MARKET INTEGRATION

Market Integration
• Integration shows the relationships of the company in a market.
• The extent of integration influences the conduct of the companies and consequently
their marketing efficiency

• The behavior of a highly integrated market is different from that of a

disintegrated market.

• Markets differ in differ in the extent of integration and therefore, there is a

variation in their degree of efficiency.
• Kohl’s and uhl have defined market integration as a process which
refers to the expansion of firms by consolidation additional marketing
functions and activities under a single management.
• Examples of market integration are the establishment of
wholesaling facilities by food retailers and the setting up of another
plant by a milk processor
• There is a concentration of decision making in the hands of a single
management.
Types of Market Integration
• There are three basic kinds of market integration

• Horizontal integration
• Vertical integration
• Conglomeration
 Horizontal integration
• This occurs when a firm or agency gains control of other firms or agencies
performing similar marketing functions at the same level in the marketing
sequence
• In this type of integration, some marketing agencies combine to form a union
with a view to reducing their effective number and the extent of actual competition
in the market.
• It is advantageous for the members who join the group
• In most markets, there is a large number of agencies which do not effectively
compete with each other
• It leads to reduced cost of marketing
• In this reduced competition possible
Effects of Horizontal Integration
• Buying out a competitor in a time bound way to reduce
competition
• Gaining larger share of the market and higher profits
• Attaining economies of scale ( a proportionate saving in costs
gained by an increased level of production).
• Specializing in the trade
Advantages of Horizontal integration
• Lower cost
• Higher efficiency
• Increased product differentiation
• Increased market power
• Reduced competition
• Access to a new markets
• Economics of scale
• Economics of scope
• International trade
Disadvantages of the Horizontal Integration
• Destroyed value
• Legal repercussions
• Reduced flexibility
 Vertical Integration
• This occurs when a firm performs more than one activity in the
sequence of the marketing process
• It is a linking together of two or more functions in the marketing
process within a single firm or under a single ownership
• This type of integration make it possible to exercise control over
both quality and quantity of the product from the beginning of the
production process until the product is ready for the consumer
• It reduces the number of middle men in the marketing channel
• Forward integration
• If a firm assumes another function of marketing which is
closer to the consumption function, it is a case of forward
integration.

• Backward integration
• This involves ownership or a combination of sources of
supply

• Balanced vertical integration

• The third type of vertical integration is a combination of
the backward and vertical integration
Advantages of Vertical Integration
• It allows to invest in assets that are highly specialized
• It gives more control over business
• It allows positive differentiation
• It requires lower costs of transaction
• It offers more cost control
• It ensures a high level of certainly when it comes to quality
• It provides more competitive advantages
Disadvantages of Vertical Integration
• Capacity-balancing problems
• Bring about more difficulties
• Results in decreased flexibility
• Create some barriers to market entry
• Cause confusion within the business
• Requires a huge amount of money
Effects of Vertical Integration
• More profits by taking up additional functions
• Risk reduction through improved market coordination
• Improvement in bargaining power and the prospects of influencing
prices
• Lowering costs through achieving operational effiency
Conglomeration
• A combination of agencies or activities not directly related to each
other may, when it operates under a unified management, be termed
a conglomeration

Effects of Conglomeration
• Risk reduction through diversification
• Acquisition of financial leverage
• Empire – building urge
Reason for Market Integration
• To remove transaction costs. Foster competition
• Provide better signals for optimal generation and consumption
decisions
• Improve security of supply
Degree of Integration
• Ownership Integration
• This occurs when all the decisions and assets of a firm are completely assumed by
another firm
• Contract Integration
• This involves an agreement between two firms on certain decisions while each firm
retains its separate identity