Chapter 05: Types of Business Strategies

A. Integration Strategies
1. Horizontal Integration
2. Vertical Integration
i. Backward Integration
ii. Forward Integration
B. Intensive Strategies
1. Market Penetration
2. Market Development

Even if 3. Product Development

C. Diversification Strategies
1. Related Diversification

youre on
2. Un-related Diversification
D. Defensive Strategies
1. Retrenchment

the right
2. Divestiture
3. Liquidation
E. Michael Porters Generic Competitive Strategies
1. Cost Leadership ----- Low Cost
track, youll 2. Cost Leadership ----- best Value
3. Differentiation
4. Focus ----- Low Cost

get run over 5. Focus ----- Best Value

if you just
sit there.

A. Integration Strategies 1. Horizontal Integration

When the company seek to purchase its Seeking ownership or increased control over competitors.
competitors, suppliers or distributors to Examples:
gain economies of scale in VMS or HP purchased Compaq.
Guidelines to use:
market leadership.
1. Company wants to create monopoly.
2. Company needs diverse Managerial skills
3. Market share
4. Economies of scale

B. Intensive Strategies
These require firms intensive efforts
and resources to gain and maintain its
competing position in markets served.
5. Competing in growing industry.
2.1 Backward Integration
Seeking ownership or increased control of
Examples:
Nishat Mills Purchased MCB.
PTC purchased Tobacco fields in NWFP.
Guidelines to use:
1. When suppliers are expensive and
2. High growth industry.
3. Number of suppliers is small an
large in numbers.
4. Present suppliers have high profit m
2. Vertical
5. When stable price and suppliers
Integration
importance.
2.2 Forward Integration
Seeking ownership or increased control o
retailors.
Examples:
Pepsi Co. launched hostile merger to acq
Group.
Guidelines to use:
1. Present distributors are expensive
irregular to meets firms needs.
2. Availability of quality distributors is
3. High growth industries.
4. Present distributors have higher pro
5. When benefits of less price and sta
of much importance.
1. Market Penetration
Seeking increased market share for present products or s
markets through greater marketing efforts
Examples:
Coke spending millions of dollars on marketing campaign.
Guidelines to use:
1. Current market has growth means not saturated.
2. Usage rate can be increased by marketing efforts.
3. Competitors sale is decreasing.
2. Market Development
Introducing present products or services into new geographic a
Examples:
When gourmet entered in Faisalabad market.
Guidelines to use:
1. Untapped or unsaturated market.
2. New channels of distributions are reliable and inexpensive.
3. Excess production capacity.
 4. Company and its products are in growing phase.
3. Product Development
Seeking increased sales by improving present products or serv
new ones
Examples:
McDonalds started breakfast products and services.
Guidelines to use:
1. Present products are in maturity stage.
2. Rapid technological changes in industry.
3. Major competitors offering products at low price.
4. High growth industry.
5. Strong R & D department.

C. Diversification Strategies 1. Related Diversification

Adding new, but related, products or services
--- Changing industry because you dont Examples:
want your all eggs in one basket. Sony and Samsung introduced smart phones.
Guidelines to use:
--- Becoming less popular as 1. Compete in low or no growth industry.
2. New products would increase overall sales.
organizations are finding it more
3. Related technological and human expertise.
difficult to manage diverse business 4. Current products are in declining phase of product life cycle
activities. 5. Strong management team.
2. Un-related Diversification
Adding new, unrelated products or services
Examples:
Pepsi introducing LAYS.
Sony going in insurance industry.
Guidelines to use:
1. Existing market for present products is saturated.
2. Declining revenues and profit margins.
3. Financial synergy.
4. Capital and managerial expertise.
D. Defensive Strategies 1. Retrenchment
When companies are at back foot. Regrouping through cost and asset reduction to reverse declin
Examples:
Ericsson, Intel retrenched thousands of employees.
Guidelines to use:

1. Firm failed to its financial goals consistently over the years.

2. We are the weaker competitor in the industry.
3. Inefficiency, low profitability, low employee morale,
stakeholders to improve performance.
4. Strategic management is failed.
5. Rapid growth to a large organization where major interna
needed.
2. Divestiture
Selling a division or part of an organization
Examples:
Rafhan selling its consumer products wing to Unilever Pakistan
Guidelines to use:
1. When firms tried retrenchment but not improved.
2. Division needing more resources than company can provide
3. Division is responsible for overall poor performance.
4. Division is a misfit in organization.
5. A large amount of cash is needed to finance other growing
3. Liquidation
Selling all of a companys assets, in parts, for their tangible wo
Examples:
Nokia and Compaq.
Guidelines to use:
1. When both retrenchment and divestiture has been failed.
2. If the only option is bankruptcy, liquidation is the suitable p
3. Stockholders can minimize their lose by selling the firms a

E. Michael Porters Generic Cost Leadership Type 1 --- Low Cost

Competitive Strategies These strategies emphasize A strategy that offers produc
 Beyond above discussed options,
Professor Porter from Harvard
Business School identified five basic
strategies for all business types
covering all areas of strategic
options.
Competitive strategy is about
being different. It means
deliberately choosing to perform
activities differently or to
perform different activities than
rivals to deliver a unique mix of
value.
(Michael E. Porter)
Note:
. Type 3 strategy can be used in
Larger firms with greater access to
resources typically compete on a cost
leadership and/or differentiation basis,
whereas smaller firms often compete on
a focus basis.
Note that a differentiation strategy
(Type 3) can be pursued with either a
small target market or a large target
market. However, it is not effective to
pursue a cost leadership strategy in a
small market because profits margins
are generally too small. Likewise, it is
not effective to pursue a focus strategy
in a large market because economies of
scale would generally favor a low-cost
or best-value cost leadership strategy
to gain and/or sustain competitive
advantage.
producing standardized
product or service at a very
low-per unit cost for
consumers who are price
sensitive.
There are two further types:
Type 1 ----- Low Cost
Type 2 ----- Best Value
Note:
Both type 1 and 2 strategies
are aimed to be used at large
market.
Differentiation (Type 3)
Note:
small as well as large market.
Focus
Focus means producing
products or services that fulfill
the needs of small groups of
consumers. (niche)
There are two further types:
Type 4 ----- Low Cost
Type 5 ----- Best Value
Note:
Both type 4 and 5 strategies
are aimed to be used at small
market.
wide range of customers at
price available on the mark
quality may be sacrifice
customers are highly price se
Type 2 --- Best Value
A strategy that offers produc
wide range of customers at t
available on
the market; the best-value
offer customers a range of p
at the lowest price availab
rivals products with similar a
The element of quality isn
because we are to generate
option.
A strategy aimed at produ
services considered unique
difficult for the competitor to
Type 4 --- Low Cost
Type 4 is a low-cost focus s
products or services to a s
group) of customers at
available on the market.
Again quality isnt a matter o
Type 5 --- Best Value
Type 5 is a best-value focus
products or services to a
customers at the best price
the market. Sometimes
differentiation, the best-va
aims to offer a niche gro
products or services that me
requirements better than riva
Quality is the name of game
are to generate a best price v