Forward Integration

  • Forward integration is a form of vertical integration that occurs when a company secures more downstream control over its supply chain.
  • Forward integration is the opposite of backward integration, where a company takes control of upstream business activities such as raw material sourcing.
  • Companies that have used forward integration to great effect include Nike, Amazon, and Apple. Nike used the strategy to increase DTC sales while Apple established its now famous Apple Store to increase the number of customer touchpoints.
OverviewForward Integration is a business strategy in which a company expands its operations or control over the distribution channel by moving closer to the end customer. It involves taking ownership or control of activities previously handled by intermediaries or downstream businesses.
Key ElementsOwnership or Control: The company acquires or establishes direct ownership or control over distribution or retail channels. – Reduced Dependency: It reduces dependence on intermediaries or distributors. – Branding and Customer Experience: The company can ensure consistent branding and customer experience. – Market Reach: It enables reaching a wider customer base and potentially new markets. – Profit Margins: Greater control over pricing and profit margins.
ImplicationsForward Integration can have significant implications for the company’s supply chain, distribution network, and relationships with existing intermediaries. It requires careful planning and execution to be successful.
Benefits– Increased Control: The company gains greater control over how its products or services are presented and sold. – Enhanced Customer Experience: Ensuring a consistent and positive customer experience. – Improved Profitability: Potential for higher profit margins. – Market Expansion: Reaching new customers and markets directly. – Competitive Advantage: Differentiation and competitive advantage in the market.
Drawbacks– Resource-Intensive: Establishing and managing distribution channels can be capital and resource-intensive. – Conflict with Intermediaries: It may strain relationships with existing intermediaries or distributors. – Operational Challenges: Managing new channels can present operational challenges. – Market Risk: Entering new markets can be risky, especially if market conditions are unknown.
Use Cases– A manufacturer of consumer electronics opening its own retail stores to sell directly to customers. – A food producer launching its e-commerce platform to sell products online. – A software company offering its software as a service (SaaS) directly to end-users instead of through resellers. – A fashion brand operating its flagship stores for a direct retail experience.
Examples– Apple Inc. operates its Apple Stores worldwide, where it sells its products directly to customers and controls the retail experience. – Tesla Inc. sells its electric vehicles directly to consumers, bypassing traditional car dealerships. – Nike Inc. has its retail stores and online platform to sell its sports apparel and footwear directly to consumers. – Amazon, known for its e-commerce platform, has also integrated forward by establishing physical bookstores and acquiring Whole Foods Market for grocery retail.

Forward integration is a form of vertical integration that occurs when a company secures more control over the distribution of its products or services.

Understanding forward integration

Companies that utilize forward integration secure control over business activities that are downstream of the supply chain.

This typically extends from the point at which goods are produced until the point they are sold to consumers.

Forward integration is the opposite of backward integration, where a company takes control of upstream business activities such as raw material sourcing.

However, it’s important to note that  forward and backward integration are types of vertical integration that allow a company to control aspects of the supply chain to streamline operations.

Successful forward integration relies on the company acquiring other companies that were once its customers.

The odds of success have been increased by the internet, with countless manufacturers now able to reduce their costs by bypassing traditional retailers and selling their products online.

The strategy comes with several benefits. The most obvious is that forward integration enables some companies to interact with the customer directly.

For other companies, it affords economies of scope and more optimal cost structures that increase profitability and market share.

Forward integration vs. backward integration

Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Whereas with forward integration, a company takes control of upstream (meaning moving up in the supply chain or getting closer to the final customer) business activities.

In backward integration, the company moves by getting closer to the input, raw version of the product.

Companies that have mastered vertical integration have learned to move both forward and backward.

Depending on where the core asset is, a company usually moves upward, downward, or vice-versa.

Take the case of luxury manufacturers like Gucci, which in the 1950-60s started to build their industrial basis, thus vertically integrating their supply chain and building close ties with artisans in Tuscany.

Thus the company started vertically integrating backward by controlling more and more of the manufacturing process to ensure quality.

On the other hand, once Gucci had secured the manufacturing and industrial side, it was time to build demand and distribution.

