Strategic Direction

Question 1

3 Directions (Evans et al., 2003)

Answer 1

1. Growth Strategies
Market penetration
Market development
Product development
Diversification

2. Stability Strategies
   Consolidation
3. Retrenchment Strategies
   Withdrawal

Question 2

Ansoff’s Matrix - Market Penetration

Answer 2

Market Penetration:

• To increase market share using existing products in markets
• Either through improving service or quality differentiating from rivals
• Through price based strategies

Appropriate when:

• Growth potential
• Less rivals
• Firm has experience/knowledge
• New markets are closed to the organisation

Question 3

Ansoff’s Matrix - Market Development

Answer 3

• Existing products into new markets
• Product modification may be needed
• Entering new markets may be built on existing competencies, may need new ones
• Entering new segments may need new competencies
• Globalisation = when a company needs new competencies

Appropriate when:

• Old markets have no potential
• Restrictions
• Products can be transferred
• Other markets show opportunities

Question 4

Ansoff’s Matrix - Product Development

Answer 4

• New product marketed to old customers
• Little use of existing competencies
• Can deal with customer’s needs
• New product development is risky, expensive, hard to sell
• New products may be the only solution
• New products may be: old products adapted, new, in addition to old products, different versions/qualities

Appropriate when:

• Firm holds existing market share
• Market has good potential
• Market is open to new products
• Rivals are launching new products

Question 5

Ansoff’s Matrix - Diversification

Answer 5

• Growth through new products and new markets
• May be a new growing market
• Spread the risk
• Economies of scale can be developed

Question 6

Methods of diversification

Answer 6

• Related - Within the competencies or value network of the firm
• Diagonal - Common platform of IT for customers with a related set of products
• Horizontal - Development into complementary or competing markets (eg Airline Alliances)
• Forward Vertical - Operates in a downstream way
• Backward Vertical - Operates in an upstream way (eg tour operators)

-Unrelated - Development of products beyond the current competencies or value network

Question 7

Forward Vertical Diversification

Answer 7

• Costs of distribution internalised
• Distribution are denied to rivals
• Data collection of customers

Question 8

Backward Vertical Diversification

Answer 8

• Suppliers guaranteed (eg airline seats)
• Cost of supplies by the firm
• Supplies may not be available to rivals = more expensive
• Supply problems are found and dealt with

Question 9

Stability Strategies

Answer 9

• A period of consolidation on existing products
• Settling down
• May be a lack of resources to invest for growth
• More growth = hard. Need to maintain its position. Small firms do this usually
• Good in the short term, may be bad long term

Question 10

Retrenchment Strategies

Answer 10

• Withdrawing from a market
• De-cluttering
• Contracting out
• Firm may need to raise money for expansion
• Competition
• Losses
• Privatisation