3.8 Choosing strategic direction Flashcards
What is the strategic direction of a business?
Choosing which market to operate in and what products to offer
What is the strategic position of a business?
Choosing how the business is going to compete in selected market.
What are some factors tha influence which markets to compete in and what products to offer?
-The risk involved
-The expected costs and returns
-Opportunity costs involved
-Level of startup capital
What is Ansoffs Matrix?
A market planning model that helps a business determain the right growth strategy ; its product and market strategy.
Draw thw Ansoffs Matrix
See flashcard
Explain the Market Penetration stratgey of the Ansoff’s Matrix
Where the business sells existing products to existing markets.
Aim = To increase market share
Lowest risk strategy, safety firs.
The aim is to increase market share by selling more exisint products to the same target customers. Basically getting customers to buy more products, for example by widening range of existing products
Benefits and costs of Market Penetration of Ansoff’s Matrix
Benefits:
-Low risk
-Business knows customer base well
-No need for large market research costs
Costs:
-Will strategy be enough to achieve growth targets?
Explain the Product Development stratgey of the Ansoff’s Matrix, some benefits and costs
Introducing new products into existing markets.
Need for strong market research to gain insight customer needs
Benefits:
-Plays to strength of business as they know the customer base
Costs:
-Market research
-Success depends heavily on being first to market product
Explain the Market Development stratgey of the Ansoff’s Matrix, and some possible approaches
Selling existig products into new markets.
-New geographical markets
-New distribution channels (e-commerce, etc.)
-Different pricing policies to attract new customers in different segments
What are some benefits and cons of the Market Development strategy of Ansoff’s matrix?
Benefits:
-Useful when exisitn gmarkets are saturated or declining
Cons:
-More risky than product development
-Existing products may not meet new customer needs
Explain the Diversification stratgey of the Ansoff’s Matrix.
What are some approaches to diversification?
Growth strategy where a business sells new products in new markets
-Innovation and RnD; developing new solutions
-Acquire an existing business in market
What are some Pros and benefits of diversification strategy of Ansoff’s matrix?
Benefits:
-Can prove extemely profitable for busienss if succesful
-Establishing in a new market allows for future use of less risky growth strats in new marker
Costs:
-Inherently risky, no direct experience of product or market
-Initially few EOS
Draw Bowmans Strategic clock
see flashcard
What is Bowmans Strategic Clock used for?
A theoretical model that explores the options to a business for how it should position a product to give it the most competitive position in a market.
It presents 8 strategies, comparing with each their percieved value to the customer aswell as the price of the product compared to competition.
Explain position 1 of Bowmans Strategic Clock
1 = south east = ‘Low price and low added value’
-Not very competitive strategy
-Product not differentiated, little percieved value
-Depends on low pricing to survive and hopes to not be undercut
-Not sustainable for long term
Explain position 2 of Bowmans Strategic Clock
2 = east = ‘Low price’
-Some added value, still competing on low price
-Succesful businesses in this position will be the low cost leaders
-Profit margins are low, aiming for EOS and high output
-Pure price competition, with acceptable value product
-Price wars common
Explain position 3 of Bowmans Strategic Clock
3 = north east = ‘Hybrid’
-Some element of low price comp + some element of differntiation
-Example would be ikea
-Aim is to persuade customers that their is stil value at lower price
-Very effective strategy, can persist in long run
Explain position 4 of Bowmans Strategic Clock
4 = North = ‘Differentiation’
-Aims to offer customers highest level of percievd value
-Branding plays key role, so does product quality, customer loyalty and brand awareness
-EXAMPLE = Starbucks
Explain position 5 of Bowmans Strategic Clock
5 = North west = ‘Focused Differntiation’
-Same as differntiation, but positioning product at deliberatly higher price
-High levels of perceived value
-Adopted by luxury brands
-Can bring great profit margins
-To be succesful, percieved value of product must remain very high:
marketing, market segmentation, etc.
Explain position 6 of Bowmans Strategic Clock
6 = West = Risky High Margins
-Pricing high but without offering percieved value
-Risk of competitor either offering same value and undercutting OR offerijg same price at better value
-Eventually, customers will find better alternatives, making an uncompetitive strategy in the long run as its success depends on a stream of new customers
-EXAMPLE = Halo Leisure Center
Explain position 7 of Bowmans Strategic Clock
7 = South west = Monopoly pricing
-Charging very high prices with low percieved value to customers
-Only possible if firms has monopoly power due to a lack of competition in the market, for exmaple due to high barriers to entry into that particular industry
-Monopoly can set price
-howevere, they are usually tightly regulated
-EXAMPLE = Royal Mail
Explain position 8 of Bowmans Strategic Clock
8 = south = Loss of market share
-Recipe for disaster
-Happening at any stage where a business is offering a product with realtively low added value for a price that is not low, for example middle range
-consumer has no reasons to stick to product ; can get higher value for same price OR lower price for same value
Which are the uncompetivie positions of Bowmans Strategic Clock?
6, 7 and 8 = where price is greater than percieved value
If there is competition in market, then these strats are unsustainable
What is a competitive advantage?
An advantage to a business over competitors gained by offering consumers greater value, either by means of lower prices or greater benefits.
What did Ports Generic Strategies look at?
What are the sources of competitive advantage for businesses.
Porter identified 3 generic strategies for achieving a competitive advantage
Cost leadership
Differentiation
Focus; a)Cost focus b) DIfferentiation Focus
What is the grid for Porters Generic Strategies? DRAW IT MF
see flaschard
What is the objective of low cost strategies to gain a competitive advantage? What does it typically involve?
Become the lowest-cost operator in the market;
-typically involves production on a large scale, exploiting EOS
Why is being a low-cost operater a source of competitive advnatage?
-If selling price in market are broadly similar, then low cost oeprating will enjoy the highest profits
-Can also offer lower prices and gain market share
What makes a market suitable for this strategy?
-Standard product with little differentiation between competitors
-Branding of product is relatively unimportant
What are some key features that allows a business to be a low-cost operator?
-High levels of ouput, high EOS
-High capacity utilisation
-Highly efficient through investment in automation
-Lean production methods to lower cost and waste
-Use bargaining power to drive down supplier price
EXAMPLE = Ryanair, Aldi, Xaomi
How does a differentiation strategy in Porters generic strategies aim to gain a competitive advantage?
By offering a product that is distinctly different from competition, creating percieved value for the customer
How could a business achieve differentiation in regards to Porters Generic Strategies?
-Superior quality ; benefits, lasts longer, more reliable,
-Superior branding ; strong custmer recognition, brand loyalty
-Wide distribution ; easy to buy, using all channels, widely available
-Sustained promotion ; dominated advertising
EXAMPLES = Apple, Dyson
What happens if a business is not low cost or differentiated according to Porters Generic Strategies?
They get ‘stuck in the middle’ …. some compeitiors have lower costs and therefore lower prices, and other compeitiors who have a better differentiated product I.E more appealing to customers
EXAMPLES = McDonalds, struggling to compete
What are some different influences in the strategic position that a business may adopt?
-Scale of the business, easier to adopt cost advantage with EOS
-Capability and strengths of the business
-Views of customer base
-PESTLE factos
-Stakeholders
-Which strategy is most sustainable in long term
