Choosing Strategic Decision Flashcards
Strategic Direction
Involves deciding the direction in which a business should move and the methods used to pursue plan. It looks at markets a business will compete in and what products it will offer. Due to continuous internal and external change it is important for management to regularly review the strategic decision of a business.
Ansoff’s Matrix
Existing products and existing markets: market penetration
Existing products and new markets: market development
New products and existing markets: product development
New products and new markets: diversification
Market Penetration
A growth strategy where the business focuses on selling existing products into existing markets.
Four main objectives:
-Maintain or increase market share of current products
-Secure dominance of growth markets
-Restructure a mature market by driving out competitors
-Increase usage by existing customers
‘Business as usual’ - market research on competitors and customer needs already
Market Development
The name given to a growth strategy where the business seeks to sell its existing products into new markets
Many ways of approaching this strategy:
-New geographical markets
-New product dimensions or packaging
-New distribution channels
-Different pricing policies to attract different customers or create new market segments
More risky because of targeting new markets
Product Development
The name given to a growth strategy where a business aims to introduce new products into existing markets. Requires the development of new competencies and business to develop modified products which can appeal to existing markets.
Suitable for businesses where products need to be differentiated in order to remain competitive. Successful product development places marketing emphasis on:
-Research & development and innovation
-Detailed insights into customer needs (and how they change)
-Being first to market
Diversification
The name given to the growth strategy where a business markets new products in new markets.
More risky because the business is moving into new markets with little or no experience
For a business to adopt this strategy, it must have a clear idea about what it expects to gain from it and an honest assessment the risks. With the right balance of risk and reward, it can be highly rewarding
Strategic Positioning
Refers to how the business is perceived relative to other businesses in the industry
Porter’s Strategies
Cost Leadership: broad market, competitive advantage: costs
Cost Focus: narrow market, competitive advantage: costs\
Differentiation Leadership: broad markets, competitive advantage: differentiation
Differentiation Focus: narrow market, competitive advantage: differentiation
Cost Leadership
The objective is to become the lowest-cost producer in the industry. The traditional method is to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale
To be the lowest-cost producer:
-High levels of productivity
-High capacity utilisation
-Use of bargaining power to negotiate the lowest prices for production inputs
-Lean production methods (e.g. JIT)
-Effective use of technology in the production process
-Access to the most effective distribution channels
Cost Focus
The same as cost leadership except their target market is smaller (niche). It is very hard to implement as may not be able to benefit from economies of scale.
Differentiation Focus
A business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting broader markets. Higher prices through specialist expertise or other ways to add value for customers.
Differentiation Leadership
The business targets much larger markets and aims to achieve competitive advantage across the whole of an industry. Involves selecting one or more criteria used by buyers in a market. Usually associated with charging a premium price for the product - reflecting higher production costs and added value features. Requires substantial and sustained marketing investment:
-Superior product quality
-Branding
-Industry-wide distribution across all major channels
- Consistent promotional support
Difference between Porter’s Strategies and Bowman’s Clock
-Bowman’s clock focuses more on the prices to customers rather than the costs to the organisation
-Bowman’s clock highlights the full range of options open to a business, whereas Porter’s model provides relatively few distinct choices in terms of strategic positioning.
Influences on a Postioning Strategy
-Where competitors are positioned
-External environment
-Strengths and competences of the business
The strategy chosen may change over time.
Sustainable Competitive Advantage
A long-term competitive advantage that is not easily duplicable or surpassable by the competitors. Ways to achieve this:
-Legal protection
-Control over resources
-Culture of the business
-Innovation
-Building good relationships between customers and suppliers
-Reputation
