Marketing strategies

Question 1

Ansoffs - strategic growth

Answer 1

Market penetration- existing products in existing markets
Market development - existing products in new market.
Product development - new products, existing markets
Diversification - new products, new markets

Question 2

Market penetration

Answer 2

Increase market share 
- sales promotional scheme 
- pricing strategies 
- advertisements
not suitable for saturated market

Question 3

Market development

Answer 3

repositioning - target different segment of the market
heavy R+D
new adverts and promotions targeting new market
new channels of distribution = e-commerce, selling directly to consumers

Question 4

Product development

Answer 4

New product existing market

• markets that have growth potential and the business has high market share
• Strong R+D
• Pre-established data on what the market wants and likes

Question 5

Diversification

Answer 5

MOST RISKY

Lack of experience in the market so ALOT of market research needed

Question 6

Ansoffs evaluation

Answer 6

ADV:

• forces managers to think about potential risks of moving in a direction

DISADV:

• market development and diversification need significant changes in the day to day running of the business
• product development only works where the business has a strong competitive advantage
• oversimplifies the option for growth

Question 7

example of market development

Answer 7

KFC moving to the UK market

• first fast food chain in UK
• now owns 750 outlets
• safer option than diversification particularly in this case as there was no UK competition

Question 8

Porters 2 types of competitive advantage

Answer 8

• cost advantage= selling similar products at a lower costs
• low cost airline as an example = ‘no frills’ strategy to keep their costs low - use cheaper airports like LUTON and cut out travel agents fees
  DIFFERENTIATION ADVANTAGE:
• ## selling better products at the same or slightly higher

Question 9

Porter three generic strategies/ porters strategic matrix

Answer 9

1. cost leadership -lowest costs producer, benefit from economies of scale, patented technology making process more efficient, gaining control over suppliers. Firm stays profitable even as price falls due to low costs
2. Differentiation - unique product attributes , meeting the needs of customers, ability to charge high prices
3. Focus - concentrates on one segment within the market (niche market). suits businesses with fewer resources, usually develops brand loyal customers–> making it more competitive= either cost focus

Question 10

Bowmans strategic clock

Answer 10

1. low price, low added value
2. Low price (‘cost leadership)
3. hybrid = modest prices with relatively high perceived value
4. differentiation = unique attributes, premium pricing
5. focused differentiation= niche market differentiation
   6- increased price standard value
   7- increased price, low added value
6. low added value, standard price
   6-8 = destine to fail , unless has a monopoly.

Question 11

Different ways of increasing economies of scale

Answer 11

• technically = better more advanced machines can lead to large volumes being produced that are generally more efficient- fewer employees - long term fall in costs
• managerial = large businesses can employ specialist managers, of whom oversee plans and strategies which can result in work being done quicker and more efficient
• Purchasing = discounts, large businesses can negotiate when buying in bulk - longer credit periods also borrow money at lower rates of interest than smaller companies
• Marketing= usually fixed costs so a business with large output can speed the costs over more units.

Question 12

Experience curve

Answer 12

As the total units produced by a business increases, costs per unit decrease at a constant rate.
DUE TO workers getting more practice becoming more productive as well as efficient
Workers develop more efficient ways of production

Question 13

Economies of scope

Answer 13

when a business produces multiple different products instead of specialising in one

• cheaper as the business already has the infrastructure and stafff
• allows businesses to charge lower prices increasing profits and competitiveness

Question 14

Diseconomies of scale

Answer 14

Where unit costs increase as the scale of production increases

• poor coordination among departments
• poor communication (long chains of command seen in tall organisational structures, large businesses etc)
• can be difficult to motivate people in larger firms leading to reduced productivity
• strong leadership, delegation and decentralisation prevents diseconomies of scale

Question 15

Retrenchment

Answer 15

Where businesses becoming smaller :

• may be necessary to ensure the business remains profitable
• due to diseconomies of scale, economic recession or improve competitors performance
• cutting jobs
• reducing output
• withdrawing from the market (getting rid of dogs)
• splitting the business up - demerging= easier to manage and control smaller businesses

