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Presentation on

Types of strategies

Alternative / Types of strategies


Three types:
Vertical Integration strategies
Forwards integration
Backward strategies
Horizontal strategies

Intensive strategies:

Market penetration
Market development
Product development
Diversification
Related diversification
Unrelated diversification

Defensive strategies
Retrenchment
Divestiture
Liquidation

Integrative Growth Strategy

Vertical integration (forward and/or backward) in the


distribution system.
Horizontal integration (acquire competitive
companies).

Vertical Integration
Vertical Integration is a means of
co-ordinating the different
stage of industry chain when
bilateral trading is not
beneficial

Vertical Integration Strategies


Forward
Integration

Gaining ownership or increased


control over distributors or retailers

Backward
Integration

Seeking ownership or increased


control of a firms suppliers

Ch 5 -5

Horizontal
Integration

Seeking ownership or increased


control over competitors

Integrative Growth Strategies


VERTICAL INTEGRATION
Toward the Source of Supply
1. Backward

3. HORIZONTAL
INTEGRATION

Similar
Businesses
Acquired

2. Forward
Toward the Customer

A. Forward Integration
Forward integration involves gaining ownership or
increased control over distributors or retailers.
Franchising is an effective means of implementing forward
integration. There is a growing trend for franchisees to buy
out their part of the business from their franchiser.

Six guidelines when forward integration may be an especially effective


strategy:
1. When an organizations present distributors are especially expensive
or unreliable, or incapable of meeting firms distribution needs.
2.When the availability of quality distributors is so limited as to offer a
competitive advantage to those firms that integrate forward.
3.When an organization competes in an industry that is growing and
expected to continue to grow markedly.
4.When an organization has both the capital and human resources
needed to manage the new business.
5.When the advantages of stable production are particularly high.
6.When present distributors have high profit margins.

B. Backward Integration
Backward integration is a strategy of seeking ownership or
increased control of a firms suppliers. This strategy can be especially
appropriate when a firms current suppliers are unreliable, too costly, or
cannot meet the firms needs.

There are seven guidelines for when backward


integration may be especially effective:
1. When an organizations present suppliers are especially expensive,
or unreliable, or incapable of meeting the firms needs for parts,
components, assemblies, or raw materials.
2. When the number of suppliers is small and the number of
competitors is large.
3. When an organization competes in an industry that is growing
rapidly.
4. When an organization has both capital and human resources to
manage the new business of supplying its own raw materials.
5. When the advantages of stable prices are particularly important.
6. When present supplies have high profit margins.
7. When an organization needs to quickly acquire needed resources.

C. Horizontal Integration
Horizontal integration refers to a strategy of seeking
ownership of or increased control over a firms competitors.
One of the most significant trends in strategic
management today is the increased use of horizontal integration
as a growth strategy.
Mergers, acquisitions, and takeovers among competitors
allow for increased economies of scale and enhanced transfer of
resources and competencies.

There are five guidelines for when horizontal integration may be an


especially effective strategy:

1. When an organization can gain monopolistic characteristics.


2. When an organization competes in a growing industry.
3. When increased economies of scale provide major competitive
advantages.
4. When an organization has both the capital and human talent
needed to successfully manage an expanded organization.
5. When competitors are faltering due to lack of managerial expertise
or a need for particular resources that an organization possesses.

Presentation on
Intensive strategies/ Ansoff's
product / market matrix

Ansoff's Matrix
This matrix was developed by Igor Ansoff.
The Ansoff Matrix was first published in
the Harvard Business Review in 1957, and
has given generations of marketers and
small business leaders a quick and simple
way to develop a strategic approach to
growth.

Tool that helps businesses decide their


product and market growth strategy.
This matrix was developed to identify the
corporate growth opportunities.
This matrix offers strategic choice to
achieve the objectives.
It is useful to understand the risks of
different options.

It is also called as the:


Strategy development directions matrix.
Product/Market Expansion Grid

There are two dimensions which


determine the scope of options namely
products and markets.
product/market growth matrix suggests
that a business attempts to grow depend
on whether it markets new or existing
products in new or existing markets.

Four generic growth strategies are identified:


Market penetration: more of the same to the same
customers.
Market development: new customers for existing
products.
Product development: new products for existing
customers.
Diversification : new products and new customers.

