A2 Micro: Economies of Scope

These are different from economies of scale! Economies of scope occur where it is cheaper to produce a range of products rather than specialize in just a handful of products. And they can be exploited when a business owns a resource that can be used more than once in different ways!

For example, in the increasingly competitive world of postal services and business logistics, the main service providers such as Royal Mail, UK Mail, Deutsche Post and the international parcel carriers including TNT, UPS, and FedEx are broadening the range of their services and making more better use of their existing collection, sorting and distribution networks to reduce costs and earn higher profits from higher-profit-margin and fast growing markets.

A company’s management structure, administration systems and marketing departments are capable of carrying out these functions for more than one product.

Expanding the product range to exploit the value of existing brands is a good way of exploiting economies of scope. Perhaps a good example of “brand extension” is the Easy Group under the control of Stelios where the distinctive Easy Group business model has been applied (with varying degrees of success) to a wide range of markets – easy Pizza, easy Cinema, easy Car rental, easy Bus and easy Hotel to name just a handful! Procter and Gamble is the largest consumer household products maker in the world. Its brands include Crest, Duracell, Gillette, Pantene, and Tide, to name just a few. Twenty four of its brands make over $1 billion in sales annually.

Another example of an economy of scope might be a restaurant that has catering facilities and uses it for multiple occasions – as a coffee shop during the day and as a supper-bar and jazz room in the evenings. Or a computing business can use its network and databases for many different uses