Page 3: Different approaches to growth
The company had historically focussed on a core group of consumers, individuals in office based secretarial and administrative roles. This can be seen in the way the company uses its title, Office Products, as an umbrella under which to gather companies closely related by product and market segment. Similarly the various divisions, which together form Office Products UK, concentrate on achieving excellence within a relatively narrow range of products, and so become the brand name for their specific product sector.
As specialist suppliers the divisions then set about winning a larger share of their current market, or attempt to expand into new ones. Not only does Avery Dennison’s concentration strategy help it to brand closely associated products, its strategy also strengthens, in a buyer’s and consumer’s mind, the Avery brand as a major supplier of such products, which in turn boosts its ability to compete against other companies.
Avery Dennison also achieved growth through horizontal integration by adding (acquiring) businesses that were similar in terms of end consumer and distribution channels. In pursuing a policy of horizontal integration it was able to expand its market share of closely related products. It is possible, therefore, to concentrate the manufacture of several (associated) products from a variety of different factories, some of which have been acquired by horizontal integration.
Finally, the growth strategies displayed in concentration and horizontal integration are complemented by diversification: a process which brings about growth through the development of new products and new sales areas. Though these new areas may well be related to the established ones, they are, nonetheless, distinct from current areas of business.
In addition to diversifying for growth reasons, organisations such as Avery Dennison often diversify to reduce the risks associated with single product companies. For example, since its origins as a manufacturer of adhesive labels the Avery Dennison Corporation has diversified the nature and range of applications of even this one product.
Similarly in the UK, Avery Dennison OPUK has diversified from being primarily an office label manufacturer to supplying a whole range of office products and A4 creative ‘printable’ products such as Photo-Quality cards, papers, T-shirt transfers and other novelty items for home and school use. The company’s successful business growth and the establishment of its name as a brand leader illustrate the strength of its diversification policies. Product diversification through horizontal integration is clearly evident in the various names of the companies within the Avery Dennison Group.
Further evidence of Avery Dennison’s energetic approach to diversification can be seen in the evolution of one of its primary products: the adhesive label mentioned above. Patented in 1935 by R Stanton Avery, its inventor, the self-adhesive labelling process now has many varied and specialty uses. Information technology and software have added a new range of labelling applications and, in turn, increased the depth of Avery Dennison’s customer base.
To complete a description of its diversification, it is worth contrasting Avery Dennison’s concentric diversification with that of conglomerate diversification. Conglomerate diversification takes place when an organisation diversifies into areas which are unrelated to its current business.
Unlike Avery Dennison, conglomerates are parent companies which own businesses that manufacture products which are so different from each other it is difficult for them to share skills and technologies. With the exception of finance, it is difficult for individual companies within a conglomerate to offer each other mutual support. Avery Dennison’s concentric diversification, on the other hand, took place through related products and markets and, therefore, contrasts markedly with the growth strategies of conglomerates. Avery Dennison has, it would seem, avoided any strategy which works against concentration and horizontal integration.