3.8 - Strategic Direction Flashcards
Ansoffs matrix can be used to help choose which market to compete in&which services to offer (choosing strategic direction)
What is Ansoffs matrix and what is it used for?
Strategic tool used to help choose market they wish to operate in&products wish to sell, helps illustrate risks involved (axis inc. existing&new)
1 MARKET PENETRATION STRATEGY (existing, existing)
- involves strategies to boost sales of existing products in existing markets (aiming to boost market hare)
- inc. little risk in terms of decision making bc products&markets=familiar to managers but if existing market has little growth potential so business shouldn’t solely focus on MP
2 MARKET DEVELOPMENT (existing, new)
- inv. offering existing products but targeting new market segments with them (geographical area-new part country/world, demographic features-target younger pop)
- although knows type of product, needs to ensure whats offering matches needs of new target market so need to understand conditions inc. existing competitors, distribution systems&key factors influencing buyer decisions (can be dangerous entering new market=existing protect sales, force new entrant out)
3 NEW PRODUCT DEVELOPMENT (new, existing)
- inv. new products for existing customers (may be responding to changes in customer requirements/anticipate future change)
- investment in development can take time&high risk fail to succeed even after launch)
- may invest to broaden portfolio&if existing sales in decline
4 DIVERSIFICATION (new, new) - most risky
- inv. offering new products to new customer groups (high level of risk since product&target market=unfamiliar=high levels of uncertainty)
- may reduce risks bc moving into new market&developing new products=less vulnerable to changes in 1 of market segments (if totally reliant on 1 product range in 1 market=vulnerable to change)
Extent of risk depends on how diff. new market is from businesses home market
Evaluate Ansoffs matrix in relation choosing to strategic direction
+pointed out risk shouldn’t be only focus when choosing strategic direction
+provides simple framework to analyse diff. strategic decisions facing business (categorises strategic options in terms of existing/new product&markets)
- there’s diff degrees of newness (eg/existing product might be sightly modified or 1 simply new to business or highly innovative not produced by anyone before)
- may be several strategies being pursued by business at same time (eg/trying to boost sales of existing products in existing markets whilst also developing new offerings&pursuing overseas expansion eg/CocaCola modifies existing products whilst moving into new markets with new products)
Why does strategic direction matter?
3
- if business ends up offering wrong products/competing in wrong markets=diff to be successful no matter how hard it tries
- needs to be clear to provide focus for all parts of business (should ll know what business is trying to achieve, why&how intends to do so-helps decide what to do when, what matters most which clarifies employee role in organisation, how best to do job&what priorities are)
- SD should influence decisions&targets throughout organisation (helps to enure all work towards same end goal)
What are Porters generic strategies?
NOT SAME AS 5 FORCES
Competitive business strategy=about being diff (value business offers depends on combo of benefits relative to price paid) identified 2 possible positioning approaches:
1 COST LEADERSHIP STRATEGY (inv. becoming lower cost organisation in industry in which business competes, cost leader=charge similar process to competitors&earn higher returns/if needed can reduce prices lower than competitors can), achieved through:
2 DIFFERENTIATION STRATEGY (compete by offering unique product/service to market/niche, allows premium price charged=earn higher return eg/offer more features/provide higher level of customer service)
Should avoid being stuck in middle (not clear internally/to customers what strategy is=should make clear how wants to be&positioned)
- BUT critics=possible to keep costs low&still differentiate
3 SEGMENTATION/FOCUS STRATEGY (segmentation achieved through 1OR2, inv. targeting specific group of customers-niche-not whole market)
-both 1&2 can be achieved by targeting whole market/specific segment/niche, basis of segment could be its unique needs, geographic/demographic characteristics/specialist product/service
In relation to Porters generic strategies, as 1/3 what ways are there to achieve COST LEADERSHIP STRATEGY? What are the 3 benefits and 1 limitation of using it?
