8.1 Strategic direction (includes Ansoffs Matrix) Flashcards
What does strategic direction involve?
- Deciding the direction in which a business should move and hthe methods by which it should persue its plan.
- The strategic direction of a business refers to the decisions made regarding the markets it competes in & the products it offers.
Why will the strategic direction of a business change?
With continuous internal & external change, managers must regularly review were their business is at any moment & where it should be headed.
What is Ansoffs Matrix ?
Its a marketing planning model that helps a business determine its product and market growth strategy.
It is a long term business strategy.
What does Ansoffs matrix provide a useful framework for?
For analysing a range of strategic options in relation to risks and rewards.
What are the two variables in strategic marketing decisions?
- The market in which the firm will operate.
- The product intended for sale.
What is the output from the matrix?
A series of 4 suggested growth strategies which set the direction of the business strategy.
What are the 4 generic growth strategies?
Market penetration
Market development
Product development
Diversification
What is market penetration?
The name given to a growth strategy where the business focuses on selling existing products into existing markets.
What four objectives does market penetration seek to achieve?
- Maintain or increase the market share of current products- can be achieved through combination of competitive pricing strategies, advertising, sales promotion & more resources dedicated to personal selling.
- Secure dominance of growth in markets.
- Restructure a mature market by driving out competitors - would require larger promotional campaign.
- Increase usage by existing customers e.g. introducing loyalty schemes.
Market penetration
How can you get more of the same customers?
Reduce prices.
Promote product range.
Sales force push.
Altering products i.e. different sizes.
Increasing buying options - online.
Market penetration - evaluation?
- The business is focusing on markets & products it knows well.
- Likely to have good information on competitors & customer needs.
- Unlikely to need significant new research.
- But will the strategy enable firms to achieve its growth objectives??
What are the possible ways of approaching market development?
- New geographical markets/ selling the product to new people; for example exporting the product to a new country.
- New product dimensions or packaging: for example
- New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)
- Different pricing policies to attract different customers or create new market segments
- Entering new markets or segments with existing products.
- Gaining new segments, new customers & new markets.
Market development will require changes to marketing strategy. What does this include?
- New distribution channels (e-commerce & mail orders).
- Different pricing policy.
- New promotional strategy to attract different types of customers.
- New product dimensions, sizes & flavours.
When is market development used?
Untapped markets are beckoning.
The firm has access to capacity.
There are attractive channels to access to new markets.
Market development evaluation?
- Often riskier than product development.
- Existing products may not suit new markets (exporting issues).
- A logical strategy where existing market is saturated or in decline.
- Significant government support - keen to encouage international trade.
What is product development?
- Growth strategy where a business aims to introduce new products/ modify existing products into existing markets.
- The strategy may require the development of new cometencies & requires the business to develop modified products which can appeal to existing markets.
What may the new products be?
New products to replace current products.
New innovative products.
Product improvements.
Product line extensions.
New products to complement existing products.
Products a a different quality level to existing products.
When is product development used?
The firm has strong R&D capabilities.
The market is growing.
The firm can build on existing brands.
Competitors have better products.
Product development- evaluation?
- A strategy that often plays to the strengths of an established business.
- Strong emphasis on effective market research (customer needs) and successful innovation.
- Great way of exploiting existing customer base.
- Being first to market is important.
Market development
What is this strategy?
Strategy of selling existing products to new markets- could involve selling to an overseas market / a new market segment.
What is diversification?
- The process of selling different or unrelated goods or services in unrelated markets.
- This is the most risky strategy and allows a movement away from a reliance on current products and existing markets.
What is involved within diversification?
It is where there are two unknowns:
- New products sold to new markets.
- New products for new customers.
It can be divided into unrelated and related.
Diversification- related
What does this involve?
- This is development beyond present market but still within the broad confines of the industry.
- Markets and products share some commonality with with existing products.
- Builds on assets or activities the firm has already developed.
- Harnessing existing product/ market knowledge.
- This can help reduce the risk.
What are the different types of related diversification?
Horizontal diversification - new products are introduced into current markets.
Vertical diversification- when an organisation decides to move into its suppliers or customer’s business.
Concentric diversification- when new products closely related to existing products are introduced to new markets.
Diversification -unrelated?
- Growth in products & markets that are completely new.
- Development beyond the present industry into products and markets that which bear little relation to the present product market mix.
- No commonality with existing products and markets.
Evaluation- Diversification?
- Risky- no direct experience of product or market, few economies of scale (SR), but if successful, overall risk of business is spread.
- Approaches - Innovation and R&D - develop new solutions, acquire an existing business in the market and extend an existing brand in the market.
Ansoff matrix and the risk involved with each type?
Market Penetration- Little risk
Market development- Moderate risk.
Product Development- Moderate risk.
Diversification- High risk.
Ansoffs matrix- What determines what strategy to select?
- Expected costs.
- Expected returns.
- The risk.
- The fit with the resources & strengths of the business.
- The impact on stakeholders.
- The ethical issues involved.
