, limited-edition soft drink, which got international popular culture attention. In the end, between 30 percent and 45 percent of mergers and acquisitions are undone, often at huge losses (Hitt, Harrison, & Ireland, 2001). An attempt to gain additional share of existing markets using existing products. 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. Originally from Vancouver, B.C., Jones Soda Co. takes a novel approach to product development. Advantages of each approach. (2013). Ansoff, H. I. What is Concentration Strategy? This measure not only translates into an increase in overall … Generally, the acquired company is smaller than the firm that purchases it. Horizontal integration refers to pursuing a concentration strategy by acquiring or merging with a rival. In terms of corporate marketing, business diversification is the strategy to increase profits by selling new products in new markets. None of these holiday flavours are expected to be big hits, of course. Kicking Horse Coffee had an auspicious beginning, doubling its sales year after year. Concentrated marketing is concerned with focusing all available resources on one segment within the total market. Executives in charge of each of these six corporations believed that greater efficiency could be achieved by combining forces with a former rival. In recent years, HP has pursued horizontal integration through a merger with Compaq and the acquisition of Palm. Growing with the market brings competitive advantage. 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. Advantages and disadvantages of strategy? The joining of two similarly sized companies into one company. What might you advise this company’s executives to do differently? Therefore, diversification limits the growth opportunities for an entity. The advantages were natural resources, strategy in warfare, and trade was prosperous. ... 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. 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