Chapter 45- Theories of Corporate Strategy

Question 1

Corporate strategy

Answer 1

The plans and policy’s developed to meet a company’s objectives. This is a long term plan.

-Developing an effective corporate strategy requires a significant amount of time and research – the process of strategic planning involves key members of management looking critically at what business has done before and what it may need to do in the future in order to achieve its

Question 2

Ansoff’s Matrix

Answer 2

– Ansoff’s Matrix is a useful decision-making tool because it
allows the owners of a business to consider a number of factors
that will determine its corporate strategy:

• The level of investment in existing and new products
• The exploitation of different markets
• The level of risk the business is willing to accept

-Ansoffs matrix reveals four possible strategies that a
business might adopt – the key issue is that risk becomes
greater the further a firm strays from its core of existing products
and consumers

Question 3

Market Penetration

Answer 3

Grow products in existing market with existing product
- Can be achieved in 3 ways:
- Increase the brand loyalty of customers so that they use
substitute brands less frequently, for instance by adopting a
loyalty scheme such as Costa Coffee’s reward card
- Encourage consumers to use the product more regularly
- Encourage consumers to use more of the product – e.g.
crisps manufacturer producing maxi-sized crisp packets
rather than standard sized.

Why use penetration?
• Lowest risk
• Least expensive
• Already have experience with product

Question 4

Product development

Answer 4

Marketing a new product in an existing market
-Strategy is associated with product innovation and continuous
development

Why use product development? 
•	When it has a low product life span
•	Where trends change quickly
•	Expensive
•	High level of risk

Question 5

Market development

Answer 5

• The marketing of existing products in new markets
• The most basic form of the strategy is entering geographically new markets – this is not always simply as customers from different regions of the same country, let alone of a different country, may have different tastes and preferences

-A market development strategy relies heavily on understanding
local habits, tastes and needs.

Why used market development?
• Very rare
• Needed if product has different uses

Question 6

Diversification

Answer 6

• Developing new products in new markets
• It enables business to move away from reliance on existing markets and products, thus allowing the company to spread risk and increase safety
• If one product faces difficulties or fails, a successful product in
  another market may prevent the business overall facing
  problems

-However, diversification will take a business outside its area of expertise, and for this reason it is the strategy with the highest risk – this might mean that its performance in new markets is relatively poor compared with more experienced operators.

Why use diversification?
• Allows business to spread risk may be poor
• Initially high risk
• Performance may be poor

Question 7

Cost leadership

Answer 7

– This involves trying to be the lowest-cost provider in the market – This does not necessarily mean that the businesses will offer
the lowest price, although this may be an option

• Cost leadership is generally held by one business in the market as it requires having a significant market share in order to achieve the lowest costs
• A firm will achieve the lowest costs by operating on a large scale and therefore leveraging economies of scale.

Question 8

Differentiation

Answer 8

• This involves a business operating in a mass market but
  adopting a unique position instead of the lowest-cost position
• Unlike cost leadership, a differentiation strategy may be adopted by any business providing it can deliver a defensible way of differentiating itself from the competition
• A business adopting differentiation will do so through adding value to their products in a unique way – this might include quality, design, brand identity or customer service
• The advantage of operating under a differentiation strategy is that the business may be able to charge a premium price if customers value their unique selling point
• Comparatively, differentiation is much easier to copy than cost leadership

Question 9

Distinctive capability

Answer 9

• A form of competitive advantage that is sustainable because it
  cannot be easily replicated by a competitor, e.g. reputation,
  innovation, architecture

-Architecture – refers to contracts and relationships within and around an organisation – these include relationships between the business and its employees, and the collaborative relationships it has with partners, suppliers and customers. These effective relationships allow a business to add value by being more efficient through easy and open transfer knowledge and information.

-Reputation – closely linked to brand image and takes time for a
business to build – reputation refers to the positive associations
a business builds around issues such as quality, reliability,
service, prestige and honesty – the organisational characteristics
cannot be built overnight, and any negative publicity can have a
lasting impact on reputation

-Innovation – often a sustainable competitive advantage will arise when a business is able to innovate by developing a new product or process in the production of a product. For successful innovation to take place, considerable investment in research and development, and in no small part the presence of luck, is often required.

Question 10

Portfolio analysis

Answer 10

A method of categorising each product/service in a business to decide where each fits within the strategic plans