Thus, throughout the 1970-the 80s, it expanded globally by opening and operating new stores, thus moving forward in the supply chain.

Today the opposite process is shaping up the business world.

As the web has lowered the barriers to entry for many, entrepreneurs could start building their audiences from scratch by tapping into digital channels.

Many of these new entrants tended to master first the demand side (move forward) and only later started to build the supply side (move backward).

Take the case of MrBeast, and how it started first to build a massive audience via YouTube, and then it started to build products on top of that brand.

Today MrBeast moved beyond media, opening up also a burger restaurant chain!

Forward integration examples

In this section, we’ll mention some forward integration examples and describe how the strategy has been beneficial for the company concerned.


Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.

Amazon’s purchase of Whole Foods Market for $13.7 billion enabled the company to sell food to consumers via bricks-and-mortar stores and not just online. 

Amazon Transportation Services (ATS), which controls the transport and distribution of eCommerce items to the end user, is another example of forward integration.

ATS enables Amazon to identify the fastest and most convenient way to deliver packages around the world and save money in the process.


Apple has a business model that is broken down between products and services. Apple generated over $365 billion in revenues in 2021, of which $191.9 came from the iPhone sales, $35.2 came from Mac sales, $38.3 came from accessories and wearables (AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and accessories), $31.86 billion came from iPad sales, and $68.4 billion came from services.

Today, consumers take Apple Stores for granted and assume they’ve always been a part of the company’s success.

Before 2001, however, Apple sold its products via third-party retailers and many of these partnerships were detrimental to its bottom line.

Apple hired former Target marketing executive Ron Johnson in 2000 to mastermind its forward integration strategy.

Johnson initially wondered how he would fill the vast retail space of an Apple Store with the company’s sparse product range.

But in the end, he decided to focus on the experience of using an Apple product and the problems they solved for consumers.

Forward integration enabled Apple to establish a relationship with customers that involved expert customer support, repairs, and maintenance.

Under the traditional retail model it had employed before 2001, the purchase of an Apple product marked the end of the company’s interaction with customers.


Nike vision is “to bring inspiration and innovation to every athlete in the world.” While its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sport innovations, by making our products more sustainably, by building a creative and diverse global team and by making a positive impact in communities where we live and work.”

In 2011, Nike announced a forward integration strategy named Consumer Direct Acceleration to increase its direct-to-consumer (DTC) sales. 

While DTC sales are more profitable, the strategy also allowed Nike to exercise more control over how its brand was presented to consumers.

This was seen as the primary reason Nike stepped away from selling its products on Amazon, with a company spokesperson noting that “As part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail.

By selling more products direct to the consumer, Nike was able to grow its DTC revenue from 16% of total revenue in 2011 to 35% of total revenue by 2020.

In recent years, Nike’s forward integration strategy has been helped by enhanced online sizing technology and the increased popularity of eCommerce during COVID-19.

