What Is a Concentration Strategy?

Concentration strategy (Focus): including market segmentation, R & D concentration, product line concentration, etc., in order to concentrate the company's limited resources in a small market area of a product to establish market survival advantages.

Centralized strategy

Right!

Concentration strategy (Focus): including market segmentation, R & D concentration, product line concentration, etc., in order to concentrate the company's limited resources in a small market area of a product to establish market survival advantages.

Chinese name

Centralized strategy

Foreign name

Focus

Content

Market segmentation, R & D concentration, product line concentration

Purpose

Realizing the benefits of economies of scale

Concentration strategy

Focus on strategy

The goal of the centralized marketing strategy is not to occupy a smaller market share in a larger market, but to have a larger or even leading market share in one or several markets. Its advantages are that it adapts to the characteristics of limited resources of the enterprise, can focus on providing the best service to a specific submarket, and has centralized business objectives and simple and convenient management. It can reduce the operating cost of the enterprise, which is conducive to the centralized use of enterprise resources, to realize the specialization of production, and to realize the benefits of economies of scale.

Centralized Strategy Investment Strategy

There is no precise concept of fund holding concentration. The most common view is that the number of stocks held in the portfolio does not exceed 50. The concentration of investment in the top three industries and the top ten stocks is relatively high among similar funds. Sometimes, due to over-allocation of an industry, the stock market value of the industry accounts for a high proportion of net worth, which is also a manifestation of the concentrated investment strategy.

Take the investment portfolio data released by the fund on September 30, 2007 as an example (excluding passive index funds such as ETF funds). The top five funds with the highest concentration of investment in the top three industries are the growth of domestic demand for Invesco Great Wall, growth in domestic demand of Invesco Great Wall, excellent growth in the south, invesco Great Wall Dingyi and invesco Great Wall selected blue chips. It is worth noting that most of Invesco's funds implement a centralized investment strategy. Financial and insurance, metal and non-metal, and real estate industries are industries they collectively favor. Among them, the financial and insurance industries accounted for over 30% of the net value, which belonged to the overweight industry, and the remaining two industries belonged to the overweight industry. Southern Outstanding Growth also has similar industry position characteristics. From the perspective of individual stock investment, the top ten stocks in Inshun Great Wall's domestic demand growth, South China's outstanding growth and domestic demand growth ranked first. Among them, due to the re-allocation of the financial and insurance sectors, the proportion of heavy bank stocks is relatively large. The concentration level of more than 50% indicates that the top ten stocks account for an average of more than 5% of the net value. Compared with the regulations, "a fund holding a listed company's stock market value does not exceed 10% of the net asset value", this strategy is a centralized investment strategy .

Fund managers with relatively concentrated industry allocation usually adopt a "top-down" investment strategy, and select industries that are worth investing through analysis of macroeconomics and industry cycles, hoping to achieve excess returns by allocating key industries. For example, in the fourth quarter of 2006, bank stocks showed a strong rise, and the performance of funds in the heavy storage bank sector was far ahead. Its risks are reflected in the fact that no industry can maintain a rising trend for a long time. Funds that maintain relatively stable positions in long-term heavy positions may fall into a passive situation where the performance of a certain industry is poor and greatly drag down performance; while funds that follow the mainstream of the market and adopt decisive swaps for outdated industries may increase fund transaction costs If the main market is not accurate, not only will the fund's net worth suffer a slump, it will also expand the turnover rate of the fund and make investors bear the potential costs. Therefore, the industry's relatively concentrated funds have a long-term bullish industry adjustment rate. If the industry ratio changes from decentralized to concentrated, investors should pay attention to the reasons: change in investment strategy? Or the fund encountered a large redemption? The former may bring about a complete change in the investment style of the fund, while the latter only improves the concentration of investment in the short term and has a weak long-term impact on the style.

In addition, fund managers who select a small number of stocks often think that the stock they choose is the most suitable, and do not consider too much diversification or control risk. Allocating assets to key stocks may bring excess returns to the portfolio, while investing in more stocks may drag down the fund's overall returns

Centralized strategy

Concentrated or focused strategy refers to the focus of the business strategy on a specific goal to provide special or services for a specific region or a specific group of buyers. That is to concentrate the use of resources to increase the sales and market share of a certain product at a faster growth rate than in the past.

The premise of this strategy is that the specialization of enterprise business can serve a narrow segment of the market with higher efficiency and better results, thereby surpassing competitors who compete in a wider range. This can avoid the situation of large and weak decentralized investment and easily form the core competitiveness of the enterprise.

Comparison of centralized strategies with other competitive strategies

The centralized strategy is different from the other two basic competitive strategies. Cost-leading strategies and differentiated strategies are industry-wide and carry out activities across the entire industry. The centralized strategy is to carry out intensive production and operation activities around a specific goal, and requires more effective services than competitors. Once the target market is selected, a focused strategy can be formed through product differentiation or cost leadership. That is to say, companies that adopt a focused and focused strategy are basically special differentiated or special cost-leading companies. Due to the small size of such companies, companies that adopt a centralized strategy often cannot simultaneously differentiate and cost lead. If a company adopting a centralized strategy wants to achieve cost leadership, it can build its own cost advantage on special products or complex products. Such products are difficult to standardize production, and it is not easy to form economies of scale in production. It is difficult to have the advantage of an experience curve. If a company adopting a centralized strategy wants to achieve differentiation, all different methods can be used to achieve the desired purpose. Unlike a differentiation strategy, a company adopting a centralized strategy is different from a specific target market. Companies with a strategy to compete will not compete with their competitors in other market segments. In this regard, because of the narrow market area, companies with focus can better understand the market and customers, and provide better products and services.

Reason for Centralization Strategy

The reasons for implementing a centralized strategy are:

1. Lack of a complete product series (product series gap) in the relevant market;

2. The sales channel system leading to or in the relevant market is incomplete or imperfect (sales gap);

3. The existing market potential is not fully utilized (utilization gap);

4. Competitor's sales gap (sales gap); customers, providing better products and services.

Advantages and disadvantages of a centralized strategy

Centralized marketing has a poor ability to adapt to the environment and has greater risks, giving up other market opportunities. If the target market changes suddenly, such as prices plummeting, buyer interest shifts, etc., companies may be in trouble. The growth strategy of focusing on a single product or service is relatively risky, because once the market for a company's product or service shrinks, the company will face a dilemma. Therefore, companies should be cautious when using a single product or service for a centralized growth strategy.

Concentration strategies

Undifferentiated Marketing

Non-differentiated marketing, also known as indifferent market strategy and non-differential marketing, refers to the face of segmented markets. Companies value the commonality of demand among sub-markets without focusing on their individuality. Several sub-markets are taken as the target market, but each sub-market is regrouped into a whole market, and it is regarded as its own target market. The company provides standardized products to the overall market, adopts a single marketing mix, and attracts as many buyers as possible through strong promotions. This not only enhances consumer impressions of the product, but also makes management easier and more convenient. effectiveness.

Concentrated Marketing, also known as focused marketing.

It means that the company does not face the overall market, nor does it decentralize the use of power in several market segments, but only selects one or a few market segments as the target market. Small and medium-sized enterprises with limited resources mostly adopt this strategy. The advantage of this strategy is that it adapts to the limited resources of the enterprise and can focus on quickly entering and occupying a specific market segment. The concentration of production and marketing has reduced the operating costs of the enterprise, but this strategy is relatively risky. If the target market changes suddenly, such as a sharp drop in prices or sudden emergence of strong competitors, companies may be in trouble.