- control supply of product (find way to reduce cost of inputs eg/own some of suppliers so avoid profit margins of suppliers eg/farms, suppliers, design&develop own products/locate nearer suppliers than competitors reducing transportation costs)
- economies of scale (cost advantages by being bigger than rivals eg/spreading FC over more units if big enough=reducing unit costs)
- experience (managers&employees more experienced than rivals enabling to source cheaper materials&make more efficient materials)
- product/process (design of product/process used may be more efficient than competitors-operate at scale keeping avg. costs low)
+ help achieve high profit margins as cost per unit kept low
+ can maintain market place&gain higher profit margins
+ can lower price&acquire market share
- few businesses can operate as cost leader within a market as multiple businesses cant directly compete on cost
In relation to Porters generic strategies, as 1/3 what might a basis for differentiation include in the DIFFERENTIATION STRATEGY? What are the benefits of using it?
- quality
- customer service&experience
- brand personality
- aftersales service
- speed&efficiency
- meeting unique needs of specific market niche
+can make business stand out
+helps develop unique brand image
+adds value so higher prices can be charged
-other businesses may be able to copy the strategy if not sustainable/defensible eg/product=defensible if under copyright)
In relation to Porters generic strategies, as 1/3 what might a basis for differentiation include in the SEGMENTATION/FOCUS STRATEGY? What are the benefits of using it?
+easier to target narrow segment of market as communications&marketing can be focused
+possible to develop better understanding of customer needs as segment has narrower interests, needs&characteristics
- customer loyalty=vital if sales to be maintained (every customer counts)
- market may disappear/no longer viable option if shrinks in size
What is the use of Porters generic forces?
Can be used in all markets-not specific to industry
Used to argue position of business relative t competitors within its industry, determines if profitability=above/below industry avg.
-matrix helps decide strategy based on business’ competitive advantage&market scope
In order to follow strategies, business must be fully aware of its:
- size
- strengths
- market
Success relies on clarity (eg/posh/cheap-not mix “suck in middle)
+allows business to identify strategy&analyse potential value of strategy
+strategies give good insight into many industries (works well in grocery market, airline eg/luxury/budget)
-some businesses been successful by being in middle eg/Wrigleys has 90% of chewing gum market but don’t follow any Ps strategies=do both
-doesn’t work well for all eg/chocolate=differentiation far more important than low cost-use mix
Another approach to strategic positioning is Bowman’s strategic clock, what is this?
Outlines diff strategies in terms of perceived benfits (added value)&price-helps analyse business’ strategic position now&where might want to be in future
-“clock” highlisghts many options open to business to help be competitve
8 positions:
1 Low price, low added value (busget/no frills products eg/Poundland=sell low value at low price, focusing on price sensitive market segments)
2 Excellent value (similar to cost leadership-compete through economies of scale=achieve higher benefits&lower prices relative to competitors eg/Walmart operates on large scale&achieve low costs through EOS)
3 Hybrid (occur where relatively high benefits but relatively low price-used to enter markets&build position quick=aggressive attempt to win market share/build volume sales&gain from mass production eg/ikea offer high quality design at low price=costs more to cover costs)
4 Differentiation (differentiation without price premium, high perceived value possible through effective branding&could be used to increase market share)
5 Focused Differentiation (differentiation with price premium&maybe used to increase profit margins-premium customers where product may expect to pay high prices for status eg/Rolex differentiate selves on quality but target top end of market)
6 High Margins (ST strategy to achieve high margins without justified value eg/selling to uniformed customer-BT speaker don’t know features associated with audio quality)
7 Strategies Destined For Ultimate Failure aka monopoly pricing (captive market, customers have mo choice/alternative eg/motorway services-customers have limited/no choice)
8 Non-competitive Product (value doesnt justify price but may still sell if customers have no choice/unable to test product first)
Evaluate Bowman’s strategic clock as an approach to strategic positioning
+shows diff strategies can be competitive (eg/can charge high price if offering high level of benefits&be competitive/if offers low benefits, needs low price to compete)
+some combos of benefits&price aren’t competitive (eg/low benefits&high price=unlikely to be competitive)
+used to plot diff strategies adopted by organisations&assess competitiveness (can consider why some strategies=unsuccessful&plot how business may be trying to change strategy (eg/mainstream supermarkets trying to reduce prices to match discounters)
- these strategies only competitive in certain circumstances=monopoly situations (eg/only/limited option)
- over complicated-sheer no. strategies (8) creates confusion
Compare Porters and Bowman’s model
3
B focuses on prices to customers rather than costs to organisation
