3.8 strategic direction Flashcards
strategic direction
will involve a business choosing which markets it will operate in which and which products it will provide
strategic direction is important because the external environment is constantly changing and businesses must develop and compete in areas that make the best use of their strengths and core competencies
the ansoff matrix
a strategic tool hat businesses can use to help choose the markt they wish to operate in and the products they will sell within that market
the model offers four distinct strategies based on the products degree of newness and the firms understanding/ experience of the market
the ansoffs matrix provides a useful framework but theres always degrees of newness and a decision might not fit nicely into one strategic option
what are the two cateogries on the top of ansoffs matrix
existing products (left)
new products (right)
what are the two categories on the side of aansoffs matrix
new markets (bottom)
existing markets (top)
what are the 4 categories on the ansoffs matrix
marketing penetration
product development
marketing development
diversification
where is marketing penetration on ansoffs matrix
top left
existing markets
existing products
where is product development on ansoffs matrix
top right
existing markets
new products
where is marketing development on ansoffs matrix
bottom left
new markets
existing products
where is diversification in ansoffs matrix
bottom right
new markets
new products
market penetration
involves a business increasing its market share in an existing market without the need for significant investment or risk
a strategy to boost sales of current products in the current market
possible approaches of market penetration
increase promotional activities
change pricing model if product is price sensitive
build brand image
focus on increasing repeat purchase by developing customer loyalty
incentivise customer affiliations
benefits of market penetration
low risk
product and market are familiar to the business
limited investment required
limitations of market penetration
possibly limited growth potential
business becomes vulnerable if it doesnt innovate
product development
allows a business to introduce new products to a market to improve competitiveness, encourage repeat purchase and therefore customer loyalty
develop new products for existing customers
possible approaches to product development
conduct market research with existing customers to identify arreas for improvement/ innovation
use product portfolio tools to manage product range eg boston consulting group matrix
divert funds into R&D and product development
benefits of product development
familiar with customers
buids on/ innovates current products
limitations of product development
product development takes time and can be expensive
product cannibalisation
market development
allows a business to enter new customer markets with an existing product or slightly modified product, increasing sales potential
take existing products into new market segments (demographic or geographic)
possible approaches to market development
use of penetration pricing to enter new market
heavy promotion targeting new customers
strategic alliance or takeover of a business already operating in the market
develop new channels of distribution to reach new customers, such as an interntaional agent
benefits of market development
potential for considerable growth
no need for expensive product development
limitations of market development
limited understanding of new customers needs
competing against established businesses
diversification
allows a bhusiness to utilise its core competencies to move into totally new areas of business often by leveraging the value of its brand
offer new products to new customers in a new market
possible approaches to diversification
this strategy often applies to conglomerates with considerable financial power and economies of scale, this power might allow them to adopt such a strategy
business may have a particular asset (such as a patent) that allows them to be competetive without having [articular expertise
this strategy could be achieved through external growth-merger or takeover
benefits of diversification
spreads the business risk by engaging in different markets
business can utilise some of its core competencies and apply them to a new context
limitations of diversification
can be extremely high risk
no reputation or expertise in the market
factors to consider when choosing a strategy from the ansoffs matrix
anticipated returns
risk aversion
core competencies
external environment
stakeholders
the expected cost
how does anticipated returns affect choosing a strategy
a businesswill conduct investment appraisal in order to consider whe potential reward of the strategy
how is risk aversion a factor to consider when choosing a strategy
the willingness of the owners/managers to take risks
how is core competencies a factor to consider when choosing a strategy
a business will look to choose a strategy that makes use of the strengths and advantages possessed by the business
how is the external environment a factor to consider when choosing a strategy
could new legislation in a market make a strategy less attractive
how is stakeholders a factor to consider when choosing a strategy
apart from financial returns a business will consider the impact of its strategy on its stakeholders
how is the expected cost a factor to consider when choosing a strategy
product development and diversification are likely to be considerably more expensive than the other strategies
strategic positioning
will involve a business choosing how it intends to compete within a market
it involves deciding on the right mix of product features/benefits and matching this against price
the aim of a business will be to strategically position itself differently from its competiton
porters strategies
michael porter suggested that a business should follow one of three positioning strategies in order to compete within its market
porter believed a business must have a distinguishable focus in order to compete with rivals
the strategies are based around the source of the competitive advantage and the scope within the market
what did porter say companies either competed on
price (cost leadership) or
percieved value (differentiation) or
by focusing on a very specific customer (market segmentation)
what is on the side of porters strategies diagram
strategic target
particular segment only (bottom)
industry wide (top)
what is on the top of porters strategies diagram
strategic advantage
uniqueness percieved by the customer (left)
low cost position (right)
what are the categories on porters strategies diagram
differentiation
overall cost leadership
focus
where is differentiation on porters strategies diagram
industry wide
uniqueness percieved by the customer
where is overall cost leadership on porters strategies diagram
low cost position
industry wide
where is focus on porters strategies diagram
particular segment only
uniqueness percieved by the customer and low cost position
cost leadership strategy
achieve an advantage by being the lowest cost operator in the market
ways to achieve a cost leadership strategy
operate at a scale that keeps average costs low
achieve economies of scale through growth
have unique access to technology
have unique access to skills or raw materials
control the supply of a product
benefits of a cost leadership strategy
cost leadership strategy can help to achieve high profit margins as cost per unit is kept low
it can maintain market price and gain higher profit margins (parity)
it can lower price and aquire market share (proximity)
limitations of cost leadership strategu
few businesses can operate as the cost leader within a market as multiple businesses cant directly compete on cost
differentiation strategy
compete by offering a unique product or service to the market or a niche
basis for differentiation might include
quality
