Combination Strategy
Such a strategy is followed when an organization is large and complex and consists of several businesses that lie in different industries, serving different purposes. Go through the following example to have a better understanding of the combination strategy:
* A baby diaper manufacturing company augments its offering of diapers for the babies to have a wide range of its products (Stability) and at the same time, it also manufactures the diapers for old age people, thereby covering the other market segment (Expansion). In order to focus more on the diapers division, the company plans to shut down its baby wipes division and allocate its resources to the most profitable division (Retrenchment).
In the above example, the company is following all the three grand strategies with the objective of improving its performance. The strategist has to be very careful while selecting the combination strategy because it includes the scrutiny of the environment and the challenges each business operation faces. The Combination strategy can be followed either simultaneously or in the sequence.
One of the components of a combination advantage is the differentiation strategy. This strategy involves a targeted effort by a business to make its product or service to be perceived as unique and innovative in a market that is full of similar products or services. Companies use various methods to confer this feeling or perception of uniqueness upon their own brand of a product, which already exists in different forms. Such methods include unique packaging, mystery ingredients, or clever promotions. The uniqueness of the product or service is the differentiating factor.
Another component of a combination strategy is the cost leadership strategy whereby a company deliberately sets out to utilize all the resources at its disposal to make its products the most cost-effective. Such resources may include the utilization of cheaper labor through outsourcing or locating production plants in countries with cheap labor as well as management of distribution costs through the identification of effective distribution channels. Reducing the operating expenditures pays off in terms of reduced costs to consumers. This type of strategy may help the company earn competitive profits, while still attracting customers due to its low price.
The third component that may be included in a combination strategy is the focus strategy in which the company selects a niche for concentration. Such a niche could be based on geographic considerations, or by identifying a particular segment in the market. For instance, a company that manufactures female apparel may choose to concentrate on the production of products aimed at teenage girls exclusively. The main reason for this segmentation is the belief that a company will perform more efficiently if it focuses all of its resources on just one market segment.
A combination strategy is the combination of any of these strategies at the same time. As such, a company might decide to utilize a differentiation and focus strategy at the same time instead of just concentrating on one. The combination could also be between the cost leadership and the focus, or any other combination the business deems fit.