Motivating the existing customers to buy its product more frequently and in larger quantities. Typical schemes used for this purpose are volume discounts, bonus cards, price promotion, heavy advertising, regular publicity, wider distribution and obviously through retention of customers by means of an effective customer relationship management.
For this purpose, thefirm must develop significant competitive advantages. Attractive product design, high product quality, attractive prices, stronger advertising, and wider distribution can assist an enterprise in gaining lead over its competitors. All these require heavy investment, which only firms with substantial resources, can afford.
Firms less endowed may search for niche segments. Many small manufacturers, for instance, survive by seeking out and cultivating profitable niches in the market. They may also grow by developing highly specialized and unique skills to cater to a small segment of exclusive customers with special requirements.
Targeting new customers in its current markets. Price concessions, better customer service, increasing publicity and other techniques can be useful in this effort. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. While following market penetration strategy, the firm continues to operate in the same markets offering the same products.
Growth is achieved by increasing its market share with existing products. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Unless there is an intrinsic growth in its current market, this strategy necessarily entails snatching business away from competitors. Another advantage of this strategy is that it does not require additional investment for developing new products.
Market Development Strategy Market Development strategy tries to achieve growth by introducing existing products in new markets. Market development options include the pursuit of additional market segments or geographical regions. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. This is because managers do not normally possess sound knowledge of new markets, which may result in inaccurate market assessment and wrong marketing decisions.
In market development approach, a firm seeks to increase its sales by taking its product into new markets. The two possible methods of implementing market development strategy are, a the firm can move its present product into new geographical areas.
This is done by increasing its sales force, appointing new channel partners, sales agents or manufacturing representatives and by franchising its operation; or b the firm can expand sales by attracting new market segments. Making minor modifications in the existing products that appeal to new segments can do the trick. Product Development Strategy Expansion through product development involves development of new or improved products for its current markets.
The firm remains in its present markets but develops new products for these markets. Growth will accrue if the new products yield additional sales and market share. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers.
Although the firm operates in familiar markets, product development strategy carries more risk than simply attempting to increase market share since there are inherent risks normally associated with new product development.
The three possible ways of implementing the product development strategy are: 1. The company can expand sales through developing new products. The company can create different or improved versions of the current products. The company can make necessary changes in its existing products to suit the different likes and dislikes of the customers. Combination Strategy Combination strategy combines the intensification strategy variants i.
In the market development and market penetration strategy, the firm continues with its current product portfolio, while the product development strategy involves developing new or improved products, which will satisfy the current markets. Combination involves association and integration among different firms and is essentially driven by need for survival and also for growth by building synergies. Combination of firms may take the merger or consolidation route.
Merger implies a combination of two or more concerns into one final entity. The merged concerns go out of existence and their assets and liabilities are taken over by the acquiring company. A consolidation is a combination of two or more business units to form an entirely new company. All the original business entities cease to exist after the combination. Since mergers and consolidations involve the combination of two or more companies into a single company, the term merger is commonly used to refer to both forms of external growth.
As is the case in all the strategies, acquisition is a choice a firm has made regarding how it intends to compete Markides, The costs of integration include reduced flexibility as the organization is locked into specific products and technology, financial costs of acquiring another company and difficulties in integrating various operations. There are many forms of integration, but the two major ones are vertical and horizontal integration.
Thus, a vertically integrated firm has units operating in different stages of supply chain starting from raw material to delivery of final product to the end customer. An organization tries to gain control of its inputs called backwards integration or its outputs called forward integration or both. Vertical integration may take the form of backward or forward integration or both. The concept of vertical integration can be visualized using the value chain.
Consider a firm whose products are made via an assembly process. Such a firm may consider backward integrating into intermediate manufacturing or forward integrating into distribution. Backward integration sometimes is referred to as upstream integration and forward integration as downstream integration. For instance, Nirma undertook backward integration by setting up plant to manufacture soda ash and linear alkyl benzene, both important inputs for detergents and washing soaps, to strengthen its hold in the lower-end detergents market.
Forward integration refers to moving closer to the ultimate customer by increasing control over distribution activities. For example, a personal computer assembler could own a chain of retail stores from which it sells its machines forward integration. Many firms in India such as DCM, Mafatlal and National Textile Corporation have set up their own retail distribution systems to have better control over their distribution activities.
Some companies expand vertically backwards and forward. Reliance Petrochemicals grew by leveraging backward and forward integration: it began with manufacturing of textiles and fibres, moved to polymers and other intermediates then went into the manufacture of fibres, then to petrochemicals and oil refining.
In essence, a firm seeks to grow through vertical integration by taking control of the business operations at various stages of the supply chain to gain advantage over its rivals. The record of vertical integration is mixed and hence, decisions should be taken after a comprehensive and careful consideration of all aspects of this form of integration. In most cases the initial investments may be very high and exiting an arrangement that does not prove beneficial may be hard.
