Theme 3 - 3.1.2 - Theories Of Corporate Strategy Flashcards
What is corporate strategy ?
It is the overall scope and direction of a business and the way in which its various business operations work together to achieve particular goals
Who was Igor Ansoff “?
He was a business professor who made a theory relating to how a company looking for growth can choose their marketing strategy - and all of this can be shown on a diagram - such as the Boston matrix
You can refer to this diagram to analyse businesses and write about how they could change their marketing strategy if they are trying to grow
What are the different sections of Ansoff’s Matrix ?
At the top from left to right you have ‘existing product or service’ and then ‘New product or service’
At the left from top to bottom it goes ‘ Existing Market ‘ and then ‘ New Market ‘
What should you do if You have an existing product and its entering an existing market - they should do market penetration which is ( Low risk ) to increase sales to the existing market, or penetrate it more deeply - sell more to the same customers - encourage them to order more often - loyalty schemes - eg boots card
What would you do If you have a new product and you are entering an existing market - example protein bar market and you are creating a new bar - according to the matrix you need to pump a lot of money into R&D of the new products ( moderated risk as you dont know if the product will sell and you have already put a lot of money into R&D so if it dont work you end on a big loss
What would you do if you have a existing product but you want to enter a new market for example north face entering the more fashion market than the mountain company - you would have to just switch market by developing the product a bit and market it in a way to draw in the other markets customers
What would you do if you have. New product and you want to enter a new market - you need to do diversification ( high risk as you don’t know if the market is very profitable etc )
What are the pros and cons of Ansoffs Matrix ?
Pros:
- A business can identify all their current products or services and their markets, then consider their future options for expansion using the matrix shown, considering opportunities, associated costs, benefits and risks
- Ansoffs matrix helps to identify potential new markets or marketing strategies for a business
Cons:
- It only shows part of picture
- it oversimplifies the market
- large MNCs may need thousands of sub options and strategies
- any organisation using Ansoffs matrix as an analysis tool to help decide on a company strategy should also conduct a SWOT and a PESTLE analysis to get. Better idea of the whole picture, to see the issues from more than one angle
What is Porters strategic matrix ?
he suggested that there were 3 generic business strategies that would get a competitive advantage and these were:
- Cost leadership - making products at the lowest cost, may include Aldi, Lidl Primark - outsourcing, lean management, standard no frills low cost products
- Differentiation - The product or service is unique and the USP adds value to the product - Apple IPhone
- Focus - the product or service will serve ( target ) a very small specific niche, high costs are passed onto customers, no close substitutes ( divided into cost focus and differentiation focus )
He also said that if a business failed to select one of these strategies that they would be in danger and ‘stuck in the middle’ - indecisive
What is cost leadership ( porters strategic matrix ) ?
- Useful in highly competitive markets where there are homogeneous products - this is because if your competitive advantage is having a lower cost then customers will frequently go to you over other because they want to gain the best value
new entrants to the market will use a low cost process to build a customer base
What is differentiation ( Porters strategic matrix ) ?
- this is a very useful strategy in highly technological markets where there are rapidly changing and evolving features or products and services - because if your phone has a USP like a better camera than all the rest then the customers might be urged to buy your products if the marketing is good enough
- all the competitors in the market are all following a similar differentiation strategy
What is cost focus ?
Useful strategy when the business wants to offer very low prices to a small market segment
Niche marketing but at a very low cost - like Poundland - they are very niche as there isn’t much stores where everything is very cheap
What is differentiation focus ?
- Useful strategy when the business wants to offer products and services to a small market segment
- products or services will be differentiated and aimed at a niche market
What are the pros and cons of Porters strategic matrix ?
Pros:
-Those in support of Porters Strategic matrix - say that it establishes a clear direction for the business to go in
-Identifies when a business may be in trouble - if you are for example ‘stuck in the middle’ of different strategies
Cons:
-Not as relevant in a very dynamic market
- May not be useful in a crisis situation
- Over simplifies the market structure
Can be possible for a store or business to offer a range of products to a range of customers and not get stuck in the middle of
What is the Boston matrix ?
It is when there is a high market share and and a high market growth and a low market share and a low market growth
A market share is how much of the market a business occupies - and market growth is how much the market is growing - so you can still make a lot of money from having a high market share but a low market growth because the market may not be growing anymore but there are still people constantly buying but there isn’t really any more customers entering the market
What are the stars etc in the Boston matrix ?
Star:
- high market share and high market growth
- This product may be in the growth phase of the product cycle
- production on this product must remain consistent so that profits are constantly reaped
- should be made into cash cow
Cash Cow:
- product in this quarter are reaching the maturity of their product life cycle but they still have customer loyalty like Heinz ketchup - so people are still constantly buying them even though the market is not growing
- High market share, Low market growth
Question mark:
- Low market share, High market growth
- the product might of just have been launched on the market and is building its customer loyalty
- Products should be invested in and marketed so that they can become a star
Dog:
- Low market share, low market growth
- products in this stage may be in the decline phase of the product life cycle
- these products should be removed from sale or even put on big discounts to just get rid of all the stock
- for example video tapes or top hats
What are the pros and cons of Boston Matrix ?
Pros :
- its a good starting point when reviewing an existing product line to decide future strategy and budgets - like looking at a question mark and seeing what to do with it
- It helps businesses analyse future opportunities or problems with their product portfolios
- the conclusions drawn from it such as to transfer the surplus cash from cash cows to stars and question marks, and to close down or sell off dogs
- In the end question marks reveal themselves as dogs or stars and cash cows become drained of finance that they inevitably become dogs
Cons:
- It classifies business as low or high but businesses scan be middle so the true nature of the business cannot be reflected
- High market share does not always lead to high profits - there are also high costs involved with high market share - so you might have high market share but your costs are really high because of transportation etc etc therefore you don’t have high profits
- growth rate and market share are not the only indicators of profitability - Boston matrix ignores the other indicators of profitability
- this approach is considered as to be too simplistic
