3.8 Choosing strategic direction Flashcards
Ansoff’s Matrix - MARKET PENETRATION
Involves developing strategies to boost sales of existing products into existing markets.
The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Ansoff’s Matrix - MARKET PENETRATION OBJECTIVES
FOUR MAIN OBJECTIVES OF MARKET PENETRATION
1) Maintain or increase the market share of current products –> e.g. this can be achieved through advertising or sales promotion
4) Increase usage by existing customers – for example by introducing loyalty schemes
Ansoff’s Matrix - MARKET DEVELOPMENT
Involves offering existing products but targeting new market segments
This can be done through:
1) new geographical markets
2) new demographic –> attracting different customers
Market development is more risky as business needs to know:
- needs of customers in the new market
- existing competitors in this new market
Ansoff’s Matrix - PRODUCT DEVELOPMENT
Involves developing new products for existing customers through differentiation e.g. new modified products or a USP
This means a business will need to:
1) invest in R&D and innovation
2) grasp a detailed insight into customer needs
Ansoff’s Matrix - DIVERSIFICATION
Involves offering new products into new markets
Much more risky strategy because business is moving into new markets with little to no experience
Porter’s Generic Strategies
Differentiation and cost leadership are ways to gain a competitive advantage (which is greater value either through lower prices or greater benefits)
BROAD - cost leadership and differentiation
NARROW - cost focus and differentiation focus
Porter’s Generic Strategies - IMPORTANCE OF COST LEADERSHIP (broad target)
Involves achieving lower costs than rivals in the same industry
IMPORTANCE OF COST LEADERSHIP
1) if selling prices are similar, then the lowest cost operator will enjoy highest profits
2) lowest cost operator can also offer lowest prices –> gain market share
Porter’s Generic Strategies - how is cost leadership achieved?
Economies of scale (cost advantages when production becomes efficient) can be achieved –> by increasing production as costs will be spread over more units therefore lowering costs
Lean production (reducing waste whilst still ensuring quality)
High capacity utilisation
Porter’s Generic Strategies - DIFFERENTIATION (broad target)
Offering a product that is distinctly different from competition which has benefits that customers value
Porter’s Generic Strategies - how is differentiation achieved?
Superior product quality
Branding - brand loyalty & customer recognition
Sustained promotion - often dominated by advertising or sponsorships etc.
Bowman’s Strategic Clock
A model that explores the options for a how a product should be positioned to give it the most competitive position in a market
Bowman’s Strategic Clock - 1) LOW PRICE & LOW VALUE ADDED
Not a very competitive position –> product isn’t differentiated and customer perceives very little value, despite their being a low price
Bargain basement strategy –> only way to remain competitive is to stay as cheap as possible
Bowman’s Strategic Clock - 2) LOW PRICE
Strategy of cost minimisation is required for this to be successful
Profit margins on each product is low BUT high volume of output can generate high profits
Competition is usually intense - often involving price wars
Bowman’s Strategic Clock - 3) HYBRID
Low price but has some differentiation
Aim is to persuade customers that there is good added value through reasonable price and some differentiation
Bowman’s Strategic Clock - 4) DIFFERENTIATION
Aims to offer customers highest level of perceived added value
Strong brand awareness, quality & loyalty plays a key role allowing a premium price to be charged
Bowman’s Strategic Clock - 5) FOCUSED DIFFERENTIATION
Highest price levels where customers buy the product because of high perceived value
Adopted by luxury brands who aim to achieve premium prices by highly targeted segmentation and promotion
Leads to high profit margins
Bowman’s Strategic Clock - 6) RISKY HIGH MARGINS
High risk –> high prices charged without any added value
Uncompetitive strategy –> customers will find another business that provides added value for similar or lower price
Bowman’s Strategic Clock - 7) MONOPOLY PRICING
When there is only one business offering the product
No alternative products so business doesn’t care about added value as customer has to buy it or they don’t
Monopolies are tightly regulated therefore they are limited to setting extortionate prices
Bowman’s Strategic Clock - 8) LOSS OF MARKET SHARE
Setting a middle range or standard price for a product with lower perceived value
Uncompetitive strategy
Competitive Advantage - ADVANTAGES
A competitive advantage occurs when a business offers greater value to its customer either through lower prices or added value
Contributes to higher profit margins
Helps attract more customers frequently
Helps maintain brand loyalty
Training of employees, full capacity utilisation, lean production all lead to lower unit costs
Competitive Advantage - DISADVANTAGES
Competitors are able to copy unless the business gets a patent –> could lead to a loss in market share
If one business has a competitive advantage, rivals will want to copy thus ultimately removing the advantage as a whole
