Concentration strategies are meant to compete in one, single industry. There are four sub-strategies of concentration strategies: (1) market penetration, (2) market development, (3) product development and (4) horizontal integration. However, an organization can use one, two, or all aspects of these strategies to try to excel within an industry.
Market penetration means gaining additional share of an organization’s existing markets by utilizing existing products. Advertising is a major way to attract customers within the existing markets.
Nike features popular and known athletes in print and television ads to snatch market share within the athletic shoes business from rivals Adidas and Lotto.
Market development means to sell existing products in new markets. A popular way to reach a new market is by entering a new retail channel.
Kicking Horse Coffee, based in a remote town of Invermere, B.C., sells only organic fair trade coffee and Indian chai. It has been a mainstay of the town since the company started in 1996. Invermere is now the base for the 8400 m2production facility.
Product development involves building and selling new products to already existing markets. In the 1940s, Disney developed its products within the film business venturing out of cartoons and creating movies featuring real actors.
In 2009, Starbucks introduced VIA, an instant coffee variety for customers when they do not have easy access to a Starbucks store or a coffeepot. Now many blends of Starbucks coffee and Tazo tea are widely available in markets in the popular one-cup format.
Expanding by acquiring or merging with one of the rival organizations is known as horizontal integration.
An acquisition occurs when an organization buys another organization. Generally, the acquired organization is smaller than the buyer organization.
A merger joins two companies into one. Mergers occur with similar sized companies.
Horizontal integration is preferable and attractive for many reasons. Horizontal integration may lower costs by gaining a greater economies of scale. Fitting horizontal integration alongside Porter’s five forces model, it means that such moves also reduces the intensity of rivalry and can make the industry more profitable.
Horizontal integration can also offer new distribution channels, where a firm may produce or acquire production units that are similar—either complementary or competitive.
HORIZONTAL INTEGRATION − AN EXAMPLE
In 1989, Kraft’s parent company merged Kraft and General Foods. In 2000, Kraft bought Nabisco Holdings, and in 2009 bought Cadbury for about US$19 billion, making Kraft a “global confectionery leader.” At the time, Cadbury was the second-largest confectionery brand in the world after Wrigley’s.