Presentation on Types of strategies

Alternative / Types of strategiesThree types:Vertical Integration strategiesForwards integration Backward strategiesHorizontal strategiesIntensive strategies:Market penetration Market development Product development Diversification Related diversificationUnrelated diversificationDefensive strategiesRetrenchment Divestiture Liquidation

Vertical integration (forward and/or backward) in the distribution system.

Horizontal integration (acquire competitive companies).Integrative Growth Strategy

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

Ch 5 -*Vertical Integration Strategies

Forward IntegrationGaining ownership or increased control over distributors or retailersBackward IntegrationSeeking ownership or increased control of a firms suppliers

Horizontal IntegrationSeeking ownership or increased control over competitors

Integrative Growth StrategiesToward the Source of SupplyToward the CustomerVERTICAL INTEGRATION1. Backward 2. Forward3. HORIZONTALINTEGRATIONSimilarBusinessesAcquired

A. Forward IntegrationForward 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:

When an organizations present distributors are especially expensive or unreliable, or incapable of meeting firms distribution needs.When the availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward.When an organization competes in an industry that is growing and expected to continue to grow markedly.When an organization has both the capital and human resources needed to manage the new business. When the advantages of stable production are particularly high.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:When an organizations present suppliers are especially expensive, or unreliable, or incapable of meeting the firms needs for parts, components, assemblies, or raw materials.When the number of suppliers is small and the number of competitors is large.When an organization competes in an industry that is growing rapidly.When an organization has both capital and human resources to manage the new business of supplying its own raw materials.When the advantages of stable prices are particularly important.When present supplies have high profit margins.When an organization needs to quickly acquire needed resources.

C. Horizontal IntegrationHorizontal 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:

When an organization can gain monopolistic characteristics. When an organization competes in a growing industry.When increased economies of scale provide major competitive advantages.When an organization has both the capital and human talent needed to successfully manage an expanded organization.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 MatrixThis 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 GridThere 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

MARKET EXTENSION

Achieve higher sales/market share of existing products in new marketsPRODUCT DEVELOPMENT

Sell new products in existing marketsDIVERSIFICATION

Sell new products in new markets

Strategy development directions matrix.(according to Johnson & Scholes)

What about the risk??The greater the degree of newness the greater the risk:Hence: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.

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 marketMarket 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 strategiesHow 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.

MARKET EXTENSION

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

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 of approaching this strategy, including:New geographical markets; for example exporting the product to a new countryNew product dimensions or packaging New distribution channelsDifferent pricing policies to attract different customers

MARKET EXTENSION

Achieve higher sales/market share of existing products in new marketsPRODUCT DEVELOPMENT

Sell new products in existing markets

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 productsNew innovative productsProduct line extensionProduct improvementNew products to complement existing products.Products at a different quality level to existing products.

Deliver modified or new products to existing markets:With existing capabilitiesFollow changing customer needsShort product life cyclesExploitation of core competence in market analysis

With new capabilitiesChange of emphasis in customer needsChange in Critical Success Factors (CSFs)

Associated dilemmasExpense, risk and potential un-profitabilityUnacceptable consequences of not developing new products

Product development is done when: the firm has strong R&D capabilitiesThe market is growingThere is rapid change in customers preferenceThe firm can build on existing brandsCompetitors have better products.But new product development is costly and there are moderate risks associated with this strategy.

MARKET EXTENSION

Achieve higher sales/market share of existing products in new marketsPRODUCT DEVELOPMENT

Sell new products in existing marketsDIVERSIFICATION

Sell new products in new markets

4. DiversificationDiversification is the name given to the growth strategy where a business markets new products in new markets.Diversification means:New product sold to new marketsNew 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 DiversificationFeatures 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 DiversificationThis 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 diversificationE.g. banks developing insurance products.

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

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

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

Thank you

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