Ch 39 Strategic choice (A Level)

Question 1

Define Ansoff matrix

Answer 1

a model used to show the degree of risk associated with the four growth strategies of: market penetration, market development, product development and diversification

Question 2

Define market penetration

Answer 2

achieving higher market shares in existing markets with existing products

(existing-existing)

Question 3

What does market penetration serve to achieve?

Answer 3

Maintain or increase the market share of current products - this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling.

Secure dominance of growth markets.

Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors.
Increase usage by existing customers. For example by introducing loyalty schemes.

A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

Question 4

Define product development

Answer 4

the development and sale of new producst or new developments of existing products in existing markets

(new-existing)

Question 5

Define market development

Answer 5

the strategy of selling existing products in new markets

existing-new

Question 6

How to achieve market development?

Answer 6

New geographical markets; for example exporting the product to a new country
New product dimensions or packaging: for example New distribution channels
Different pricing policies to attract different customers or create new market segments

Question 7

Define diversification

Answer 7

the process of selling different, unrelated goods or services in new markets

Question 8

Advantages of Ansoff matrix

Answer 8

It forces market planners and management to think about the expected risks of moving in a certain direction
It lays out possible strategies for growth
Discipline: it focuses the business
Sets out aims and objectives
Presentable to stakeholders
Assessment of alternatives- shows opportunity cost
Creates a risk aware culture
Indicates level of risk and relevant risk

Question 9

Disadvantages of Ansoff matrix

Answer 9

Fails to show that market development and diversification strategies require a change to every day running of the business
Only a theoretical model
Does not take into account the activities of external competitors
Paralysis by analysis
Plans too optimistic e.g. transferrable skills
Accurate predictions are difficult- unforeseen events
Recommendations based on Ansoff would tend to lack depth and hard environmental evidence

Question 10

Define force field analysis

Answer 10

technique for identifying and analysing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining forces)

Question 11

How to conduct a force-field analysis?

Answer 11

Analyse the current situation and the desired situation
List all of the factors driving change towards the desired situation
List all of the constraining factors against change towards the desired situation
Allocate a numerical score to each force, indicating the scale or significance of each force: 1 = extremely weak and 10 = extremely strong
Chart forces on the diagram with driving forces on left and the other on the right
Total scores and establish from this whether the change is really viable
Discuss how the success of the change or proposed decision can be affected by decreasing the strength of the restraining forces and increasing the driving forces

Question 12

Advantages of force field analysis

Answer 12

1. On A Force Field Analysis provides a visual summary of various forces for and against a particular change, with all the information that has been collected regarding a potential decision into a single graph.
2. Force Field Analysis help us identify obstacles that lie ahead so that we can make a plan to strengthen the forces supporting the decision and take actions to reduce or avoid the forces preventing it.
3. A Force Field Analysis Diagram can be used as a visual aid, and it will help simplify communication among the staff and to break down communication barriers.
4. A Force Field Analysis diagram can assist the group to develop a common understanding of the subject, and all the groups members will have a clear concept of the opinions and the options related to the situation.

Question 13

Disadvantages of force field analysis

Answer 13

Unskilled or inexperienced managers could fail to identify all of the relevant forces involved in the change process
The allocation of numbers - subjective

Question 14

Define decision tree

Answer 14

a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result

Question 15

Define expected value

Answer 15

the likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur

Question 16

Advantages of decision trees

Answer 16

force the decision maker to consider all of the options and variables related to a decision
an easy to follow diagram which allows for numerical considerations of risk and economic returns to be included
approach encourages logical thinking and discussion amongst managers
Are simple to understand and interpret.

Have value even with little hard data. Important insights can be generated based on experts describing a situation (its alternatives, probabilities, and costs) and their preferences for outcomes.

Can be combined with other decision techniques

Question 17

Disadvantages of decision trees

Answer 17

accuracy of data used is doubtful. Estimated economic returns may only be accurate when experiences have been gained from similar decisions
probabilities of events occurring are based on past data, but circumstances change
aid decision making process but cannot replace the consideration of risk and the impact of qualitative factors on a decision - environment, attitude of workforce, approach to risk taken by managers
expected values are average returns, assuming that the outcomes occur more than once. Allow a quantitative considerations of risks but do not eliminate those risks
Assignment of probabilities and expected values prone to bias