customer service
brand personality
customer experience
after sales service
speed and efficiency
meeting the unique needs of a specific market niche
benefits
it can make the business stand out
differentiation helps develop a unique brand image
differentiation adds value (special or unique) and therefore higher prices can be charged
limitations of differentiation strategy
other businesses may be able to copy the strategy if it is not sustainable or defensible eg a product is defensible if it is under copyright
segmentation strategy
segmentation can be achieved through either cost leadership or differentiation
it involves targeting a specific group of customers (niche) and not the whole market
ways to achieve a segmentation strategy
both cost leadership and differentiation can be achieved through targeting the whole market or a specific segment or niche
the basis of the segment could be its unique needs, geographic or demographic charachteristics or a specialist product or service
benefits of segmentation strategy
it is easier to target a narrow segment of the market as communications and marketing can be focused
it is possible to develop a better understanding of customer needs as the segment has narrower interests needs and charachteristics
limitations of a segmentation strategy
customer loyalty is vital if sales are to be maintained- every customer counts
the market may dissapear (or no longer be a viable option) if it shrinks in size
eg of a shop that has a cost leadership strategy
walmart
USa’S largest retail chain
the company targets a broad market with everyday low prices
walmart sells brands targeted at a mass market where customers are price sensitive
the scale on which walmart operates allows it to achieve economies of scale
that few other businesses can compete witj
eg of a shop with a differentaiation strategy
whole foods
us supermarket chain fpcuses on selling natural and organic products
customers willing to pay premium prices to feel better about the foods theyre buying
adopts a differentiation strategy as it targets a mass market but utilises organic high quality produce as a factor to distniguish from other supermarket retailers
bowmans strategic clock
similar to porters strategies the clock developed by bowman
model considers a wider variety of strategic positions based on the value of a product compared to its price
bowmans strategic clock also identifies strategies that are only competitive in certain situations
what is on the left hand side of bowmans strategic clock
percieved value to the customer
low-bottom
high-top
what is on the bottom axis of bowmans strategic clock
price
low-left
high-right
what are the 8 areas on bowmans strategic clock
low price/low added value
low price
hybrid
differentiation
focused differentiation
risky, high margins
monoply pricing
loss of market share
first strategic position
budget or ‘no frills’ products- eg poundland sell low value products at low price
low percieved value to the customer and low price
second strategic position
excellent value
similar to cost leadership with proximity
businesses compete through economies of scale- eg walmart operates on a large scale and achieves low costs through economies of scale
medium percieved value to customers, low price
third strategic position
hybrid
companies offer fair prices for reasonable products (middle of the road operators)
eg ford cars are good quality with a range of features, but priced for the mass market
high pericieved value to customer, low-medium price
fourth strategic position
differentiation
without price premium
high percieved value possibly through effective branding- g=eg hollister targets a teenage market with a desirable brand allowing it to charge a higher price
high percieved value to the customer
medium price
fifth strategic position
focused differentiation- premium products where customers may expect to pay high prices for status
eg rolex watches differentiate themselves on quality but target the top end of the market
high percieved value to the customer, high price
sixth strategic position
high margins
short term strategy to achieve high margins without justified value
eg a product to an uninformed customer or buying a bluetooth music speaker without understanding the features associated with audio quality
medium percieved value to the customer
high price
seventh strategic position
monoply pricing
a captive market where customers have no choice or alternative
eg motorway services where customers have limited or no choice
low percieved value to the customer
high price
eigth strategic position
a non competitve product, loss of market share
value/benefits do not justify the price
these products may still sell if customers have no choice or are unable to experience/test the product first
low percieved value to the customer
medium price
what factors may influence strategic position
external environment
core competencies
the position of competitors
how does the external environment influence strategic position
eg comodity prices (an increase in price may limit a businesses ability to be cost leader)
and social trends (of a clothing company focuses on a certain fashion style his can quickly lose popularity) may determine whether certain postions are attractive or feasable
how can core competencies influence strategic position
a business will base its position on its relative strengths eg a business that has developed a strong brand image for high quality
how can the position of competitors inflence strategic position
the principle of positioning is that businesses should aim for a unique position so they are not cmpeting ‘head on’ with a rival eg next home will avoid direct competition with ikea
strategic positioning over time
the business enviornment is constantly changing
customer needs change as do economic conditions along with the competitive environment
over the past few years the growth of budget supermarkets such as Lidl and Aldi have made leaders like tesco reconsider their strategy of cost leader by being able to offer fewer but cheaper prices along with customers desire for value for money
sometimes a business will have to change its strategic position eg from cost leadership to differentiation but this isnt easy as businesses build a reputation and brand for offering a certain type of product at a certain price
the value of strategic positioning
strategic positioning helps businesses develop a USP and basis for differentiation
without strategic positioning the only way a business can compeye is on a price basis
we see this in generic markets where there is no difference between products
therefore strategic positioning also helps businesses to maimise profitability and avoid direct competition
competitive advantage
exists where a business creates value for its customers that is greater than the costs of supplying those benefits and that is greater than that offered by competitors
what three areas of practice can a sustainable competitive advantage be achieved through
- innovation
- architecture
3.reputation
innovation
the ability of a business to create new and unique processes and products, these can sometimes be legally protected through a patent
architecture
this refers to the relationships within a business that create synergy and understanding between suppliers, customers and the employees of a business
reputation
brand values are hard to replicate and may take years to develop
how do innocation architecture and reputation create a competitive advantage
lead to a sustainable competitive advantage because they are all unique not easily copied and may take a long time to achieve
competitive advantage gives a business a basis for competition and a way of adding balue that other businesses cant imitate- a reason for customers to choose the business pver its rivals
however pver time each of the factors can gradually erode such as relationships in a business as the workforce changes over time or as a valuable patent expires
