Concentration involves converging resources in one or more of a firm’s businesses in terms of products, markets or functions in such a manner that it results in expansion. Concentration strategies are variously known as intensification, focus or specialization. Concentration strategies are the ‘stick to the knitting’ strategies. Excellent firms tend to rely on doing what they know they are best at doing.
Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. This may be done following through the below strategies:(i) Market penetration (ii) Market development (iii) Product development.
Market penetration: Market penetration as a deliberate strategy involves gaining market share through improving quality or productivity, and increasing marketing activity for the long- term desirability of obtaining a dominant market share. The ease with which a business can pursue a strategy of market penetration is determined by the nature of the market and the position of competitors. In a growing market, it may be comparatively easy for companies with a small share, or new competitors, to gain market share because the absolute level of sales of the established companies may still be increasing; and in some cases, those companies may be unable or unwilling to meet the new demand. In static markets, market penetration can be much more difficult to achieve. In mature markets the market penetration is still more difficult due to the advantageous cost structure of market leader that prevent the sudden entry of competitors with lower market share. However, the complacency of market leaders may allow smaller-share competitors to gain share or may build a reputation in a market segment of little interest to the market leader, from which it penetrates the wider market. Sometimes market penetration, particularly of mature markets, can be achieved through collaboration with others. In declining markets, the market penetration is possible to the extent other firms exit from the market. If they do, it may be relatively easy for a company to increase its share of that market.
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Market development: Market development refers to the attempts of an organization to maintain the security of its present products while venturing into new market areas. It includes (a) entering new market segments, (b) exploiting new uses for the product and (c) spreading into new geographical areas. In capital- intensive industries a company with specific assets may have its distinctive competence with the product and not the market, and hence the continued exploitation of the product by market development would be a preferred strategy. Most capital goods companies have developed this way by opening up more overseas markets as old markets have become saturated. Exporting is a method of market development. However, there are several reasons why organizations might want to develop beyond exporting and internationalize by locating some of their manufacturing, distribution or marketing operations overseas.
Product development: Product development is the creation of new or improved products to replace existing ones. The company maintains the security of its present markets while changing products or developing new ones. The wet shaving industry is an example that depends on product development to create successive waves of consumer demand. For instance, in 1989 Gillette came out with its new Sensor shaving system that significantly increased its market share. In turn, Wilkinson Sword responded with its version of the product.
There may be several reasons why companies prefer product development.n(a) Companies in retailing follow the changing needs of their customers by continually introducing new product lines.
(b) Local authorities need to shift their pattern of services as local needs change. (c) The company is particularly good at R & D (d) The company has structured itself around product divisions. (e) In case of products with short life cycle, product development becomes an essential strategy.
Product development is important for product differentiation and building market share. For example Tide (detergent) has gone through more than fifty different changes in formulation during the past forty years to improve its performance. Tide is a different product each year.
Concentration strategies involve investment of resources in a product line for an identified market with the help of proven technology. This may be done following through the below strategies:(i) Market penetration (ii) Market development (iii) Product development.
Market penetration: Market penetration as a deliberate strategy involves gaining market share through improving quality or productivity, and increasing marketing activity for the long- term desirability of obtaining a dominant market share. The ease with which a business can pursue a strategy of market penetration is determined by the nature of the market and the position of competitors. In a growing market, it may be comparatively easy for companies with a small share, or new competitors, to gain market share because the absolute level of sales of the established companies may still be increasing; and in some cases, those companies may be unable or unwilling to meet the new demand. In static markets, market penetration can be much more difficult to achieve. In mature markets the market penetration is still more difficult due to the advantageous cost structure of market leader that prevent the sudden entry of competitors with lower market share. However, the complacency of market leaders may allow smaller-share competitors to gain share or may build a reputation in a market segment of little interest to the market leader, from which it penetrates the wider market. Sometimes market penetration, particularly of mature markets, can be achieved through collaboration with others. In declining markets, the market penetration is possible to the extent other firms exit from the market. If they do, it may be relatively easy for a company to increase its share of that market.
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Market development: Market development refers to the attempts of an organization to maintain the security of its present products while venturing into new market areas. It includes (a) entering new market segments, (b) exploiting new uses for the product and (c) spreading into new geographical areas. In capital- intensive industries a company with specific assets may have its distinctive competence with the product and not the market, and hence the continued exploitation of the product by market development would be a preferred strategy. Most capital goods companies have developed this way by opening up more overseas markets as old markets have become saturated. Exporting is a method of market development. However, there are several reasons why organizations might want to develop beyond exporting and internationalize by locating some of their manufacturing, distribution or marketing operations overseas.
Product development: Product development is the creation of new or improved products to replace existing ones. The company maintains the security of its present markets while changing products or developing new ones. The wet shaving industry is an example that depends on product development to create successive waves of consumer demand. For instance, in 1989 Gillette came out with its new Sensor shaving system that significantly increased its market share. In turn, Wilkinson Sword responded with its version of the product.
There may be several reasons why companies prefer product development.n(a) Companies in retailing follow the changing needs of their customers by continually introducing new product lines.
(b) Local authorities need to shift their pattern of services as local needs change. (c) The company is particularly good at R & D (d) The company has structured itself around product divisions. (e) In case of products with short life cycle, product development becomes an essential strategy.
Product development is important for product differentiation and building market share. For example Tide (detergent) has gone through more than fifty different changes in formulation during the past forty years to improve its performance. Tide is a different product each year.
Concentration strategies have the following advantages: (i) Concentration is less threatening as it requires minimal changes in the organization. (ii) The executives are more comfortable staying with present business. (iii) Concentration enables a firm to focus its whole attention on one or more specific businesses and specialize in them. (iv) A firm may develop a competitive advantage by focusing its resources on a few businesses. (v) People become well familiar with the systems and processes within the firm.
Concentration has its share of limitations too.(i) Following concentration strategies firms become heavily dependent on the industry. The adverse conditions in an industry can and do affect firms if they are intensely concentrated. (ii) If an industry goes into recession, a concentrated firm may find it difficult to withdraw. (iii) If too many competitors enter an industry, the industry loses its attractiveness for the existing firms. (iv) A mature industry places constraints on a concentrated firm for the further expansion.(v) A concentrated firm faces threats from product obsolescence, changes of markets, and emergence of newer technologies.
Concentration has its share of limitations too.(i) Following concentration strategies firms become heavily dependent on the industry. The adverse conditions in an industry can and do affect firms if they are intensely concentrated. (ii) If an industry goes into recession, a concentrated firm may find it difficult to withdraw. (iii) If too many competitors enter an industry, the industry loses its attractiveness for the existing firms. (iv) A mature industry places constraints on a concentrated firm for the further expansion.(v) A concentrated firm faces threats from product obsolescence, changes of markets, and emergence of newer technologies.
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