Explain how a company would utilize a single-product strategy and a diversification strategy (including a vertical integration strategy). Provide an example of a company that uses each type of strategy.

Question

What will be an ideal response?

Answer 1

In a single-product strategy, a company makes and sells only one product within its market. Making just one product allows you to focus your manufacturing and marketing efforts just on that product. This means that your company can become savvy about repairing defects, upgrading production lines, scouting the competition, and doing highly focused advertising and sales. The risk, of course, is that if you do not focus on all aspects of the business, if a rival gets the jump on you, or if an act of God intervenes (for a florist, if roses suffer a blight right before Mother's Day), your entire business may go under. The single-product strategy is seen all the time as you drive past the small retail businesses in a small town: There may be one shop that sells only flowers, one that sells only security systems, and so on.

Diversification is operating several businesses in order to spread the risk. You see the diversification strategy at the small retailer level when you drive past a store that sells gas and food and souvenirs and DVD movies. One kind of diversification strategy is vertical integration, in which a firm expands into businesses that provide the supplies it needs to make its products or that distribute and sell its products. For many years, Hollywood movie studios followed this model, not only producing movies but also distributing them and even owning their own theaters. Today Netflix follows the same path by producing and distributing its own entertainment programming. Starbucks has long followed a plan of vertical integration by buying and roasting all its own coffee and then selling it through its Starbucks coffee stores.