B highlights full range of options open to business whereas P provides relatively few distinct choices in terms of strategic positioning
BOTH identify strategies that are only competitive in cerain situations
What are 3 influences on positioning strategy
1 Position Of Competitors (deciding where wants to fit in market naturally assess where competitors are&should aim for unique position so don’t complete head on with rivals-for some if segment=big enough&business feels strong enough, may want to compete with competitors head on, in other=deliberately position elsewhere in market to avoid direct conflict&also social trends can quickly lose popularity, determining attractiveness of positions)
2 External Environment (influences market conditions&where business needs to position selves eg/many become enviro conscious in activities bc customers demand it/when economic conditions=poor, might put pressure on businesses to offer lower prices)
3 Strengths&Competences Of Business (right positioning depends on what able to deliver so must assess where their competitive advantage lies then pursue this position fully eg/no point to aspire differentiation strategy if cant consistently deliver higher benefits than rivals/to be low cost leader, must have way of getting&keeping lower costs than rivals)
Outline Iceland’s strategies as a British food retailer
relates to Bowman
Traditionally focused in frozen food but also sells non-frozen grocery items
- states strategy aims to leverage its established strengths to achieve long term profitable growth for benefit of shareholders, colleagues, charities&communities
- market leader in response to ethical&enviro concerns-removed use of palm oil&used alternatives to show its possible to reduce demand of it while seeking solutions that don’t destroy rainforests)
Strategy primarily focuses on: 1 frozen food (is leading specialist in this category&key point of diff, "Power Of Frozen" marketing campaign aims to steadily improve consumer perceptions of frozen food) 2 innovation (place high degree of importance on it&work closely with suppliers to develop new products that cant be bought elsewhere, products&ingredients are assessed&reviewed in Icelands own test kitchens-has won awards) 3 convenience (aims to offer easy to shop local stores a well as competitive online shopping service-won award&offers free home delivery of instore purchases over £20) 4 value (its independent benchmarking team regularly assesses products according to range of criteria to ensure standards are being maintained, company's own brand products=benchmark against those of UKs major supermarkets to ensure they offer same quality at significantly lower price/better quality at matching price)
Outline Netflixs method of strategic positioning
Worlds largest internet entertainment business-provides streaming service where customers can watch variety of programmes in range of languages (watch anytime, anywhere giving tremendous flexibility)
- can track viewing habits&recommend suitable programmes to finding what want to watch=easy
- increasingly content=produced internally (have to decide exactly when people might want to watch programme, allocating specific slots in schedules (start with plot episode, if successful then commission full series
- no constraints when programmes are shown eg/can watch all in 1 go&shows stay on as long as N wants them so even if no immediate success, have time to promote it in diff ways&see if it takes off at some point (good bc some come new to a programme long after others have already seen)&no reason for length of each episode to be same so N=much more flexibility than traditional broadcasters-appeals to those developing shows&allows N to attract some of best creatives in industry
How does a business gain a competitive advantage? What 3 sources of sustainable advantage is there? Which 3 ways can a business protect its advantage in order to make it sustainable?
Occurs when business creates value for its customers thats both greater than cost of supplying benefits it offers&is superior to that of other businesses eg/offering similar benefits to rivals at lower prices/higher benefits at similar price
However if business has advantage over others, rivals will naturally want to copy it, removing the advantage so should protect it overtime to make it sustainable
Sources of sustainable advantage 1 Innovation (innovation can be imitated, in some cases can protect developments with patent/process may be secret-can protect from others) 2 Architecture (describes relationships with supplies&customers=may have been built overtime¬ easy to replicate, if good provides good info&good understanding of suppliers&customers&needs) 3 Reputation (takes time to build&cant be easily copied so look after&protect, good rep owns doors, makes customers willing to listen&try products&adds value to product/service)
Ways can protect competitive advantage inc:
1 Legal protection (eg/laws by gov that protect business/industry from foreign competitors/patents giving legal protection to new inventions for given no. years)
2 Control over resources (eg/through ownership of diff stages of supply chain=have control of some resources=able to prevent others accessing them)
3 Particular culture (culture of business refers to values&attitudes of employees-way think&behave-cultures diff to suddenly copy bc relies on what people actually believe&is influenced by host of factors inc. experience of members&history of business eg/unlike tech, cant be simply bought&installed=has to grow overtime&incorporated into way people think&operate)
