We live in a world of professionalism, niche, and target marketing. Any general business can’t become successful and satisfy the needs of customers if it’s offering everything. It is because you can’t be perfect in every field. Therefore, a business or a company has to choose one area and excel in it.
Today, we’re going to discuss the same thing “concentration strategies.”
Table of Contents
What is Concentration Strategy?
Concentration strategy is a wise and sensible business strategy. It focuses on a single niche and competes in the same category. The world’s leading fast-food brands like Subway, McDonald’s, and Starbucks follow the same concentration strategy by targeting a specific target audience in one sort of product/service. It’s one of the main reasons behind their success.
If you remember, parents and teachers advise the children the same thing. If they want to succeed in life, they have to choose one field of study and earn a master’s or Ph.D. degree. The purpose of the concentration strategy is also the same.
Types of Concentration Strategies with Examples
Concentration strategy has three major types; market penetration, market development, and product development. Businesses use these strategies either one or in combination to compete in the market. It’s time to discuss these strategies one by one in detail, and they’re as follows;
Market Penetration
The market penetration strategy’s goal is to increase the market share by selling the current stock (product/service) to the existing customer market. Companies that are already doing business in the market try to offer/sell off-the-shelf products/services to attract the market’s attention. Often businesses and companies increase the marketing and advertisement campaigns to bring more customers.
Examples
McDonald’s, the world’s top fast-food brand, has recently shifted its focus on the Latin American market and employed a market penetration strategy. The fast-food brand has launched advertisement and promotional campaigns in the Spanish language. The translation of the company’s slogan was “I’m lovin’ it.” The brand attracted the attention of the Latin customer market and online traffic through its advertisement campaigns.
The world’s leading sportswear brand, Nike, hires sports athletes as the company’s brand ambassadors. The company features those sports celebrities advertising company’s products. That’s how the company increases the market share and competes with competitive brands like Puma and Adidas.
Market Development
Market development is selling the current stock (product/service) to the newer market. It means that the company has to enter into a more new market by employing new retail channels. The market development also demands that the company should enter into the new geographic areas.
Examples
Tastykake, a Philadelphian tasty baking company, has been selling its products like cakes and snacks for many years in Pennsylvania and other neighboring states. The company’s snack cakes have been trendy among customers.
A Georgian company, Flowers Foods, acquired the Tastykake in April 2011. This acquisition aimed to increase the distribution of Tastykake’s products into the southern states of the US. That’s how a bakery company has developed its market.
Starbucks has made a worldwide reputation for selling hot coffee and coffee beans at its franchises. The company has recently allowed the sale of its coffee beans in the other grocery stores as well. It has helped the company to approach more customers that aren’t the coffee drinkers of Starbucks.
Product Development
Product development is the process of introducing a new product/service to the current market. It involves market research and innovation, and creativity to develop the new product.
Examples
McDonald’s started its business by offering burgers initially; the company expanded its product portfolio by offering French fries, breakfast, and soft drinks. The product development helped the company to increase its revenue and market share.
Starbucks launched a new product by the name of VIP in 2009. It was about the quick access to the variety of coffee tastes. The management had thought that this product would attract the attention of customers’ market. It did, but they didn’t have convenient access to franchises of Starbucks.
On the other hand, soft drink brands like Pepsi and Coca-Cola are readily available to the customers. Whenever they launch new products like Cherry Vanilla and Coke Zero, they become popular in different customer market segments. The soft drink companies gain a competitive edge over competitors by increasing their market share.
Walt Disney used to be the animated cartoon production company. The brand developed its product portfolio and started producing movies with real videos and actors/actresses in 1940.
Advantages of Concentration Strategy
Economical
When a company offers only one type of product/service and specializes in it after some time, it provides the company a competitive advantage. It helps the brand have access to the low-priced raw material and suppliers. A new company can’t be cost-efficient; it’s the experience in producing one type of product/service.
Competitive Advantage
A brand is offering only types of products/services to the customers, and it is wholly focused on its field in terms of variety. On the other hand, a business that offers all types of products/services without providing variety in any of them. The customer would visit the one niche-focused brand over the general store.
Specialization
Concentration strategy helps you to achieve specialization in various production processes, marketing, and promotional activities. The profession makes the company efficient in terms of cost and production.
Disadvantages of Concentration Strategy
Limited Customer
When you offer only types of the product/service, then your target customer market would be limited to some people only. Companies with an extensive product portfolio usually have a larger customer market. If any competitor comes into the market, it would further reduce your market share.
Decreasing Demand
The demand doesn’t remain the same throughout the year. It keeps on changing. When it starts declining, it will reduce the sales and profitability of your company.
Limited Diversification
Concentration strategy is like putting all of your eggs in one basket. In other words, you choose to offer only types of product/service. If it works, well. Otherwise, your whole business would be in great jeopardy. You can’t diversify your product portfolio in the concentration strategy.
