Chapt-7 3

Strategies in
Action
Chapter 7
Integration Strategies
 Forward integration
 involves gaining ownership or increased
control over distributors or retailers.
 Backward integration
 strategy of seeking ownership or increased
control of a firm’s suppliers.
 Horizontal integration
 a strategy of seeking ownership of or
increased control over a firm’s competitors.
5-2
Copyright ©2013 Pearson Education
Forward Integration Guidelines
 When an organization’s present distributors

are especially expensive.
 When the availability of quality distributors is
so limited as to offer a competitive
advantage.
 When an organization competes in an
industry that is growing.
 When present distributors or retailers have
high profit margins.
5-3
Backward Integration Guidelines
 When an organization’s present suppliers

are especially expensive or unreliable.
 When the number of suppliers is small and
the number of competitors is large.
 When the advantages of stable prices are
particularly important.
 When an organization needs to quickly
acquire a needed resource.
5-4
Horizontal Integration Guidelines
 When an organization competes in a growing

industry.
 When increased economies of scale provide

major competitive advantages.
 When competitors are uncertain due to a lack of

managerial expertise.
5-5
Intensive Strategies
 Market penetration strategy:

 seeks to increase market share for present
products or services in present markets
through greater marketing efforts.
 Market development:
 involves introducing present products or
services into new geographic areas.
 Product development strategy:
 seeks increased sales by improving or
modifying present products or services
5-6
Market Penetration Guidelines
 When the usage rate of present customers

could be increased significantly.
 When the market shares of major competitors

have been declining while total industry sales
have been increasing.
 When increased economies of scale provide

major competitive advantages.
5-7
Market Development Guidelines
 When new channels of distribution are available

that are reliable, inexpensive, and of good
quality.
 When an organization is very successful at what

it does.
 When new untapped or unsaturated markets

exist
 When an organization has excess production

capacity.
5-8
Product Development Guidelines
 When an organization has successful products

that are in the maturity stage of the product life
cycle.
 When an organization competes in an industry
that is characterized by rapid technological
developments.
 When major competitors offer better-quality
products at comparable prices.
 When an organization competes in a high-
growth industry. 5-9
Defensive Strategies
 Retrenchment
 occurs when an organization regroups
through cost and asset reduction to reverse
declining sales and profits.
 also called a turnaround or reorganizational

strategy.
 designed to fortify an organization’s basic

distinctive competence.
5-10
Retrenchment Guidelines
 When an organization is one of the weaker

competitors in a given industry.
 When an organization is plagued by

inefficiency, low profitability, and poor
employee morale.
 When an organization has grown so large so

quickly that major internal reorganization is
needed.
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 Divestiture
 Selling a division or part of an organization
 often used to raise capital for further strategic
acquisitions or investments.
5-12
Divestiture Guidelines
 When an organization has pursued a

retrenchment strategy and failed to accomplish
needed improvements.
 When a division needs more resources to be

competitive than the company can provide.
 When a division is responsible for an
organization’s overall poor performance.
 When a division is a misfit with the rest of an
organization.
5-13
 Liquidation
 selling all of a company’s assets, in parts, for
their tangible worth.
 can be an emotionally difficult strategy.
5-14
Liquidation Guidelines
 When an organization has pursued both a

retrenchment strategy and a divestiture
strategy, and neither has been successful.
 When an organization’s only alternative is
bankruptcy.
 When the stockholders of a firm can minimize
their losses by selling the organization’s
assets.
5-15
Porter’s Five Generic Strategies
5-16
Michael Porter’s Five
Generic Strategies
 1. Cost leadership
 This generic strategy calls for being the low
cost producer in an industry for a given level
of quality.
 The firm sells its products either at average

industry prices to earn a profit higher than
that of rivals, or below the average industry
prices to gain market share.
5-17
Cost Leadership Guidelines
 When price competition among rival sellers is

especially vital.
 When most buyers use the product in the same

ways.
 When buyers gain low costs in switching their

purchases from one seller to another.
5-18
Cost Leadership Strategies
 To employ a cost leadership strategy