Case Studies

  • Amazon:
    • Forward Integration Strategy: Amazon has achieved forward integration through various means, including acquisitions and the development of its own retail channels.
    • Whole Foods Acquisition: Amazon acquired Whole Foods Market, a grocery store chain, to expand its physical retail presence. This acquisition allowed Amazon to sell groceries and fresh produce directly to consumers through physical stores.
    • Amazon Transportation Services (ATS): ATS, an in-house logistics and transportation arm of Amazon, enables the company to control the delivery process. By managing its transportation network, Amazon can ensure faster and more efficient delivery to customers.
  • Apple:
    • Forward Integration Strategy: Apple implemented forward integration by establishing its own retail stores and focusing on the customer experience.
    • Apple Retail Stores: Apple opened its chain of Apple Retail Stores worldwide, providing a direct channel for customers to purchase Apple products. These stores offer a unique and immersive experience, with expert staff and customer support.
    • Customer Engagement: Apple emphasizes customer engagement and support through its retail stores. Customers can receive technical assistance, repairs, and personalized product recommendations, fostering a stronger relationship with the brand.
  • Nike:
    • Forward Integration Strategy: Nike pursued forward integration to increase direct-to-consumer (DTC) sales and enhance brand control.
    • Consumer Direct Acceleration: Nike’s Consumer Direct Acceleration strategy focused on growing DTC sales. This involved expanding its online sales channels, enhancing the Nike app, and optimizing its website for e-commerce.
    • DTC Stores: Nike operates its DTC stores, both physical and digital, allowing customers to purchase Nike products directly. The company’s online store and Nike app provide seamless shopping experiences.
  • Tesla:
    • Forward Integration Strategy: Tesla adopted forward integration by selling its electric vehicles directly to consumers.
    • Tesla Showrooms: Tesla operates showrooms and galleries where customers can view and test-drive Tesla vehicles. These physical locations allow Tesla to showcase its products and educate potential buyers.
    • Online Sales: Tesla also offers direct online sales through its website, enabling customers to configure, order, and purchase vehicles directly from the company.
  • Netflix:
    • Forward Integration Strategy: Netflix embraced forward integration by producing its own original content.
    • Original Content Production: Netflix creates and produces original TV shows, movies, and documentaries. By developing exclusive content, Netflix attracts subscribers and differentiates itself from other streaming platforms.
    • Content Distribution: Netflix distributes its original content directly to subscribers through its streaming platform. This approach ensures that customers can access unique content not available elsewhere.
  • Starbucks:
    • Forward Integration Strategy: Starbucks achieved forward integration by owning and operating its coffee shops.
    • Retail Stores: Starbucks owns and manages a vast network of coffee shops worldwide. These stores serve as points of sale where customers can enjoy Starbucks beverages and food.
    • Menu Innovation: Starbucks has the freedom to innovate its menu offerings and customize beverages based on customer preferences, enhancing its forward integration.
  • Disney:
    • Forward Integration Strategy: Disney’s forward integration involves owning and operating theme parks and resorts.
    • Theme Parks and Resorts: Disney owns and manages numerous theme parks and resort destinations globally, including Disneyland and Walt Disney World. These locations offer immersive experiences based on Disney’s intellectual properties.
    • Brand Immersion: Disney’s theme parks allow visitors to immerse themselves in the Disney brand and storytelling, reinforcing the connection between its content and physical experiences.
  • McDonald’s:
    • Forward Integration Strategy: McDonald’s practices forward integration through its ownership and management of restaurant locations.
    • Restaurant Ownership: McDonald’s owns and operates a significant portion of its fast-food restaurant locations. This ownership ensures consistency in menu offerings, quality standards, and operational efficiency.
    • Innovation and Adaptation: McDonald’s can introduce innovations like self-order kiosks, mobile ordering, and menu variations to its owned restaurants, enhancing the customer experience.
  • Ford Motor Company:
    • Forward Integration Strategy: Ford operates its network of dealerships.
    • Dealer Network: Ford owns and manages a network of dealerships globally. These dealerships sell Ford vehicles directly to consumers, providing a physical presence for customer interactions.
    • Service Centers: Ford’s forward integration includes service centers within dealerships, offering maintenance, repairs, and customer support to vehicle owners.
  • Coca-Cola:
    • Forward Integration Strategy: Coca-Cola has integrated forward by owning and operating its bottling and distribution facilities.
    • Bottling Plants: Coca-Cola owns bottling plants and facilities to produce its beverages. This ownership ensures control over production quality and consistency.
    • Distribution Network: Coca-Cola manages its distribution network, delivering its products directly to retail stores, restaurants, and vending machines.
  • Walmart:
    • Forward Integration Strategy: Walmart operates a vast network of retail stores.
    • Retail Stores: Walmart owns and manages a chain of retail stores worldwide. These stores sell a wide range of products, including groceries, electronics, apparel, and more, directly to consumers.
    • Private Label Brands: Walmart has introduced private label brands, such as “Great Value,” sold exclusively in its stores, allowing for greater control over product offerings and pricing.
  • IKEA:
    • Forward Integration Strategy: IKEA designs, manufactures, and retails its own furniture and home products.
    • In-House Manufacturing: IKEA designs and manufactures its furniture and home goods through its supply chain. This control over manufacturing ensures product quality and cost efficiency.
    • Retail Stores: IKEA’s retail stores serve as showrooms and sales outlets for its products, enabling customers to purchase items directly.
  • AT&T:
    • Forward Integration Strategy: AT&T offers a range of telecommunications services directly to consumers.
    • Retail Outlets: AT&T operates retail stores and online channels where customers can subscribe to mobile phone plans, internet services, TV packages, and more.
    • Streaming Services: AT&T owns and operates streaming platforms like HBO Max, offering exclusive content directly to subscribers.
  • Lululemon Athletica:
    • Forward Integration Strategy: Lululemon designs and sells its own athletic apparel and accessories.
    • Exclusive Stores: Lululemon owns and manages its branded retail stores, providing a unique shopping experience for customers and direct access to its product line.
    • E-commerce: Lululemon’s e-commerce platform allows customers to shop online and purchase products directly from the company.
  • Marriott International:
    • Forward Integration Strategy: Marriott owns and operates a wide range of hotel and resort properties.
    • Hotel Ownership: Marriott owns numerous hotel properties globally, offering accommodations directly to travelers.
    • Branded Experiences: Marriott’s forward integration includes branded hotel experiences, loyalty programs, and direct booking channels to engage with guests.
  • Verizon Communications:
    • Forward Integration Strategy: Verizon provides telecommunications services and operates retail stores.
    • Retail Locations: Verizon owns and manages retail stores where customers can explore and purchase smartphones, wireless plans, and home services.
    • Customer Support: Verizon offers customer support and technical assistance directly to its subscribers.

