3.1.2 Corporate strategy Flashcards
Corporate strategy
Corporate Strategy is medium to long term actions a business takes to achieve its aims
Market penetration
When a business sells more of its existing products to its existing customers
Product development
When a business launches a new product to its existing customers
Market development
When a business sells its existing products into a new market
Diversification
When a business sells new products in new markets
Method of market penetration
-Advertise/promote the product
- Use sales promotion techniques such as
coupons, competition and BOGOF
- Reduce price, or use promotional prices
-Expand the channels of distribution e.g. direct to customers as well as through retailers and wholesalers
- Open more stores
- Sign up more retailers to stock your product
Aims of market penetration
to increase market share by selling more existing products to the same target customers
Pros of market penetration
Business focuses on markets and products it knows well, so its low risk
Can exploit insights on what customers want (and competitors)
Unlikely to need significant new market research
Cons of market penetration
But will the strategy allow the business to achieve its growth objectives?
Still some risk to this strategy
Methods of product development
- Product extension strategies – modification/improvement to an existing product to increase sales after saturation
- Umbrella brands/Brand proliferation – when a business launches independent sub-brands under an overall umbrella brand e.g. Unilever have PG Tips tea and Walls ice cream
- Brand extension – new products are added under an existing brand e.g. Dove soap, deodorant, bubble bath, moisuriser, shampoo, conditioner etc.
Pros of product development
- A strategy that often plays to the strengths of an established business where brand loyalty is already established – it is relatively easy to persuade customers to try your new product
- Market research techniques can be used to gain insights into your existing customers needs
Cons of product development
- Can be expensive to research, develop and launch a new product
- May not be first to market, which could reduce the effectiveness of the launch
- If customers do not like the new product it can affect the brand image
Methods of market development
- Re-branding an existing product to appeal to a new customer e.g. grab- and-go soup, to healthy option aimed at a different market segment
- Selling into a new country by setting up retail outlets e.g. M&S opening stores in India
- Selling into a new country by using a local distribution partner or licensing agreement e.g. Coca Cola in India
Pros of market development
- An effective strategy where existing markets are saturated or in decline (push factors) or where there is huge potential in emerging markets (pull factors)
- Increases global reach and brand awareness when targeting footloose customers
Cons of market development
- Often more risky than product development – particularly expansion into international markets as external environment and culture may be very different
- Existing products may not suit new markets: depends on customer needs e.g. ethnocentric vs geocentric approach
Methods of diversification
- Innovation and R&D: develop new solutions e.g. Amazon moving into cloud computing
- Acquire an existing business in a new market e.g. The Virgin Group buying Telewest
- Extend an existing brand into the new market e.g. Tesco Fresh ‘n’ easy stores in the US
Pros of diversification
- High growth potential
- If done successfully, reduces risk of one product or market failing (risk bearing economies of scale)
Cons of diversification
-Inherently risky strategy
–No direct experience of the product or
market
–May have few economies of scale (initially)
Porters Matrix
Competitive strategies
-porter argues that a business should adopt a competitive strategy which is intended to achieve some form of competitive advantage for the business
Competitive advantage
an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and services that justifies higher prices
Porters matrix options
Cost leadership
Cost focus
Differentiation
Differentiation focus
Differentiation
- broad/mass market
- with differentiation and focus on USP
- compete in terms of the benefits offered to customers
- can increase their competitiveness by investing in research, development and innovation
Differentiation focus
- niche market
- differentiation and focus on USP
Cost leadership
- Mass market
- low prices
- businesses can increase their competitiveness by reducing their costs
Cost focus
- niche market
- low prices
Criticism of porters matrix
- there are business are doing low cost and differentiation (IKEA) - hybrid strategy
Product portfolio strategies -the boston matrix
The Boston matrix - helps businesses to decide what to do with each other their products
-can look at them with global markets
Boston matrix Cash cows
low investment
high market share, low market growth, mature products
-need to be managed for continued profit
Boston matrix Dogs
no investment, get rid of them
- low market share, low market growth
- may generate enough cash to break-even
- may be sold off or just closed
Boston matrix Question mark
can invest in them or could sell them
- low market share, high market growth
- need substantial investment to grow market share at the expense of large competitors
Boston matrix stars
Maintain the products, developing, promotion using marketing mix, competitive, loyalty schemes, extension strategies
- highgrowth market, high-market share
- heavy investment needed in order to sustain growth
Boston matrix global markets axis
market wealth and market growth
Boston matrix
a tool for analysing the current position of the products within a business product portfolio in terms of market share and market growth
What are the influences on strategic direction?
- level of risk accepted by a business can influence the overall choice
- opportunity costs - businesses may decide whether it is willing to forfeit the benefits of alternative direction
- business culture and leadership must support decision
Distinctive capability
A form of competitive advantage that is sustainable as it is difficult for other firms to replicate this
Three types of distinctive capability
- Architecture - strength of relationships within an organisation between employees and also with suppliers
- Reputation - building a strong brand image
- Innovation - Developing new products or processes
