What is the Concentric Strategy?

Diversification strategies are used to expand the company's product lines and operate in several different markets. General strategies include concentric strategy diversification, horizontal and conglomerate, each focusing on a specific diversification method.

Likewise, diversification strategies help to increase the flexibility and keep profits during slow economic periods. In this case, the concentric strategy is used when a company wants to expand its product portfolio to include similar products produced within the same company.

On the other hand, this strategy allows a company add similar products to an established business. For example, when a computer company that produces desktop computers begins to produce laptops, it uses concentric strategies. The technical knowledge for the new company comes from its current field of qualified employees.

Concentric diversification strategies are rampant in the industry and we will talk by providing examples on food production. One of these would be when a ketchup manufacturing company begins producing pasta sauce, using its current production facilities.

Characteristics of the concentric strategy

• Among the most common characteristics that a concentric strategy refers to is when a company adds new products or services that are related to those they already have.
• The corporation's business lines have some common thread that serves to relate them to each other.
• It has an advantage, one of the most obvious and important is that it allows any organization to develop expertise in a related area.
• You can take advantage of the cost chains of an activity sufficiently related to the new one and have the opportunity to extend it even further.

Benefits of the concentric strategy

Take advantage of existing infrastructure

One of the important benefits of the concentric strategy as we named above is that it allows you to use your existing competencies and skills to launch your new product or service. Rather than having to start from scratch, the framework you have already established in your business can be directed towards the new product or service.

Using a pizza restaurant as an example, it would not take a large investment in raw materials for the owner of that pizza restaurant to restaurant start serving pasta or calzones, as the basic ingredients for making pizza are similar to those for making calzones and pasta dishes. Could be reached save money also with this strategy.

When you diversify with a concentric strategy, you can rely on your past experience selling your core product or service to help you develop and market the new product or service.

However, one thing to consider is that the new product or service must be of the same quality as your existing product or service. Diversification will not be successful if your new product or service does not meet the wants and needs of your customers.

Enables business synergy

The concentric strategy also helps achieve synergy, which is the ability of smaller departments or divisions to achieve larger goals than would be possible as separate entities. A concentric strategy creates a strategic fit as a result of developing complementary products or services.

Following the example of the pizzeria, the owner could decide that his concentric strategy involves buying other local pizzerias as a means of increasing product distribution and expanding into new areas of market.

After acquiring these new restaurants, the owner could employ a strategy of differentiation in which some of the restaurants offer entertainment such as video games and music live.

This strategy can attract new customers while increasing the likelihood that existing customers will remain enthusiastic about the frequency of these restaurants.

Increase market share

Another benefit of the concentric strategy is that it often leads to a higher market share, which is defined as the percentage of total consumers that a company has captured with its products and services.

It is no secret that market share is a main determinant of the Business success, and the greater the presence of a company, the greater the market share.

When this strategy is implemented, you necessarily increase the presence of your product, which can result in higher sales because consumers see this product more often and in more ways interesting

So instead of just selling pizzas, for example, the fact that your business now sells other items of Menu can increase the frequency of your existing customers through a phenomenon known as cross-selling.

This occurs when your captive audience is introduced to something similar or related to a product that they already buy and enjoy.

That familiarity makes it so much easier for you to develop products and services that are aligned with the business vision, but that offer enough diversity for your customers to feel like they are getting something new and exciting.