Key takeaways:

  • Definition: Forward integration is a type of vertical integration where a company gains control over downstream activities in its supply chain, extending from production to consumer sales.
  • Differentiation from Backward Integration: Forward integration is the opposite of backward integration, which involves taking control of upstream activities like sourcing raw materials.
  • Supply Chain Control: Forward integration enables companies to have a greater say in the distribution of their products or services, interacting directly with consumers.
  • Benefits: Forward integration offers advantages like direct customer interaction, economies of scope, optimal cost structures, increased profitability, and market share growth.
  • Strategy Execution: Successful forward integration often involves acquiring companies that were once customers. The internet has facilitated this strategy by allowing manufacturers to sell directly to consumers online.
  • Examples of Companies Using Forward Integration:
    • Amazon: Acquired Whole Foods to sell food in physical stores, also operates Amazon Transportation Services (ATS) for efficient global package delivery.
    • Apple: Established Apple Stores under the leadership of Ron Johnson, providing expert customer support, repairs, and maintenance.
    • Nike: Implemented Consumer Direct Acceleration to increase direct-to-consumer (DTC) sales, offering greater control over brand presentation.
  • Consumer Direct Strategy: Companies using forward integration focus on selling directly to consumers, enhancing customer experiences and brand representation.
  • Direct-to-Consumer Growth: Nike’s forward integration strategy increased DTC sales, and Apple’s Apple Store approach allowed direct interaction with customers, leading to improved customer relationships.
  • Online and COVID-19 Impact: The internet has enabled direct-to-consumer sales, and during the COVID-19 pandemic, the trend was bolstered by increased eCommerce adoption.
  • Vertical Integration Mastery: Successful companies often master both forward and backward integration to control different aspects of their supply chains.
  • Strategic Adaptation: Companies adapt their strategies based on the core asset’s location, moving upward, downward, or vice-versa in the supply chain.
  • Digital Transformation: Entrepreneurs in the digital age often start by building audiences (forward) before expanding into supply-side activities (backward).
  • Evolution in Business: Modern businesses are evolving, with new entrants building audiences online before expanding their product offerings.
  • Innovative Approaches: Forward integration encourages innovative approaches to establishing direct customer relationships and enhancing brand experiences.
  • Impact of Amazon, Apple, and Nike: These companies’ successful implementations of forward integration demonstrate its effectiveness in achieving greater control, customer engagement, and revenue growth.
  • Overall Strategy: Forward integration is an important strategic choice that allows companies to influence and enhance customer experiences, control distribution, and drive growth.

Read Next: Vertical Integration.