Vertical integration also requires an organization to develop additional product market and technology capabilities, which it may not currently possess. Factors conducive for vertical integration include 1 taxes and regulations on market transactions, 2 obstacles to the formulation and monitoring of contracts, 3 similarity between the vertically-related activities, 4 sufficient large production quantities so that the firm can benefit from economies of scale and 5 reluctance of other firms to make investments specific to the transaction.
Vertical integration may not yield the desired benefit if, 1 the quantity required from a supplier is much less than the minimum efficient scale for producing the product. The firm then may be viewed as a competitor rather than a partner. Firms integrate vertically to 1 reduce transportation costs if common ownership results in closer geographic proximity, 2 improve supply chain coordination, 3 capture upstream or downstream profit margins, 4 increase entry barriers to potential competitors, for example, if the firm can gain sole access to scarce resource, 5 gain access to downstream distribution channels that otherwise would be inaccessible, 6 facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant to invest and 7 facilitate investment in highly specialized assets in which upstream or downstream players may be reluctant to invest.
For instance, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions , 7 potentially higher costs due to low efficiencies resulting from lack of supplier competition, 8 decreased flexibility due to previous upstream or downstream investments, however, that flexibility to coordinate vertically —related activities may increase.
There are alternatives to vertical integration that may provide some of the same benefits with fewer drawbacks. The following are a few of these alternatives for relationships between vertically related organizations. The two South Korean giants seek to manufacture top-of-the-line products like cell phones and digital TVs in a self-sufficient fashion.
LG Group will invest 30 trillion won by to develop certain electronic components that include system integrated chips, plasma displays and camera modules. Samsung Electronics already retains a strong portfolio, comprising Samsung Corning display-specific glass , Samsung SDI displays and Samsung Electro-Mechanics camera modules , and aims to further hone its push for vertical integration.
So-called vertical integration refers to the degree to which a company owns or controls its upstream suppliers, subcontractors or affiliates and its downstream buyers. The advantage of the strategy is the expansion of core competencies by reducing risks in the supply of components as well as the slashing of transportation costs.
Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services. A firm may diversify by growing horizontally into unrelated business. Integration of oil companies, Exxon and Mobil, is an example of horizontal integration. This sort of integration is sought to reduce intensity of competition and also to build synergies.
Benefits of Horizontal Integration The following are some benefits of horizontal integration: 1. Economies of scale-achieved by selling more of the same product, for example, by geographic expansion. Economies of scope — achieved by sharing resources common to different products. Increased bargaining power over suppliers and downstream channel members.
Reduction in the cost of global operations made possible by operating plants in foreign markets. Synergy achieved by using the same brand name to promote multiple products. However, if the industry concentration increases significantly then anti-trust issues may arise. Aside from legal issues, another concern is whether the anticipated economic gains will materialize. Before expanding the scope of the firm through horizontal integration, management should be sure that the imagined benefits are real.
Many blunders have been made by firms that broadened their horizontal scope to achieve synergies that did not exist, for example, computer hardware manufacturers who entered the software business on the premise that there were synergies between hardware and software.
However, a connection between two products does not necessarily imply realizable economies of scope. Finally, even when the potential benefits of horizontal integration exist, they do not materialize spontaneously. There must be an explicit horizontal strategy in place. Such strategies generally do not arise from the bottom —up, but rather, must be formulated by corporate management. Post a Comment.
Management for All. Subscribe through E-mail. Enter your email address: Delivered by FeedBurner. Valuable Websites for All :. Popular Posts. Explain the process of job analysis and job design. Discuss different functions related to recruitment, selection and outsourcing in your International Management, 7, pp. Alvarez, S. Busenitz L. Journal of Management, 27 6 , p. Anderson, J. Journal of Marketing, 58 4 , p.
Andersson, S. Ingemar W. Journal of International Entrepreneurship, 1, pp. Assignment 1 Makerbot case study MSCI Spring Nissrine Nadmi to Mina Allarkhia Question 1 The entrepreneurial root of a venture like MakerBot or Tesla is pivotal in innovative strategies required by any venture to enter a new market, become viable and eventually leading the market.
To break into a new market, it is inevitable that entrepreneurs would be faced with extreme competition from other minor and major market players and other unknown threats.
To prepare. Then, according to Zahra article named "Technology strategy and new venture performance: a study of corporate-sponsored and independent biotechnology ventures", the development of technology has given rise to many opportunities for enterprises in many ways. This article presents 10 hypotheses, and the author collects data from new US Biotech Corp to test these hypotheses Zahra, The original questionnaire was revised according to the feedback from 17 risk managers, and many respondents.
Introduction New venture start-up and development process can occur over a considerable period of time. Initial business ideas take the time to formulate, research, create a strategy, raise funding and establish a framework for the organisation structure. This complex process is unique for each business. However, there are some general theories and strategies which aim to support and explain business creation and development processes. This report will highlight similarities and differences of management theory with practical experience running an enterprise in SimVenture, focusing on main areas of Sales and Marketing , Operations, Finances, Organisation.
It will also provide an overview of entrepreneurship, strategy and growth. Applying the model to the simulation exclude first two stages and starts with the third stage — pre -start and preparation.
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