Concentration On Single Product Or Services
Concentration on a single product or services entails increasing sales, profits, or market share faster than it has increased in the past.
William D. Guth identifies seven key growth strategies from the point of view of a single-product-line business firm.
- Hold relative position in high-growth product / market area
- The growth associated with this strategy is directly attributable to the growth in demand for the product/service being produced by the firm. The funds to support the growth are typically derived from operations, from debt financing, and, periodically, from equity financing. This strategy involves an ability to remain competitive in terms of product development, promotion and advertising, and distribution, as well as in terms of productive capacity. A principal risk of the strategy is that a competitor may embark on a preemptive strategy designed to capture market share.
- Increase market share in high-growth market
- The preemptive strategy is the principal way for commodity-type products to increase market share in high-growth markets. Essential to the success of the preemptive strategy is "getting there first." The range of options is wide. These options include: differentiation of products, aggressive investment in advertising, distribution, and so forth. Essential to the success of these strategies is doing things not easily and swiftly duplicatable by the firm's competitors.
- Increase market share in mature market
- Two major approaches may be employed to capture market share in slow-growth markets: (1) one is to "rationalize production" to achieve cost leadership (e.g., price reduction, or reducing the number of models in the product line); (2) the other is to segment the market in search for high-growth potential segments. The reallocation of resources to the various segments must result in a product mix which in the aggregate is superior to that of competitors in terms of growth potential.
- Hold strong relative position in mature market [slow-growth]
- Use "excess" cash flow, funds capability, and other resources to support penetration of multinational markets with existing product line. Strategies of multinational market penetration typically expose firms to a wide variety of patterns of opportunity and risk. Each foreign country has its unique pattern of culture, social and economic development, and politics which often requires the development of a unique approach to market penetration and development.
- Hold strong relative position in mature(ing) market
- Use "excess" cash flow, external funds capability, and other resources to support penetration of new-product/market areas domestically. Managers of firms deciding to diversify their firm's resources by moving into new-product/market areas can do so either by developing new products internally or by acquiring firms with already developed products and market positions.
Internally developed new products will be related to the marketing, production, and/or technological capabilities of the firm. Generally, firms with relatively large and long-lived research and development staffs have the greatest potential for successfully developing new products internally.
Firms which decide on a strategy of product/market diversification through acquisition must further decide on whether such diversification must be related to the firm's existing functional resources and capabilities, or essentially unrelated. In the case of related diversification, each acquisition must be regarded as building or extending one of more of the existing functional resources or capabilities (e.g., marketing, production, research, and development). Each acquisition in a pure unrelated diversification strategy is analyzed exclusively as a portfolio investment decision. So long as the criteria of shareholders wealth improvement and a desirable risk-return balance are met, an acquisition can be justified under this types of strategy. Unrelated diversification as a growth strategy is most often considered by firms that have found it difficult to identify significant growth potential in related areas.
- Hold strong relative position in multinational markets with present product line
- Use "excess" cash flow, funds capability, an other resources to diversify products. Opportunities for successful product diversification may vary significantly from one geographic are to another. Firms may choose to allow wide variation in product-diversification approaches between geographic areas. Alternatively, firms may choose to identify one of several product- diversification approaches which provide varying amounts of opportunity in the various geographical areas.
- Hold strong relative position in diversified product-line domestically
- Use "excess" cash flow, funds capability, and other resources to diversify markets. With this strategy, additional complexity is involved due to the existence of several lines rather than one product line. As with growth strategy 4 and 6 discussed above, organization problems are plentiful in relation to this complex strategy.
The strategies listed at the beginning are relevant in its early stage of potential development; those strategies listed at the end are relevant to its most advanced stage of potential development.