Connected Economic Concepts

Market Economy

The idea of a market economy first came from classical economists, including David Ricardo, Jean-Baptiste Say, and Adam Smith. All three of these economists were advocates for a free market. They argued that the “invisible hand” of market incentives and profit motives were more efficient in guiding economic decisions to prosperity than strict government planning.

Positive and Normative Economics

Positive economics is concerned with describing and explaining economic phenomena; it is based on facts and empirical evidence. Normative economics, on the other hand, is concerned with making judgments about what “should be” done. It contains value judgments and recommendations about how the economy should be.


When there is an increased price of goods and services over a long period, it is called inflation. In these times, currency shows less potential to buy products and services. Thus, general prices of goods and services increase. Consequently, decreases in the purchasing power of currency is called inflation. 

Asymmetric Information

Asymmetric information as a concept has probably existed for thousands of years, but it became mainstream in 2001 after Michael Spence, George Akerlof, and Joseph Stiglitz won the Nobel Prize in Economics for their work on information asymmetry in capital markets. Asymmetric information, otherwise known as information asymmetry, occurs when one party in a business transaction has access to more information than the other party.


Autarky comes from the Greek words autos (self)and arkein (to suffice) and in essence, describes a general state of self-sufficiency. However, the term is most commonly used to describe the economic system of a nation that can operate without support from the economic systems of other nations. Autarky, therefore, is an economic system characterized by self-sufficiency and limited trade with international partners.

Demand-Side Economics

Demand side economics refers to a belief that economic growth and full employment are driven by the demand for products and services.

Supply-Side Economics

Supply side economics is a macroeconomic theory that posits that production or supply is the main driver of economic growth.

Creative Destruction

Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.

Happiness Economics

Happiness economics seeks to relate economic decisions to wider measures of individual welfare than traditional measures which focus on income and wealth. Happiness economics, therefore, is the formal study of the relationship between individual satisfaction, employment, and wealth.


An oligopsony is a market form characterized by the presence of only a small number of buyers. These buyers have market power and can lower the price of a good or service because of a lack of competition. In other words, the seller loses its bargaining power because it is unable to find a buyer outside of the oligopsony that is willing to pay a better price.

Animal Spirits

The term “animal spirits” is derived from the Latin spiritus animalis, loosely translated as “the breath that awakens the human mind”. As far back as 300 B.C., animal spirits were used to explain psychological phenomena such as hysterias and manias. Animal spirits also appeared in literature where they exemplified qualities such as exuberance, gaiety, and courage.  Thus, the term “animal spirits” is used to describe how people arrive at financial decisions during periods of economic stress or uncertainty.

State Capitalism

State capitalism is an economic system where business and commercial activity is controlled by the state through state-owned enterprises. In a state capitalist environment, the government is the principal actor. It takes an active role in the formation, regulation, and subsidization of businesses to divert capital to state-appointed bureaucrats. In effect, the government uses capital to further its political ambitions or strengthen its leverage on the international stage.

Boom And Bust Cycle

The boom and bust cycle describes the alternating periods of economic growth and decline common in many capitalist economies. The boom and bust cycle is a phrase used to describe the fluctuations in an economy in which there is persistent expansion and contraction. Expansion is associated with prosperity, while the contraction is associated with either a recession or a depression.

Paradox of Thrift

The paradox of thrift was popularised by British economist John Maynard Keynes and is a central component of Keynesian economics. Proponents of Keynesian economics believe the proper response to a recession is more spending, more risk-taking, and less saving. They also believe that spending, otherwise known as consumption, drives economic growth. The paradox of thrift, therefore, is an economic theory arguing that personal savings are a net drag on the economy during a recession.

Circular Flow Model

In simplistic terms, the circular flow model describes the mutually beneficial exchange of money between the two most vital parts of an economy: households, firms and how money moves between them. The circular flow model describes money as it moves through various aspects of society in a cyclical process.

Trade Deficit

Trade deficits occur when a country’s imports outweigh its exports over a specific period. Experts also refer to this as a negative balance of trade. Most of the time, trade balances are calculated based on a variety of different categories.

