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Chapter 5: Growth Strategies
-Penetrations
- Product-Market Expansion,
- Vertical Integration
- Diversification
GROWTH IN EXISTING PRODUCT MARKETS
 Increasing Product Usage
• Increasing Usage in Existing Product Market
Approach Strategy give example(how?)
_________________________________________________________________
Frequency of . Provide reminder
Use/consumption communications
. Position for frequent use .
. Position for regular use
. Make the use easier or
More convenient
. Provide incentives .
. Reduce undesirable
Consequence of
Frequent use
. Use at different .
occasion
. Use at different locations . Radio in shower
Increasing Product Usage…….
• Level of use/ . Provide reminder . Increased insurance coverage
Consumption communication
. Provide incentives . Special price for accessories
. Influence norms . Use of large containers
. Reduce undesirable . Low – calaoie cnady
Consequences of
Increased use level
Develop positives . Frito-Lay:’ But you can't eat
Associations with use just one.''
occasions
PRODUCT DEVELOPMENT FOR THE EIXSTING MARKET
• Product Features Addition
-For some candy firms, creation of novel
packages provides a key to sales; a clothing firm
could add accessories to its line of merchandise.
• Product – Line Expansion
- A book retailer could add children's book and a
''how –to section to its line.
 The product line extension will be based on many factors, of
course, but will often involve consideration of the following
questions:
• Will customers benefit from a systems capability or device
convenience made possible by a broad product line?
• Do potential manufacturing, marketing, or distribution cons
efficiencies exist from an expanded product line?
• Can asses or skills be applied to a product line extension?
• Does a firm have the skill and needed resource in R& D,
manufacturing, and marketing to add the various product
proposed?
• Is the new product line compatible with the existing brand?
Develping New Genration Product
Such products can obsolete existing ones, thus
providing a source of sales.
• New Products for Existing Markets
MARKET DEVELOPMENT USING EXISITNG PRODUCT
 Expanding Geograhically
• Geographic expansion may involve changing from a
regional operation to a national operation, moving into
another region, or expanding to another country
• With market expansion, the same expertise and
technology and sometime even the same plant and
operation facility can be used
 Expanding into New Market Segment
• Usage.
• Distribution.
• Age.
• Attribute preference.
Evaluating Market Expansion Alternative
• Is the market attractive?
• Do the resource and will exist to make the
necessary commitment in the face of
uncertainties? Dose the move make strategic
sense?
• Can the business be adapted to the new market?
• Can the asset and the skills that are at the heart
of business success be transferred in to the new
business environment?
• VERTICAL INTEGRATION STRAREGIES
Benefits
Costs
Benefits
Costs
Operating costs Operating Economies
Access to supply or demand Management of different business
Control of the product system Increase in risk
Entry into profitable business Reduced flexibility
Enhanced technological innovation Cost of inward focus
Benefit:- Opeating Economies
This simple example illustrates the following
potential savings.
• Steps in the production process can be combined
• Economies of scale are possible.
• Substantial transaction costs are involved in
creating a contact between two separate firms
• Economies related to information gathering are
available.
• Benefit: Access to Supply or Demand
Access to Supply.
Access to Demand.
Idiosyncratic Products and Services.
Four types of specialization can be identified.
Brand name
Dedicated assets
Technological
Knowledge-based
Diversification
“This part of a Wiseman to keep himself
today for tomorrow, and not venture all his
eggs in one basket.”(Miguel de Cervantes)
“Put all your eggs in one basket and watch
that basket.”(Mark Twain)
Diversification
• Diversification is the strategy of entering product
markets different from those in which a firm is
currently engaged.
• Diversification can also involve both new
products and new markets.
• A diversification strategy can be implemented by
either an acquisition (or merger) or a new
business venture
• It is helpful to categorize diversification as
“related’ and ‘unrelated
RELATED DIVERSIFICAION
 Exchange or share skills or
assets, thereby exploiting
 Brand name
 Marketing skills
 Sales and distribution
capacity
 Manufacturing skills
 R&D and new product
capability
 Economics of scale
UNRELATED DIVERSIFICAION
 Managing and allocate cash
flow
 Obtain high ROI
 Obtain a “bargain “price
 Restructure a firm
 Reduce risk by operating in
multiple product markets
 Tax benefits
 Obtain liquid assets
 Vertical integration
 Defend against a takeover
 Provide executive interest
Related Diversification
• In this alternative, a company expands into a related
industry, one having synergy with the company's
existing lines of business,
• The existing and new lines of business share and gain
special advantages from commonalities such as
technology, customers, distribution, location, product
or manufacturing similarities, and government access.
• This is often an appropriate corporate strategy when a
company has a strong competitive position and
distinctive competencies, but its existing industry is
not very attractive.
Unrelated Diversification
• This involves diversifying into a line of business which is
unrelated to the current ones.
• Advantage: seeking more attractive opportunities for growth
in which to invest available funds (in contrast to rather
unattractive opportunities in existing industries) ,risk
reduction, and/or preparing to exit an existing line of business
(for example, one in the decline stage of the product life
cycle).
• Further, this may be an appropriate strategy when, not only
the present industry is unattractive, but the company lacks
outstanding competencies that it could transfer to related
products or industries.