Ansoffs Matrix

Existing
Existing

PRODUCTS

MARKET
PENETRATION

INCREASING RISK
PRODUCT
DEVELOPMENT
Sell new products in
existing markets

MARKETS
MARKET
EXTENSION

New

Achieve higher
sales/market
share of existing
products in new
markets

DIVERSIFICATION
Sell new products in
new markets

INCREASING RISK

Sell more in
existing Markets

New

Strategy development directions


matrix.
(according to Johnson & Scholes)

What about the risk??

The greater the degree of newness the


greater the risk:
Hence:
1.
2.
3.
4.

Market penetration little risk involved.


Market development moderate risk.
Product development- moderate risk.
Diversification- high risk because both
product and market are new and unknown.

Existing
Existing

PRODUCTS

MARKET
PENETRATION

MARKETS

New

INCREASING RISK

INCREASING RISK

Sell more in
existing Markets

New

1. Market penetration
Market penetration is where the company gains market share.
Market penetration is the name given to a growth strategy
where the business focuses on selling existing products into
existing markets.
Increasing the market share of an existing product or
promoting new product through price cuts, extensive
advertising, high discounts, etc.
The main aim of the strategy:
To maintain or increase share of the current market with current
product.
To share dominance of a growth market or restructure a mature market
by driving out competition.

In a stagnant market increase in sales is


only possible by grabbing market share
from rivals. Hence competition will be
intense in such markets.
Restructure a mature market by driving
out competitors; this would require a much
more aggressive promotional campaign,
supported by a pricing strategy designed
to make the market unattractive for
competitors.

When can market penetration be


used??
When:::::
There is growth in the market
Market is not saturated.
The share of competitor in the market is
falling.
There is a scope for selling more to existing
customers.
Increased volumes lead to economies of
scale.

Market penetration strategies


How is increased market penetration achieved?

Increase usage by existing customers.


Attract customers away from rivals.
Gain market share at the expense of rivals.
Encourage increase in frequency of use.
Devise and encourage new application.
Encourage non buyers to buyers.

Market penetration requires realignment of the


marketing mix.

Existing
Existing

PRODUCTS

MARKET
PENETRATION

MARKETS
MARKET
EXTENSION

New

Achieve higher
sales/market
share of existing
products in new
markets

INCREASING RISK

INCREASING RISK

Sell more in
existing Markets

New

2. Market development
Market development is the name given to
a growth strategy where the business
seeks to sell its existing products into new
markets.
It requires changes in marketing strategies
e.g. new distribution channels, different
pricing policy, new promotional strategy to
attract different types of customers.

It involves:
Entering new markets or segments with existing
products.
Normally requires some product development and
capability development.
Selling the same products to different people .
Generating new markets, new segments, new
customers,.
Entering overseas markets.

Market development involves moderate risk


there is a lack of familiarity with customers but at
least product is familiar.

There are many possible ways


approaching this strategy, including:

of

New geographical markets; for example


exporting the product to a new country
New product dimensions or packaging
New distribution channels
Different pricing policies to attract different
customers

Existing
Existing

PRODUCTS

MARKET
PENETRATION

MARKETS
MARKET
EXTENSION

New

Achieve higher
sales/market
share of existing
products in new
markets

INCREASING RISK
PRODUCT
DEVELOPMENT
Sell new products in
existing markets

INCREASING RISK

Sell more in
existing Markets

New

3. Product development
Product development is the name given to a
growth strategy where a business aims to
introduce new products into existing markets.
This strategy may require the development of
new competencies and requires the business to
develop modified products which can appeal to
existing markets.
E.g. Coca-Cola developed to have vanilla, lime,
cherry and diet varieties (amongst others) in the
SOFT DRINKS market

This is the development of new products


for the existing market.
New products come in the form of:
New products to replace current products
New innovative products
Product line extension
Product improvement
New products to complement existing
products.
Products at a different quality level to existing
products.

Deliver modified or new products to existing


markets:
With existing capabilities

Follow changing customer needs


Short product life cycles
Exploitation of core competence in market analysis

With new capabilities

Change of emphasis in customer needs


Change in Critical Success Factors (CSFs)

Associated dilemmas

Expense, risk and potential un-profitability


Unacceptable consequences of not developing
new products

Product development is done when:

the firm has strong R&D capabilities


The market is growing
There is rapid change in customers preference
The firm can build on existing brands
Competitors have better products.

