LESSON 3 : STRATEGY FORMULATION

COMBINATION STRATEGIES
 COMBINATION STRATEGY

In a changing business environment, an organization may find it beneficial to

adopt a unique combination of stability, expansion and retrenchment in different
.related areas of business

Over a period of time, there may be various sequentially combined strategies, e.g.
Stability strategy followed by growth strategy or vice-versa, retrenchment strategy
.followed by stability strategy or vice-versa, and so on
 Integration Strategies:

• Forward integration, backward integration, and horizontal integration are sometimes

collectively referred to as vertical integration strategies.

• Forward integration -transactions between the customers and firm.

• The function for the particular supply which the firm is being intended to involve itself will be
called backward integration.

• When the firm looks that other firm may be taken over within the area of its own activity is
called horizontal integration.
 Benefits of vertical integration strategy:

Allow a firm to gain control over:

 Distributors (forward integration)

 Suppliers (backward integration)
 Competitors (horizontal integration)
Guidelines for the use of integration strategies:

• Present distributors are expensive, unreliable, or incapable of meeting

firm’s needs
• Availability of quality distributors is limited.
• When firm competes in an industry that is expected to grow markedly.
• Organization has both capital and human resources needed to manage
new business of distribution.
• Advantages of stable production are high.
• Present distributors have high profit margins
f a firm’s suppliers both manufacturers
Market Penetration
strategy of seeking ownership or
The organization tries to capture market share in the existing products
isstrategy can be especially appropriate
and aims at expanding its business at a rate higher than the industry
growth.

able, too costly, or

Eg: Reliance cannot
has captured substantial marketmeet thefirm's
share in textile yarn and
intermediates; ITC has captured substantial market share in hotels
other than cigarettes.

n may be an especially effective strategy

 Market Development
• Attempt is made to increase sales by developing new markets either
geography-wise or segment-wise.

• Example: many companies which find that the urban market is

saturated and there is little scope for expansion, opt for developing new
market in rural areas.

• Some of the companies which have made keen attempt to develop rural
market are Hindustan Lever (personal products), LG (TV), and so on.
 Product Development
• Efforts are attempted at to achieve growth through product
innovation so as to penetrate in new segment. The basic
product remains the same but it may be offered to different
market segments based on product features, price, size,
etc.

• Example : a TV manufacturer may offer different sizes of

TVs for different customer groups, additional features like
remote control, etc. to make a TV more useful, and so on
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