8.1 Choosing areas of competition Flashcards
What is Ansoff’s matrix
A model that allows businesses to analyse their strategic direction in order to increase sales
What does Ansoff’s matrix measure
- Existing / New Goods and Services ( X axis )
- Existing / New Markets (Y axis)
What are the 4 types of strategic development
- Market Penetration
- Market Development
- Product Development
- Diversification
What does market penetration involve in the Ansoff’s Matrix
- Increasing sales of existing product to existing markets
An example of market penetration
McDonald’s promoting its Happy Meal product range involves targeting an existing market with an existing product
What does market development involve in the Ansoff’s Matrix
- Targeting existing products at new markets to increase sales
An example of market development
Raleigh selling its cycling products in a new country involves existing products but a new new market
What does product development involve in the Ansoff’s Matrix
- Targeting new products in existing markets to increase sales
An example of product development
KFC introducing a range of pizzas involves targeting a new product at an existing market
What does diversification involve in the Ansoff’s Matrix
- Targeting new products at new markets to increase sales
Advantages of diversification
- Costs : benefit from economies of scale
- Quality : technology, enhanced ability to differentiate
- Barriers : assured supply/demand
- Spreads risk if demand for one product declines
- Large rewards
- Can create synergy : two different businesses may still gain some benefits from being united
Advantages of the Ansoff’s Matrix
- easy way to guide discussion of option
-helpful to classify strategic choices and evaluate risk - used as a company tool or individual departments, such as Marketing
- quick and simple to understand
- has a growth mindset and is designed to help businesses focus and develop
Disadvantages of the Ansoff’s Matrix
- Challenging in short term to adapt
- Takes a broader, more demographic view of the market, and less based on customer experience
Why is the Ansoff Matrix useful for project managers in planning and executing projects
- Use for risk management: helps to understand the inherent risks of certain types of projects
- Planning: can add clarity to the objectives your project is supporting
- Awareness: provides context for the strategies the organization, competitors and suppliers are pursuing
- Career growth and advancement: adds clarity to strategic thinking
- Portfolio management: helps to select among projects that support growth strategies
Disadvantage of diversification
- Costs: capital investment
- Barriers: more difficult to exit the industry
- Limited expertise in each product and market, increases risk
The influences on strategic direction
- Level of risk
- Opportunity costs : willing to forfeit the benefits of an alternate direction
- Business culture and leadership : must support the direction chosen
What is the benefit of brand diversification
If one brand performs badly, other brans can continue to perform as they used to
What are risks that geographic diversification can bring
- More political risk
- More economic risk
What else can be done as well as market penetration
- Consolidation
- Withdrawal
- Do nothing
What is Consolidation in the Ansoff Matrix
- Concentrating activities on those areas where the firm has established a competitive advantage or competence, and focusing its attention on maintaining its market share
- If this strategy is promoted by falling profits, then some form of retrenchment, such as redundancies or the sale of assets, might be needed
What does retrenchment mean
Cutting back on activities in order to save costs
What is withdrawal in the Ansoff Matrix
Through the sale of all or part of the business - this might be appropriate if there is an irreversible decline in demand or the fir cannot match new competitors
Doing nothing in the Ansoff Matrix
- Continuing with existing strategy
- Appropriate in the short-term when the environment is static or the firm is waiting to see how a situation develops, but it is not realistic or beneficial in the long term
Reasons for choosing market penetration
- Growth in existing market
- Scope to encourage greater frequency of use among existing consumers
- Some consumers may be encouraged to put an existing product to different uses, increasing demand
- May be potential to attract customers away from competitors, increasing market share
Benefits of market penetration
- Limited risk
- Costs are likely to be low : only slightly modifying strategy
- Playing to its strengths : already operating in the market
- Higher volume: greater scope for economies of scale and reduced costs = higher profit margins
Reasons for choosing market development
- There are markets that do not currently buy an existing product in significant numbers, but that the business believes has the potential to buy more of the product
- Scope to enter new markets: overseas countries
- New markets/segments can be reached easily using its existing channels
- Has spare capacity and high fixed costs: cost-effective to increase levels of production
- Reputation of existing products is its biggest strength
Benefits of choosing market development
- Popularity of its products may make it easy to enter new markets successfully
- The business is not changing its core function, but merely extending its marketing
- The product has already proved it has potential to be successful
Drawback of choosing market development
If the culture in its new markets differs from its existing markets then this can cause marketing difficulties
Reason for choosing diversification
- Existing products/ markets are in decline and likely to remain so
- Existing markets are saturated: no scope for expansion within them
- Senior managers of the business want to avoid complacency so wish to give the business a new challenge
Reasons for choosing product development
- There is scope to adapt the quality of a product in order to appeal to different market segments
- An existing product is becoming obsolete or out of date and needs to be replaced in order to avoid the loss of market share
- An existing product has created a need or desire for more complementary products
- R&D within the business has led to the creation of a new innovative product
- Market researchers reveal the potential for a new product that would serve previously unrecognised customer needs
Benefits of choosing product development
- Stays competitive in a rapidly changing market
- Builds a product portfolio on the strength of existing brands
- New products developed through R&D may often gain patent protection and therefore give the business monopoly power within that market for 20 years
- Compete effectively in markets that are becoming increasingly segmented
