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Types of Strategies

1. Integration Strategies: (Growth Strategy / offensive / Aggressive)


- Increase investment.
- Gain control over functions in the supply chain.
- Compete aggressively.
- Change industry & competition condition.
- Generally, gain control over distributors & suppliers and/or competitors.
- Help firm to achieve cost leadership.

- Forward Integration Gaining ownership or increased control over distributors or retailers.


Guidelines
 Current distributors – expensive or unreliable
 Availability of quality distributors – limited
 Firm competing in industry expected to grow markedly
 Firm has both capital & HR to manage new business of distribution
 Current distributors have high profit margins
 Minimize cost

- Backward Integration Seeking ownership or increased control of a firm’s suppliers.


Guidelines
 Current suppliers – expensive or unreliable
 # of suppliers is small; # of competitors is large
 High growth in industry sector
 Firm has both capital & HR to manage new business
 Stable prices are important
 Current suppliers have high profit margins
 Avoid fluctuation in prices
 Ensure & sustain quality & stability of materials.
 Control management supply chain

- Horizontal Integration Seeking ownership or increased control over competitors.


Guidelines
 Gain monopolistic characteristics w/o federal government challenge
 Competes in growing industry (high competition)
 Increased economies of scale – major competitive advantages
 Faltering due to lack of managerial expertise or need for particular resource
 Expand globally

2. Intensive Strategies
- Market Penetration Seeking increased market share for present products or services
in present markets through greater marketing efforts.
Guidelines
 Current markets not saturated
 Usage rate of present customers can be increased significantly
 Market shares of competitors declining; industry sales increasing
 Increased economies of scale provide major competitive advantage
 Increase profit
- Market Development Introducing present products or services into new geographic area.
Guidelines
 New channels of distribution – reliable, inexpensive, good quality
 Firm is successful at what it does
 Untapped/unsaturated markets / saturation of the current market
 Excess production capacity
 Basic industry rapidly becoming global

- Product Development Seeking increased sales by improving present products or


services or developing new ones.
Guidelines
 Products in maturity stage of life cycle
 Industry characterized by rapid technological development
 Competitors offer better-quality products at comparable prices
 Compete in high-growth industry
 Strong R&D capabilities

3. Diversification Strategies

Related Diversification (Concentric diversification) Adding new but related


products or services to existing products in the same market.
Guidelines
 Declining annual sales & profits
 Capital & managerial ability to compete in new industry
 Financial synergy between acquired and acquiring firms
 Current markets for present products – saturated
 To increase revenue / sales
 To enhance portfolio
 Develop new product with new life sycle

- Unrelated diversification (Horizontal diversification) Adding new product, unrelated


products to present customers.
- Conglomerate diversification New, unrelated, to any customer.

Guidelines
 When competition is tough
 Distribution channels is there
 Excess capacity
 Slow MRT growth
Grand strategies mergers:
- Occurs when two organizations of about equal size unite to form one enterprise
Grand strategies acquisition:
- Occurs when a large organization purchases a smaller firm, or vice versa. (When
acquisition is not desired by both parties, it can be called take-over or hostile
take-over)

Why Acquisitions and Mergers?

* To provide improved capacity utilization.


* To make better use of existing sales force.
* To reduce managerial staff.
* To gain Economies of scale.
* To gain new Technology.
* To gain access to new suppliers, retailers and distributors

4. Defensive Strategies
- Retrenchment Regrouping through cost and asset reduction to reverse declining sales
and profit, reducing number of employees, closing managerial businesses.
Guidelines
 Failed to meet objectives & goals consistency; has distinctive competencies
 Firm is one of weaker competitors
 Inefficiency, low profitability, poor employee morale, pressure for stockholders
 Strategic managers have failed
 Rapid growth in size; major internal reorganization necessary
 If firm fail to capitalize external opportunities, minimize external threat or take
advantage of internal strengths, overcome internal weakness overtime.

- Divestiture (Partial Liquidation) Selling a division or part of an organization in order


to fund other parts in the organization or other successful units.
Guidelines
 Retrenchment failed to attain improvements.
 Division needs more resources than can provide.
 Division responsible for firm’s overall poor performance.
 Division is a misfit with the rest of the organization.
 Large amount of cash is needed and cannot be raised through other sources.
- Liquidation Selling all of a company’s assets, in parts, for their tangible worth.
Guidelines
 It is better to cease operating than to continue losing large sums of money.
 It is a recognition of defeat and it is emotionally difficult strategy.
 When Retrenchment & divestiture failed, only alternative is Bankruptcy: it allows
the firm to avoid major debt obligations, it is a liquidation procedure used only
when firm sees no hope of being able to operate successfully.
 Minimize stockholder loss by selling firm’s assets

 Michael Porter’s Generic (Competitive)Strategies


1. Cost Leadership (Type 1 and Type 2)
A primary reason for pursuing forward, backward and horizontal integration strategies
is to gain low-cost or best-value cost leadership benefits. But cost leadership generally
must be pursued in conjunction with differentiation. A number of cost elements affect
the relative attractiveness of generic strategies, including economies or diseconomies
of scale achieved, learning and experience curve effects, the percentage of capacity
utilization achieved, and linkages with suppliers and distributors.
- Ways of ensuring total costs across value chain are lower than competitors’ total
costs
 Perform value chain activities more efficiently than rivals and control factors that
drive costs
 Revamp the firm’s overall value chain to eliminate or bypass some cost producing
activities
- Can be especially effective when:
1. Price competition among rivals is vigorous
2. Rival’s products are identical and supplies are readily available
3. There are few ways to achieve differentiation
4. Most buyers use the product in the same way
5. Buyers have low switching costs
6. Buyers are large and have significant power
7. Industry newcomers use low prices to attract buyers

