3.8 CHOOSING STRATEGIC DIRECTION Flashcards
What does ‘being competitive’ mean?
Desire to surpass other businesses
Name all sections of the ‘Ansoff’s Matrix’, position, and Market/Product
- Market Penetration - Top Left (Existing Market, Existing Products)
- Market Development - Bottom Left (New Market, Existing Products)
- Product Development - Top Right (Existing Market, New Products)
- Diversification - Bottom Right (New Market, New products)
How can businesses use the ‘Ansoff’s Matrix’ ?
If an organisation decides one of its objectives will be to grow the company, the ‘Ansoff’s Matrix’ will help them to devise strategies to grow the company.
GROWTH STRATEGIES
Explain the ‘market penetration’ strategy and its position on the ‘Ansoff’s Matrix’. AND RISK
Existing markets, existing products
Least Risk
- Used to increase Market Share by:
Selling more
Sales promotion
Advertising - Ramp up marketing/ads for products, to drive out competition
- Already a well established product
Explain the ‘product development’ strategy and its position on the ‘Ansoff’s Matrix’. AND RISK
Existing market, new products
Medium Risk
- Due to Research + Dev cost for products
- Needs to be first/quick: before competition get in there
- Need to understand customer needs (R&D implementation)
Explain the ‘market development’ strategy and its position on the ‘Ansoff’s Matrix’
New market, existing product
Medium Risk
- Due to market research (costs go up)
- Selling via new channels
- Selling to new demographics
- New geographical areas
Explain the ‘diversification’ strategy and its position on the ‘Ansoff’s Matrix’ AND RISK
New market, new product
Most Risk
- Due to market research and product development (r+d) (costs go up).
Give a contextual example of ‘market penetration’ (‘Ansoff’s Matrix’)
BigMac (through billboards)
Give a contextual example of ‘product development’ (‘Ansoff’s Matrix’)
Vegan burger (McPlant)
Give a contextual example of ‘market development’ (‘Ansoff’s Matrix’)
McDelivery = online market for McDonald’s
Selling online
Give a contextual example of ‘diversification’ (‘Ansoff’s Matrix’)
McCurry in India
Define the term ‘procurement’
Process of finding and agreeing to terms
e.g. procurement of suppliers (finding a supplier)
What factors may influence deciding on a supplier?
- Reliability
- Price
- Quality
- Lead time
- Logistics (JIT and TLC)
- Trade credit opportunities?
For what kind of business would Product Development be a good idea for?
Selling new products to the same audience.
A business with:
- Brand Loyalty
- Is a Market Leader
- May help if you got a high cash flow as r+dev can be financed, which can lead to lead design meaning can bring a product first to the market, and if you can do that you can use price skimming charging a high price.
What is Bowman’s Strategic Clock used for?
Its a tool to highlight the potential positioning strategies in terms of price and perceived added value.
What goes on the axis of the Bowman’s Stategic Clock?
X-axis - Price (Low to High)
Y-axis - Perceived Added Value (Low to high)
What is 1 mean in Bowman’s Strategic Clock?
Low Price, Low added Value
The only way to make a profit from this position is by generating a massive volume.
Economies of scale to drag down average unit cost, very likely to be an inferior good —-> Negative YeD
What is 2 mean in Bowman’s Strategic Clock?
Low Price
Normal Goods —> YeD 0-1
Very close to Cost Leadership (PGS)
in order to keep prices low have to be efficient in the business, and have economies of scale.
What is 3 mean in Bowman’s Strategic Clock?
Hybrid (modest prices, PA high value)
- Good Quality
- Decent Prices
- Loyal customer base
What is 4 mean in Bowman’s Strategic Clock?
Differentiation (Medium prices, Highest PA Value)
Very close to Differentiation (PGS)… within mass markets.
What is 5 mean in Bowman’s Strategic Clock?
Focused Differentiation (High prices, but High PA Value)
- Targeting one segment (FD in PGS)
What is 6,7,8 mean in Bowman’s Strategic Clock?
Undesirable (Destined to Fail)
… Unless Monopoly
High Price + Low PA value.
What is Porter’s Generic Strategies used for?
A tool to help managers strategically position the business in the market based on if they should become a low-cost provider have differentiation and should focus on a broad range of the market or a narrow range (focus) to gain a sustainable competitive advantage to earn above average industry profitability.
What goes on the axis of Porter’s Generic Strategies?
X-Axis: Competitive Advantage
Low Cost, Differentiation
Y-Axis: Competitive Scope
Broad, Narrow
What goes in the quadrants in Porter’s Generic Strategies? With Positions
Cost Leadership - Top Left (Low Cost, Broad Scope)
Differentiation - Top Right (Differentiation, Broad Scope)
Cost Focus - Bottom Left (Low Cost, Narrow Scope)
Differentiation Focus - Bottom Right (Differentiation, Narrow Scope)
What is meant by Cost Leadership in Porter’s Generic Strategies?
Provide a low cost good across the entire market.
- Low-cost provider
which can be met with economies of scale which increases efficiency and allows to drag down unit costs.
Can provide the same price as rivals, but produce for cheaper leading to profit margins increasing. (Leading to Above average industry profitability)
What is meant by Differentiation in Porter’s Generic Strategies?
Have some form of product that is unique in the industry.
- Meaning it better meets customer needs
- May also reduce the PeD of the product making it more inelastic.
The idea is as a result of selling a unique product you can increase prices / offer a premium price
What is meant by Cost/Differentiation Focus in Porter’s Generic Strategies?
Provide focus on one specific segment.
