3.1.2 Theories of Corporate Strategy Flashcards
Corporate strategy
Medium to long term actions a business takes to achieve its aims.
Two strategic models used to develop a corporate strategy
1) Ansoff’s Matrix - growth strategy
2) Porter’s strategic mix - competitive strategy
Ansoff’s Matrix
1) Market penetration - existing product, existing market. (Least risky)
2) Product development - existing market, new product.
3) Market development - existing product, new market.
4) Diversification - new product, new market. (Most risky).
Market penetration
Aim: To increase market share by selling more existing products to the same target customers.
- Advertise/promote the product.
- Use sales promotion techniques.
- Reduce price.
- Expand channel of distribution.
- Open more stores.
- Sign up more retailers to stock your product.
Advantages and disadvantages of market penetration
+ Low risk.
+ Unlikely to need new market research.
+ Can exploit insights on what customers want.
- May not achieve much growth.
- Still some risk.
Product development
- Product extensions strategies - modification/improvement to an existing product to increase sales after saturation.
- Umbrella brands - where a business launches independent sub-brands under an overall umbrella brand.
- Brand extension - new products added under an existing brand.
Advantages and disadvantages of product development
+ Brand loyalty already established - easy to persuade customers to try new product.
+ Market research can be used to gain insight into existing customer needs.
- Expensive to research, develop and launch new product.
- Affect brand image if customers don’t like product.
- May not be first to the market.
Market development
- Re-branding an existing product to appeal to a new customer.
- Selling into a new country.
- New distribution channels.
- Different pricing policies to attract differerent customers.
Advantages and disadvantages of market development
+ Effective where exciting markets are saturated or where there is huge potential in emerging markets.
+ Increases global reach and brand awareness.
- Risky as culture may be different in international markets.
- Existing products may not suit new markets.
Diversification
- Innovation and R&D: develop new solutions.
- Acquire an existing business in a. new market through conglomerate integration.
- Extend an existing brand into the new market e.g. Tesco Fresh ‘n’ easy stores USA.
Advantages and disadvantages of diversification
+ High growth potential.
+ If done successfully, reduces risk of one product or market failing.
- Risky - no experience, may have few economies of scale initially.
Competitive advantage
An advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.
Porter’s strategic matrix
Porter argues that a business should adopt a competitive strategy which is intended to achieve some form of competitive advantage for the business.
Porter argues that failing to adopt one of these strategies risks a business being stuck in the middle and unable to compete successfully with rivals in the market.
2 main ways a business can secure a competitive advantage
1) Cost leadership = where a business is able to produce its product at lower cost than competition.
2) Differentiation = where a business is able to differentiate its product from the competition such that customers perceive superior value.
Portfolio analysis
Involves a business carrying out a detailed evaluation of its full range of products in order that appropriate strategies may be identified and pursued.