2. Differentiation ( Type 3 )
A differentiation strategy should be pursued only after a careful study of buyers’ needs
and preferences to determine the feasibility of incorporating one or more differentiating
features into a unique product that features the desired attributes. A successful
differentiation strategy allows a firm to charge a higher price for its product and to gain
customer loyalty because consumers may become strongly attached to the
differentiation features. This strategy characterized by:
 Greater product flexibility
 Greater compatibility
 Lower costs
 Improved service
 Greater convenience
 More features

Can be especially effective when:


 There are many ways to differentiate and many buyers perceive the value of the
differences
 Buyer needs and uses are diverse
 Few rival firms are following a similar differentiation approach
 Technology change is fast paced and competition revolves around evolving product
features

3. Focus Strategies (Type 4 and Type 5)


A successful focus strategy depends on an industry segment that is of sufficient size,
has good growth potential, and is not crucial to the success of other major competitors.
Can be especially effective when:
 The target market niche is large, profitable, and growing
 Industry leaders do not consider the niche crucial
 Industry leaders consider the niche too costly or difficult to meet
 The industry has many different niches and segments
Types of Strategies

1- Grand strategies:
A. Integration strategies
1. Backward integration:
- Seeking ownership or increased control of firm’s suppliers (Acquisition of Suppliers)
2. Forward integration:
- Gaining ownership or increased control over distributors or retailers (Outlets)
3. Vertical integration:
- It is a strategy where a company expands its business operations into different steps
on the same production path.
4. Horizontal integration (Take-over / Acquisition) (Aggressive Strategy)
- Seeking ownership or increased control over competitors

B. Intensive strategy
5. Market penetration: (Aggressive Strategy)
- Increase market share for present products / services in present markets through greater
marketing efforts. (Increasing advertisement expenditure – offering extensive sales
promotions – increasing number of salespersons – Using celebrities)
6. Market development
- Introducing present product or service into new geographic areas.
7. Product / service development
- By adding New or Extra features to an existing product, seeking sales improvement.

C. Defensive strategies
8. Retrenchment (Cost Reduction / Economizing / Turn Around /
Reorganizational)
- It occurs when an organization regroups through cost and asset reduction to reverse
declining sales and profits.
9. Divestiture (partial liquidation)
- Selling a division or part of an organization.
10. Liquidation (Recognition of Defeat / Bankruptcy)
- Selling all of a company’s assets for their tangible worth.
11. Joint venture
Two companies form a partnership for the purpose of capitalizing on some opportunity.
- A+B=A or B (horizontal integration / take over)
- A+B=C (merger)
- A+B=A+B+C (joint venture)

D. Diversification strategies
12. Concentric diversification
- Adding new but related products or services to existing products in the same market.
13. Horizontal diversification
- Adding new product, unrelated products to present customers.
14. Conglomerate diversification
- New, unrelated, to any customer.

Grand strategies mergers:


- Occurs when two organizations of about equal size unite to form one enterprise
Grand strategies acquisition:
- Occurs when a large organization purchases a smaller firm, or vice versa. (When
acquisition is not desired by both parties, it can be called take-over or hostile take-
over)
Why Acquisitions and Mergers?
*To provide improved capacity utilization.
*To make better use of existing sales force.
*To reduce managerial staff.
*To gain Economies of scale.
*To gain new Technology.
*To gain access to new suppliers, retailers and distributors.

Grand strategies combination:


- Organizations pursue a combination of two or more strategies

Generic strategies:
A- Cost Leadership (Type 1 and Type 2)

A primary reason for pursuing forward, backward and horizontal integration strategies is
to gain low-cost or best-value cost leadership benefits. But cost leadership generally must
be pursued in conjunction with differentiation. A number of cost elements affect the
relative attractiveness of generic strategies, including economies or diseconomies of scale
achieved, learning and experience curve effects, the percentage of capacity utilization
achieved, and linkages with suppliers and distributors.
- Ways of ensuring total costs across value chain are lower than competitors’ total
costs
 Perform value chain activities more efficiently than rivals and control factors that
drive costs
 Revamp the firm’s overall value chain to eliminate or bypass some cost producing
activities
- Can be especially effective when:
 Price competition among rivals is vigorous
 Rival’s products are identical and supplies are readily available
 There are few ways to achieve differentiation
 Most buyers use the product in the same way
 Buyers have low switching costs
 Buyers are large and have significant power
 Industry newcomers use low prices to attract buyers

4. Differentiation ( Type 3 )
A differentiation strategy should be pursued only after a careful study of buyers’ needs and
preferences to determine the feasibility of incorporating one or more differentiating
features into a unique product that features the desired attributes. A successful
differentiation strategy allows a firm to charge a higher price for its product and to gain
customer loyalty because consumers may become strongly attached to the differentiation
features. This strategy characterized by:
 Greater product flexibility
 Greater compatibility
 Lower costs
 Improved service
 Greater convenience
 More features

Can be especially effective when:


 There are many ways to differentiate and many buyers perceive the value of the
differences
 Buyer needs and uses are diverse
 Few rival firms are following a similar differentiation approach
 Technology change is fast paced and competition revolves around evolving product
features

5. Focus Strategies (Type 4 and Type 5)


A successful focus strategy depends on an industry segment that is of sufficient size, has
good growth potential, and is not crucial to the success of other major competitors.
Can be especially effective when:
 The target market niche is large, profitable, and growing
 Industry leaders do not consider the niche crucial
 Industry leaders consider the niche too costly or difficult to meet
 The industry has many different niches and segments
What is the anti-integration strategies?
Outsourcing: let others do what we – under normal circumstances – should do.
Outsourcing is de-integration which makes sense in industries that have global sources of
supply. In outsourcing, companies use outside suppliers, shop around, play one seller
against another and go with the best deal.