successfully, a firm must ensure that its
total costs across its overall value chain
are lower than competitors’ total costs.
5-19
Cost Leadership Strategies
 Perform value chain activities more

efficiently than rivals and control the
factors that drive the costs of value chain
activities.
5-20
Michael Porter’s Five
Generic Strategies
 2. Differentiation
 A differentiation strategy calls for the
development of a product or service that offers
unique features that are valued by customers
and that products recognize to be better than or
different from the products of the competition.
5-21
Differentiation Strategies
 Differentiation strategy should be pursued

only after a careful study of buyers’ needs
and preferences to determine the more
differentiating features into a unique
product that meet the desired qualities.
5-22
Differentiation Strategy
 Firms that succeed in a differentiation strategy

often have the following internal strengths:
 Access to leading scientific research.
 Highly skilled and creative product
development team.
 Strong sales team with the ability to
successfully communicate the perceived
strengths of the product.
 Corporate reputation for quality and
innovation.
Differentiation Guidelines
 When there are many ways to differentiate

the product.
 When buyer needs and uses are dissimilar.
 When few rival firms are following a similar

differentiation approach.
 When technological change is fast paced.

5-24
Focus Strategy
 The focus strategy concentrates on a narrow

segment and within that segment attempts to
achieve either a cost advantage or
differentiation.
 A firm using a focus strategy often enjoys a high
degree of customer loyalty.
 Firms that succeed in a focus strategy are able to
tailor a broad range of product development
strengths to a relatively narrow market segment
that they know very well.
Focus Strategies
 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.
 Most effective when consumers have

distinctive preferences.
5-26
Focus Strategy Guidelines
 When the target market segment is large,

profitable, and growing.
 When industry leaders do not consider the

market segment to be crucial to their own
success.
 When the industry has many different segments.

 When few, if any, other rivals are attempting to
specialize in the same target segment.
5-27
5. Stuck in the Middle?
 Michael Porter argued that to be successful

over the long-term, a firm must select only
one of these three generic strategies.
 Otherwise, with more than one single

generic strategy the firm will be "stuck in
the middle" and will not achieve a
competitive advantage.
 Porter argued that firms that are able to

succeed at multiple strategies often do so
by creating separate business units for
each strategy.
 By separating the strategies into different

units having different policies and even
different cultures, a corporation is less
likely to become "stuck in the middle."
5-29
5-30

Chapt-7 3

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Chapt-7 3

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Strategies in

 When an organization’s present distributors

 When an organization’s present suppliers

 When an organization competes in a growing

 When increased economies of scale provide

 When competitors are uncertain due to a lack of

 Market penetration strategy:

 When the usage rate of present customers

 When the market shares of major competitors

 When increased economies of scale provide

 When new channels of distribution are available

 When an organization is very successful at what

 When new untapped or unsaturated markets

 When an organization has excess production

 When an organization has successful products

 also called a turnaround or reorganizational

 designed to fortify an organization’s basic

 When an organization is one of the weaker

 When an organization is plagued by

 When an organization has grown so large so

 When an organization has pursued a

 When a division needs more resources to be

 When an organization has pursued both a

 The firm sells its products either at average

 When price competition among rival sellers is

 When most buyers use the product in the same

 When buyers gain low costs in switching their

 To employ a cost leadership strategy

 Perform value chain activities more

 Differentiation strategy should be pursued

 Firms that succeed in a differentiation strategy

 When there are many ways to differentiate

 When buyer needs and uses are dissimilar.

 When few rival firms are following a similar

 When technological change is fast paced.

 The focus strategy concentrates on a narrow

 Successful focus strategy depends on an

 Most effective when consumers have

 When the target market segment is large,

 When industry leaders do not consider the

 When the industry has many different segments.

 Michael Porter argued that to be successful

 Otherwise, with more than one single

 Porter argued that firms that are able to

 By separating the strategies into different

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