Strategies

Question 1

Decline/defensive strategy

Answer 1

• when a business decides to scale down
• retrenchment: done in order to reduce expenses and improve financial position of business
• divestiture: involves the business selling some of its operations as the assets in these operations may be under-utilised
• liquidation: happens when business is bankrupt. All assets of business is sold to pay for debt of business

Question 2

Corporate combination

Answer 2

Joint venture: when two or more businesses enter into an agreement to improve functioning
Merger and takeover: individual businesses no longer exist separately. They combine to form a new business

Question 3

Low cost strategy

Answer 3

Having lowest cost in the industry by saving costs
This can be achieved if:
- business has access to cheap raw materials
- their is low cost manufacturing through technology and efficient use of resources

Question 4

Differentiation strategy

Answer 4

• providing a unique product/service to ensure customer loyalty
• gives business opportunity to charge premium price
• uniqueness may be based on:
  1. Quality
  2. After-sales support
  3. Product features
  4. Distribution/marketing efforts

Question 5

Definition of strategy

Answer 5

It is a very specific plan of action that defines the processes to be used to achieve a desired outcome.

Used for trends and crisis

Question 6

Trends and crises

Answer 6

Trend: predictable changes the business can plan for to some extent
Crises: unexpected and unplanned - for happenings that can throw an economy/industry/business into unstable conditions

Question 7

Advantages of strategies

Answer 7

• gives direction to the business through precise plans of action
• ensures consistency in decision-making
• differentiates management roles and areas of responsibility
• anticipates changes in both internal and external environment

Question 8

Growth/intensive strategies

Answer 8

Market penetration (existing market, existing products): when the business has no new products to introduce but have specials to attract customers.
Product development (existing market, new product): new product being introduced to the same market
Market development (new market, existing product): same product goes to a new market [place/ country]
Diversification (new market, new product): introducing new product and a new market

Question 9

Focus strategy

Answer 9

• all efforts aimed at specific market segment
• based on criteria that makes that segment unique (culture, geography, age, hobbies)
• this market creates opportunities for business
• expert knowledge of niche environment is required for successful implementation

Question 10

Forward vertical integration

Answer 10

Business takes over retailer to get rid of middleman in distribution process. This reduces selling price to customers. Done also to have direct contact with customers

Question 11

Backward vertical integration

Answer 11

Business buys out supplier to secure source of raw materials

Question 12

Horizontal integration

Answer 12

Taking over competitors