Business Tools Flashcards
Ansoff Matrix
Explores strategic options for growth and stability such as market penetration, product development, market development and diversification
Aim Ansoff of Matrix
identify the appropriate corporate strategy
understand the risk involved in the strategy
Explain model of Ansoff Matrix
Model consists of four elements that are broken into two categories
1. Market: existing and new
2. Product: existing and new
Market penetration
The least risky strategy for growth
Involves selling more products to existing customers by
encouraging more regular and increased use of product
building customer loyalty
Diversification
The most risky strategy for growth as it involves targeting new customers with a new or redeveloped product
Eg. Tesco, supermarket, launching financial products such as current accounts and credit cards
Market development
involves finding and exploiting new market opportunities with exsisting products by
entering new markets
repositioning and targeting new customer profiles
seeking complementary locations (eg. retailers)
Product development
Selling new or improved products to existing customers by
Developing new versions or upgrades
Relaunching heritage of product
Redesigning aesthetic features
Boston Consulting Group Matrix
Tool used by business to analyse their product portfolio and make strategic decisions about each product
Explain model BCG Matrix
Model separates product into four categories based on their market growth and market share (in the market as a whole)
- Cash cows
- Question Mark / Problem child
- Stars
- Dogs
Aim of BCG Matrix
By categorizing products businesses can more easily allocate resources efficiently and develop appropriate marketing strategies that align with the potential of each product
Cash Cows
products with a high market share in a market that is no longer growing
- generate significant cash flow
- have low growth potential
- invest minimum as they are stable
- marketing efforts: maintaining market share and profitability
- valuable assets, used to fund development of new products
Problem Child or Question Mark
products with a low market share in a high growth market
- negative cashflows with potentiality to become stars
- if investment dosen’t succeed, might discontinue
- marketing efforts are focused on increasing market share
Stars
products with a high market share in a high growth market
- significant positive cashflows
- potential for continued growth
- marketing efforts building brand recognition (increasing market share and maintaining profitability)
- valuable assets and brand should focus on maximizing potential
Dogs
products with low market share in a low growth market
- generate little revenue and have no potential for growth
- business usually move away (divest)
- marketing efforts are zero
Business Plan
Sets out key aspects of a business and how the owners intend to develop it
Aim of a business plan
reduce risk associated with starting a new business and help owners to raise finance
forces owner to think about every aspect which reduces risk
What can a well written business plan provide? Advanatges
Provide finance
- Banks are able to explore business plan and decide wether credible
- Investors are able to explore wether to asses if there is a chance to increase the value of investment
- Business that carried out plan will be well aware of problems and chances of success, being able to choose approppiate source of finance
KEY elements of a business plan
should be a regularly updated working document
- Executive summary: overview of business idea
- Company description: legal structure
- Market analyses: target market and competitor analysis
- Products or services
- Marketing and sales strategy: pricing strategies
- Organisation and Management
- Operations and implementation: production processes, stock management, key partnerships
- Financial Projections: financial fore cast, projected income statements
- Risk analysis: potential risks and challenges
Common elements of a business plan
- Location
- Aims, goals and objectives
- Idea
- Target Market
- Forecast revenue
- Forecast cost
- Forecast Profit
- Marketing Mix
- Cash flow forecast
- Sources of finance
Porter’s generic strategies
Provides a clear framework for business to determine the most appropriate strategy in order to succeed within a niche or mass market.
It emphasizes the importance of developing distinctive capabilities and avoid getting stuck in the middle
Two factor’s Porter’s generic strategy considers
- It’s source of competitive advantage (cost or differentiation)
- Scope of the market where it operates (niche or mass)
Key features of Porter’s generic strategies
- makes business take strategic choices difficult for competitors to copy
- pursuing one strategy forces business to make explicit choices about direction and concentrate on it
- model dosen’t offer guidance to specific tactics and implementations
- overlooks external guidance which can affect competition position
Stuck in the middle
Failing to adopt a clear strategy
- unable to compete with competitors
- should concentrate on pursuing own strategy instead of responding to competitors
- not feasible in the long term eg. cost leadership and differentiation are unlikely to be financially compatible
Mass Market Strategies
- Cost Leadership
- Differentiation
Cost leadership
most suitable for business who have a significant cost advantage over rivals, have lower costs than rivals.
Cost leadership
advantages vs disadvantages
Advantages
1. Economies of Scale
2. Barriers to Entry
3. Competitive Pricing
Disadvantages
1. Risky (price wars)
2. Quality concerns
Differentiation
business that cannot be the most competitive on cost should make their product distinct.
Sucessfull differentiatior
Allow to charge premium pricing and achieve high profit margin
Methods of differentiation
- Packaging and brand
- Features
- Marketing
- Customization
- Customer service
Differentiation
advantages vs disadvantages
Advantages
1. Premium pricing
2. Brand loyalty
3. Fewer competitor pressure
(difficult to imitate)
Disadvantages
1. High cost
(research, develop, maintain unique features)
2. Customer preferences (change overtime)
Niche Market Strategies
- Cost focus strategy
- Differentiation focus strategy
Cost focus strategy
Being the lowest cost competitor within a market niche
Differentiation focus strategy
involves offering specialised products within a niche market
Niche marketing strategies
advantages vs disadvantages
Advantages
1. Enables to tailor products or services to a particular business
2. Highly profitable as low competition enables premium pricing to be charged
3. Lead to a strong customer loyalty
Disadvantages
1. Focusing on small segment limits potential sales
2. If market shrinks or changes may struggle to break even
3. Larger competitors may enter market and outcompete