But new product development is costly and there


are moderate risks associated with this strategy.

Existing
Existing

PRODUCTS

MARKET
PENETRATION

INCREASING RISK
PRODUCT
DEVELOPMENT
Sell new products in
existing markets

MARKETS
MARKET
EXTENSION

New

Achieve higher
sales/market
share of existing
products in new
markets

DIVERSIFICATION
Sell new products in
new markets

INCREASING RISK

Sell more in
existing Markets

New

4. Diversification
Diversification is the name given to the
growth strategy where a business markets
new products in new markets.
Diversification means:
New product sold to new markets
New products for new customers.

This is an inherently more risk strategy


because the business is moving into
markets in which it has little or no
experience.
For a business to adopt a diversification
strategy, therefore, it must have a clear
idea about what it expects to gain from the
strategy and an honest assessment of the
risks.
Diversification can be sub-divided into
related and unrelated.

Unrelated Diversification
Features of unrelated diversification
Growth in products and markets that are completely new.
Development beyond the present industry into products
and markets which bear little relation to the present
product market mix.

It is also known as conglomerate diversification :


when completely new, technologically unrelated
products are introduced into new markets.
As it represents a departure from existing products
and markets it does represent considerable risk.

Related Diversification
This is development beyond present product market but
still within the broad of the industry.
Markets and products share some commonality with
existing products.
Therefore it builds on assets or activities which the firm
has developed.
Related diversification can also be seen as synergistic
diversification since it involves harnessing existing
product market knowledge.
This closeness can reduce the risks associated with
diversification
E.g. banks developing insurance products.

Use of Ansoff's Matrix


The matrix is a framework to explore direction
for strategic growth.
It is the most commonly used model for
analyzing the possible strategic direction that a
business should take.
It not only identifies and analyses different
growth opportunities but also encourages
planners to consider both expected returns and
risks.
But in the real world, the situation might vary.

Presentation on
Defensive strategies

A.

Retrenchment
Retrenchment occurs when an organization regroups
through cost and asset reduction to reverse declining sales
and profits.
Sometimes called a turnaround or reorganizational strategy,
retrenchment is designed to fortify an organizations basic
distinctive competence.
Retrenchment can entail selling off land and buildings, pruning
product lines, closing marginal businesses, closing obsolete
factories, automating processes, reducing the number of
employees, and instituting expense control systems.

Five guidelines identify when retrenchment may be an especially effective


strategy to pursue:
1.When an organization has a clearly distinctive competence but has failed to
meet objectives consistently.
2.When an organization is one of the weaker competitors in a given industry.
3.When an organization is plagued by inefficiency, low profitability, poor
employee morale, and pressure from stockholders to improve performance.
4.When an organization has failed to capitalize on external opportunities,
minimize external threats, take advantage of internal strengths, and overcome
internal weaknesses over time.
5.When an organization has grown so large so quickly that major internal
reorganization is needed.

B. Divestiture
Selling a division or part of an organization is called divestiture.
Divestiture often is used to raise capital for further strategic acquisitions or
investments.
Divestiture can be used to rid an organization of businesses that are
unprofitable, that require too much capital, or that do not fit well with the firms
other activities.
Divestiture has become a very popular strategy as firms try to focus on
their core strengths, lessening their level of diversification.
Historically firms have divested their unwanted or poorly performing
divisions, but the global recession has witnessed firms simply closing such
operations

Six guidelines for when to use divestiture:


1.When an organization has pursued a retrenchment strategy and it
failed to accomplish needed improvement.
2.When a division needs more resources to be competitive than the
company can provide.
3.When a division is responsible for an organizations overall poor
performance.
4.When a division is a misfit with the rest of an organization.
5.When a large amount of cash is needed quickly and cannot be
obtained.
6.When government antitrust action threatens an organization.

C. Liquidation
Selling all of a companys assets, in
parts, for their tangible worth is called
liquidation. Liquidation is recognition of
defeat and consequently can be an
emotionally difficult strategy.

Three guidelines of when to use liquidation:


1.When an organization has pursued both a retrenchment
and a divestiture strategy and neither has been successful.
2.When an organizations only alternative is bankruptcy.
3.When the stockholders of a firm can minimize their losses
by selling assets.

Thank you