Question 16

Organic business growth

Answer 16

expansion from with
selling new products, sales promotions. increase market share, expand into new markets etc
- easy to do in rapid market, outperforming competitors
- slower and more gradual than external growth
- meaning the business can adapt better

Question 17

ADV to organic growth

Answer 17

ADV:

• maintain management style, culture and ethics of the business
• less risk = financed through profits
• easy to manage and control the business
• less disruptive changes for workers (efficiency, productivity and morale remain high)

Question 18

DISADV to organic growth

Answer 18

• long
• can take a while for the business to adapt to the market
• if the market isn’t growing the business is restricted to the amount of market share that it can retain
• may miss out on opportunities for ambitious growth

Question 19

Issues with large growth

Answer 19

suffer diseconomies of scale- loose more money leading to retrenchment

• difficult to manage cash flow = need large investment and assets as well as working capital
• risk of overtrading - increased demand calls for more raw materials and employees increasing costs taking away from working capital to pay bills
• private limited to public limited = shareholders lose some control to new shareholders, PLCs can make managers short-termist as shareholders seek capital gain, greater risk for takeovers when being a PLC

Question 20

Greiners model of growth

Answer 20

Phase 1 - creativity = creative, share ideas, need for strong leadership to give structure and direction (leadership crisis)
Phase 2- direction = leaders set formal organisational structure, employees will want more say in the direction, too big for managers to manage everything (Autonomy crisis)
Phase 3 - Delegation = more power and responsibility is delegated, decentralised structure, (Control crisis)
Phase 4- Coordination= control is regained and implementation of new procedures to coordinate different areas of the business. However too many procedure leading to decrease efficiency as people are constantly waiting for decisions to be made (RED tape crisis)
Phase 5- Collaboration = formal procedures replaced by collaboration between departments, more focus put upon communication. At this point a struggle for internal growth leading to a need for merges/takeovers

Question 21

Franchising

Answer 21

contract which allows a new business to use the business idea, name and reputation of an established business
Franchisor - sell, license it idea/name/rep
Franchisee- buys into the franchise , usually pay initial fee followed by ongoing payments,

Question 22

Franchising evaluation

Answer 22

• allow franchisor growth quickly as costs and risks are taken on by franchisee
• poor standards can damage franchisor reputation
• lack of control
• damaging profits of the franchisor

Question 23

External growth

Answer 23

Merges and takeovers
Main motive synergies= where the business after the merger is more profitable generating more profits, lower costs of production due to the combination of resources
- takeovers (acquisitions) when one business buys the majority shareholding of another. Controlling interest meaning the majority shareholder will always win in shareholder votes

Question 24

Takeovers

Answer 24

Hostile - when PLC buys a majority share in another PLC against the will of the directors of the company. The company will then encourage other existing share holders to sell their shares back to them at a premium price
Agreed takeover - the shareholders agree that they’ll sell the business to someone else, usually because the owners believe it would benefit businesses survival

Question 25

Horizontal integration

Answer 25

• when firm combines with another firm in the same industry and the same stage of the production process (Supplier)
• reduces competition
• Morrisons brought Safeway

Question 26

Vertical integration

Answer 26

when firm combines with another firm in the same industry but at a different stage of the production process
Vertical forward = business combines with another business that is further on down the production process
Backward vertical = combines with an earlier stage in the production process

Question 27

Reasons for external growth

Answer 27

• allows business to diversify
• gain from the experienced employees in the other business
• reduce competition
• cab allow businesses that want to move into other countries to do so easily as they already have the necessary infrastructure
• can gain from economies of scope and scale
• can benefit from the tech in the other business

Question 28

Risks of external growth

Answer 28

• Resistance to change between the businesses
• poor customer service as the businesses get used to the new working standards
• culture clashes can lead to damaged reputation as well as inefficiency and diseconomies of scale
• taking on the liabilities of the other business = like compensation claims
• government can stop the merge if they find malpractice through the competition and markets authority leading to the time planning the merge being wasted - opportunity costs
• overseas expansion = different laws, languages, cultures and therefore there would need to be large adaptation to fit these needs