When considering whether to expand a retail firm, careful consideration should be given to value chain analysis of the activities in running the organization.
Choosing a strategy to take advantage of a strong brand name could be profitable for a business owner.
If the firm has been successful in marketing their own products and services, it could save money on the advertising costs of entering a new related business because a strong brand name has already been established. The new business would have instant credibility.
Learning from the Trailblazers
Michael Jordan used his influence to dominate the athletic footwear and clothing industry. He wisely considered leveraging his resources as a successful athlete to enter the retail industry.
As a result, he has enjoyed widespread acclaim as an entrepreneur. L’Oréal has used its strong brand name to acquire control of Cosmair from Nestle and the Bettencourt family in 1994. It acquired the Maybelline brand and two drug companies, Lichtenstein Pharmaceutica and Irez, the following year. It then merged its hair care and cosmetics business under one umbrella.
Since then, it has acquired many other cosmetics and hair care companies all over the world. Both Michael Jordan and L’Oréal have been able to leverage the power of their brands and enter new markets because of the similarities in the activities of the value chain.
Thompson, Jr., Strickland, II and Gamble, authors of Crafting and Executing Strategy, state that the value chain is “all of the activities that a company performs internally to create value for the buyers.”
Because of the similarities in providing value for the customers, Michael Jordan and L’Oréal were able to enter new markets.
Identifying the Process
Therefore, when considering entering a new market, the business owner must investigate the activities of the new business thoroughly to determine if there are any similarities. For example, network marketing companies have recruiting, sales, and marketing as dominant activities.
Any business involved in network marketing activities on the internet is involved in recruiting associates, sales, and marketing activities. Accordingly, a related business would be any other network marketing company.
By the same token, a wholesaler’s activities would include merchandise selection, purchasing, inbound shipping, warehousing from suppliers, and outbound distribution to suppliers.
Since an office products wholesaler and a stationery wholesaler would perform similar activities, these two related businesses may work well together. A business owner would make this determination from careful value chain analysis.
In conclusion, once the business owner determines through value chain analysis if there is a similarity in the value chain, then it can make a better decision to enter a new market.