We have familiarized ourselves during the last three weeks with the eight categories of markets. This knowledge will equip you with additional insights when selecting segments to enter and strategies to pursue. Further, if you are able to concentrate your resources, rather than create an unequal distribution that dissipates your strength, you are in an excellent position to successfully exploit your opponent’s weaknesses.
By that means, you conserve resources for unexpected opportunities that would otherwise be denied to you. It also permits you to defend against an unforeseen attack from a competitor. Such thinking and positioning will mark you as an effective manager.
Concentrated marketing is a strategy whereby a product is developed and marketed for a very well defined and specific segment of the consumer population. Concentrated marketing is particularly effective for small companies with limited resources because it enables the company to achieve a strong market position in the specific market segment it serves without mass production, mass distribution or mass advertising.
A concentrated marketing approach aims at a narrow, specific consumer group through one specialized marketing plan catering to the needs of that segment.
If concentrated marketing is used, it is essential for a company to do a better job than competitors in several areas. The company needs to tailor its marketing programme for its segment better than competitors. The company should avoid fighting against competitors’ strengths but exploit the weaknesses. It should avoid the majority fallacy, appealing to a large segment that is laden with competition. A potentially profitable segment may be one ignored by other firms and the company must always be look out for that section. A distinct niche can be carved out for a particular brand.
The purpose of a concentration strategy, as we indicated, is to provide a singular focus to the product line and the market in which the company chooses to compete. Doing so can sometimes lead to that particular business being viewed as a specialist or expert in a given industry, since all resources are aimed at creating and marketing the best possible products in that field. At times, a company may choose this course of specialization and achieve so much success that it begins to set the standard in that industry, providing the benchmark to which competitors must aspire in order to remain in business.
When successful, the concentration strategy makes it possible to build a strong reputation within a market as well as generate significant name value among consumers. In fact, the name of the singular product may become so entrenched in the minds of consumers that it comes into common use as a slang term for all products of that type, whether they are made by the company or not.
At the same time, the perception of superior quality is often cultivated, based on the fact that the company does one thing and does it well.
A concentration strategy usually has the advantage of low initial risk because the organisation already has much of the knowledge and many of the resources necessary to compete in the marketplace. This strategy allows the organisation to focus its attention on doing a small number of things extremely well.
While a concentration strategy can work very well, there are some potential pitfalls to this approach. Shifts in the demands of consumers could mean the market for the singular product begins to shrink, a situation that could leave the company in financial difficulty. Innovations in technology may render the product obsolete, effectively bringing production to an end. Companies that do not diversify are often vulnerable during economic slowdowns, especially if the product in question is perceived as a luxury rather than a necessity. Unless the business has sufficient financial reserves to ride out the downturn, there is a good chance the company will fail.
The major drawback to a concentration strategy is that it places all or most of the organisation’s resources in the same basket. If a sudden change occurs in the industry, the organisation can suffer significantly.
There are basically three approaches to pursuing a concentration strategy: market development, product development and horizontal integration.
This involves expanding outside of your region or selling to a new country. The element of risk in adopting this strategy will depend on whether or not you can use your established sales channels in the new market. Market development is a two-step process. It starts with market research. You need to engage in segmentation analysis to determine which market segments are worth pursuing. Once you have taken the decision, the second step involves creating a promotional strategy to penetrate the new market.
Product development is a strategy that seeks increased sales by improving or modifying present products or services. Product development implies modifications or additions to products in order to increase their market penetration within the existing customer groups. The idea is to attract satisfied customers to new products as a result of their positive experience with the company’s initial offering.
Horizontal integration occurs when a firm acquires or merges with major competitors or at least another firm operating at the same stage in the added value chain. The company’s objective may be to become more efficient through larger economies of scale, to enter another geographic market or simply to reduce competition for suppliers and customers. The market share will increase and pooled skills and capabilities should generate synergy.
Mergers between direct competitors are more likely to create efficiencies than mergers between unrelated businesses, both because there is a greater potential for eliminating duplicate facilities and because the management of the acquiring firm is more likely to understand the business of the target.
In order to make the most of concentration in your business strategy, use the following guidelines:
Use competitive analysis to identify your competitors’ weaknesses or market gaps. Doing so gives you the opportunity to shape your competitors.
Concentrate on an unserved, poorly served or emerging market segment that represents growth and, in turn, could help you launch into additional market segments.
Introduce a product (or product modification) not already developed by the existing competitors that can fortify your position and reinforce your concentration strategy.
Secure your primary segment by private labelling your concurrent with establishing your own brand. You thereby create a barrier by blocking a competitor’s entry.
Expand into additional market segments with new product offerings. Also consider modifying the existing products.
Finally, when developing a concentration strategy, there are a few issues you have to settle. Should you change the allocation of your resources after you have gained a favourable market position? If you gained a dominant position, then you should move partially
from the offensive to the defensive, making certain that you have an active defence against expansion-minded competitors.
Consequently, how you deploy your resources and, in particular, how you shape your marketing mix should change with the situation. That also means adding as much flexibility to your organisation as feasible, which includes holding reserves. You thereby ready yourself to respond rapidly to counter competitors’ moves.
Also, one of the essential activities related to properly allocating resources is to acquire as much competitor intelligence as possible. It is from such information that you pinpoint funds for products that could successfully challenge competitors’ entries. You are then able to more effectively deploy sales people, motivate middlemen and budget promotional money.
(The current series ends with this article) (Lionel Wijesiri, a corporate director with over 25 years’ senior managerial experience, can be contacted at firstname.lastname@example.org)