• Disadvantage: because it is difficult to manage and excel in
unrelated business units, it can be difficult to realize the
hoped-for value added. Cannot capture synergies -- no
strategic fit between SBUs

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Growth Strategies.pptx

  • 1. Chapter 5: Growth Strategies -Penetrations - Product-Market Expansion, - Vertical Integration - Diversification
  • 2. GROWTH IN EXISTING PRODUCT MARKETS  Increasing Product Usage • Increasing Usage in Existing Product Market Approach Strategy give example(how?) _________________________________________________________________ Frequency of . Provide reminder Use/consumption communications . Position for frequent use . . Position for regular use . Make the use easier or More convenient . Provide incentives . . Reduce undesirable Consequence of Frequent use . Use at different . occasion . Use at different locations . Radio in shower
  • 3. Increasing Product Usage……. • Level of use/ . Provide reminder . Increased insurance coverage Consumption communication . Provide incentives . Special price for accessories . Influence norms . Use of large containers . Reduce undesirable . Low – calaoie cnady Consequences of Increased use level Develop positives . Frito-Lay:’ But you can't eat Associations with use just one.'' occasions
  • 4. PRODUCT DEVELOPMENT FOR THE EIXSTING MARKET • Product Features Addition -For some candy firms, creation of novel packages provides a key to sales; a clothing firm could add accessories to its line of merchandise. • Product – Line Expansion - A book retailer could add children's book and a ''how –to section to its line.
  • 5.  The product line extension will be based on many factors, of course, but will often involve consideration of the following questions: • Will customers benefit from a systems capability or device convenience made possible by a broad product line? • Do potential manufacturing, marketing, or distribution cons efficiencies exist from an expanded product line? • Can asses or skills be applied to a product line extension? • Does a firm have the skill and needed resource in R& D, manufacturing, and marketing to add the various product proposed? • Is the new product line compatible with the existing brand?
  • 6. Develping New Genration Product Such products can obsolete existing ones, thus providing a source of sales. • New Products for Existing Markets
  • 7. MARKET DEVELOPMENT USING EXISITNG PRODUCT  Expanding Geograhically • Geographic expansion may involve changing from a regional operation to a national operation, moving into another region, or expanding to another country • With market expansion, the same expertise and technology and sometime even the same plant and operation facility can be used  Expanding into New Market Segment • Usage. • Distribution. • Age. • Attribute preference.
  • 8. Evaluating Market Expansion Alternative • Is the market attractive? • Do the resource and will exist to make the necessary commitment in the face of uncertainties? Dose the move make strategic sense? • Can the business be adapted to the new market? • Can the asset and the skills that are at the heart of business success be transferred in to the new business environment?
  • 9. • VERTICAL INTEGRATION STRAREGIES Benefits Costs Benefits Costs Operating costs Operating Economies Access to supply or demand Management of different business Control of the product system Increase in risk Entry into profitable business Reduced flexibility Enhanced technological innovation Cost of inward focus
  • 10. Benefit:- Opeating Economies This simple example illustrates the following potential savings. • Steps in the production process can be combined • Economies of scale are possible. • Substantial transaction costs are involved in creating a contact between two separate firms • Economies related to information gathering are available.
  • 11. • Benefit: Access to Supply or Demand Access to Supply. Access to Demand. Idiosyncratic Products and Services. Four types of specialization can be identified. Brand name Dedicated assets Technological Knowledge-based
  • 12. Diversification “This part of a Wiseman to keep himself today for tomorrow, and not venture all his eggs in one basket.”(Miguel de Cervantes) “Put all your eggs in one basket and watch that basket.”(Mark Twain)
  • 13. Diversification • Diversification is the strategy of entering product markets different from those in which a firm is currently engaged. • Diversification can also involve both new products and new markets. • A diversification strategy can be implemented by either an acquisition (or merger) or a new business venture • It is helpful to categorize diversification as “related’ and ‘unrelated
  • 14. RELATED DIVERSIFICAION  Exchange or share skills or assets, thereby exploiting  Brand name  Marketing skills  Sales and distribution capacity  Manufacturing skills  R&D and new product capability  Economics of scale UNRELATED DIVERSIFICAION  Managing and allocate cash flow  Obtain high ROI  Obtain a “bargain “price  Restructure a firm  Reduce risk by operating in multiple product markets  Tax benefits  Obtain liquid assets  Vertical integration  Defend against a takeover  Provide executive interest
  • 15. Related Diversification • In this alternative, a company expands into a related industry, one having synergy with the company's existing lines of business, • The existing and new lines of business share and gain special advantages from commonalities such as technology, customers, distribution, location, product or manufacturing similarities, and government access. • This is often an appropriate corporate strategy when a company has a strong competitive position and distinctive competencies, but its existing industry is not very attractive.
  • 16. Unrelated Diversification • This involves diversifying into a line of business which is unrelated to the current ones. • Advantage: seeking more attractive opportunities for growth in which to invest available funds (in contrast to rather unattractive opportunities in existing industries) ,risk reduction, and/or preparing to exit an existing line of business (for example, one in the decline stage of the product life cycle). • Further, this may be an appropriate strategy when, not only the present industry is unattractive, but the company lacks outstanding competencies that it could transfer to related products or industries. • Disadvantage: because it is difficult to manage and excel in unrelated business units, it can be difficult to realize the hoped-for value added. Cannot capture synergies -- no strategic fit between SBUs