Market Types

A market type is a way a given group of consumers and producers interact, based on the context determined by the readiness of consumers to understand the product, the complexity of the product; how big is the existing market and how much it can potentially expand in the future.

Rational Choice Theory

Rational choice theory states that an individual uses rational calculations to make rational choices that are most in line with their personal preferences. Rational choice theory refers to a set of guidelines that explain economic and social behavior. The theory has two underlying assumptions, which are completeness (individuals have access to a set of alternatives among they can equally choose) and transitivity.

Conflict Theory

Conflict theory argues that due to competition for limited resources, society is in a perpetual state of conflict.

Peer-to-Peer Economy

The peer-to-peer (P2P) economy is one where buyers and sellers interact directly without the need for an intermediary third party or other business. The peer-to-peer economy is a business model where two individuals buy and sell products and services directly. In a peer-to-peer company, the seller has the ability to create the product or offer the service themselves.


The term “knowledge economy” was first coined in the 1960s by Peter Drucker. The management consultant used the term to describe a shift from traditional economies, where there was a reliance on unskilled labor and primary production, to economies reliant on service industries and jobs requiring more thinking and data analysis. The knowledge economy is a system of consumption and production based on knowledge-intensive activities that contribute to scientific and technical innovation.

Command Economy

In a command economy, the government controls the economy through various commands, laws, and national goals which are used to coordinate complex social and economic systems. In other words, a social or political hierarchy determines what is produced, how it is produced, and how it is distributed. Therefore, the command economy is one in which the government controls all major aspects of the economy and economic production.

Labor Unions

How do you protect your rights as a worker? Who is there to help defend you against unfair and unjust work conditions? Both of these questions have an answer, and it’s a solution that many are familiar with. The answer is a labor union. From construction to teaching, there are labor unions out there for just about any field of work.

Bottom of The Pyramid

The bottom of the pyramid is a term describing the largest and poorest global socio-economic group. Franklin D. Roosevelt first used the bottom of the pyramid (BOP) in a 1932 public address during the Great Depression. Roosevelt noted that – when talking about the ‘forgotten man:’ “these unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power.. that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”


Glocalization is a portmanteau of the words “globalization” and “localization.” It is a concept that describes a globally developed and distributed product or service that is also adjusted to be suitable for sale in the local market. With the rise of the digital economy, brands now can go global by building a local footprint.

Market Fragmentation

Market fragmentation is most commonly seen in growing markets, which fragment and break away from the parent market to become self-sustaining markets with different products and services. Market fragmentation is a concept suggesting that all markets are diverse and fragment into distinct customer groups over time.

L-Shaped Recovery

The L-shaped recovery refers to an economy that declines steeply and then flatlines with weak or no growth. On a graph plotting GDP against time, this precipitous fall combined with a long period of stagnation looks like the letter “L”. The L-shaped recovery is sometimes called an L-shaped recession because the economy does not return to trend line growth.  The L-shaped recovery, therefore, is a recession shape used by economists to describe different types of recessions and their subsequent recoveries. In an L-shaped recovery, the economy is characterized by a severe recession with high unemployment and near-zero economic growth.

Comparative Advantage

Comparative advantage was first described by political economist David Ricardo in his book Principles of Political Economy and Taxation. Ricardo used his theory to argue against Great Britain’s protectionist laws which restricted the import of wheat from 1815 to 1846.  Comparative advantage occurs when a country can produce a good or service for a lower opportunity cost than another country.

Easterlin Paradox

The Easterlin paradox was first described by then professor of economics at the University of Pennsylvania Richard Easterlin. In the 1970s, Easterlin found that despite the American economy experiencing growth over the previous few decades, the average level of happiness seen in American citizens remained the same. He called this the Easterlin paradox, where income and happiness correlate with each other until a certain point is reached after at least ten years or so. After this point, income and happiness levels are not significantly related. The Easterlin paradox states that happiness is positively correlated with income, but only to a certain extent.

Economies of Scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Economies of Scope

An economy of scope means that the production of one good reduces the cost of producing some other related good. This means the unit cost to produce a product will decline as the variety of manufactured products increases. Importantly, the manufactured products must be related in some way.

Price Sensitivity

Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Negative Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

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