Question

The textbook lists eleven types of strategies (forward integration, backward integration, horizontal integration, market penetration, market development, product development, relation diversification, unrelated diversification, retrenchment, divestiture, and liquidation). Describe and give examples of each.

Answer 1

1. Forward integration- is a form of vertical integration. The business activities are expanded however the company has direct control of direct distribution of its products. This strategy is adopted by company that moves down the supply chain. Direct selling is a classic example of forward integration. For example, a farmer selling directly at the farmer’s market.

2. Backward integration- is also a form of vertical integration. The company at the end of the supply chain strategizes its business activities ‘upstream’ for improved efficiency and cost savings. Example- Amazon is a classic example. Amazon was a books retailer and procured books from other publishers. Once Amazon decided to publish books, it reduced the procurement cost considerably. Amazon is now the publisher and retails the books that the company publishes.  

3. Horizontal integration- also known as lateral integration. Companies acquire firms similar to their business activities with the only aim to increase the market share and profits. Example is Walt Disney Company's acquisition of Pixar Animation Studios. There is an expansion in the entertainment industry.

4. Market penetration- the business activities and strategies adopted to increase the market share of the products or service. Strategies include cutting prices, innovative strategies for distribution, advertising and promotional activities. Example- Under Armour sells performance apparel. However, it has now has surpassed Adidas by persistent selling of athletic footwear, clothing, and accessories.

5. Market development- Existing products/services are introduced in the new market. Companies expand into untapped markets as a goal for expansion. Example- Coca-Cola found a new group of buyers for an existing product. Coke Zero is similar to that of Diet Coke however it was targeted at the male segment.

6. Product Development- Existing market are used to market new products. Example- the launch of Cherry Coke to the existing market of Coca-Cola. The company decided to add cherry flavor to Coke and resell them.

7. Relation diversification- Companies use this strategy to diversify related products in its current target market or existing market. Example- Automobile companies might introduce related models to cars such as trucks to the existing market it operates.

8. Unrelated diversification- This strategy is used by companies to market unrelated products to penetrate new marketplace. Example- IKEA which is a global home furnishings company is now selling televisions (electronics products).

9. Retrenchment- is the process of cutting off or reduction. Example- companies lay off employees in the process of cutting off expenses. Tesla and Citigroup are laying off employees as an effort to reduce costs.

10. Divestiture- is a strategy adopted to remove few assets under the business portfolio that the company currently has. For example- Regulatory authorities might demand divestment from a company as a disciplinary measure to anticompetitive prices.

11. Liquidation- is the process of converting assets into cash. Example- MH Carbon goes into voluntary liquidation.