Topic 8: Strategic Direction

Question 1

What is the Ansoff Matrix?

Answer 1

The Ansoff is a famous marketing planning model that helps a business determine its product and market strategy.

Question 2

What are the 4 parts of the Ansoff Matrix?

Answer 2

• Market Penetration
• Product development
• Market development
• Diversification

Question 3

What is Market Penetration?

Answer 3

This is growth strategy where a business aims to sell existing products into existing markets.

Question 4

What are the key points of market penetration?

Answer 4

• Aim: to increase market share
• By selling more existing products to the same target customers
• Get existing customers to buy more
• Widen the range of existing products

Question 5

Evaluation of market penetration

Answer 5

• Business focuses on markets and products it knows well
• Can exploit insights on what customers want ( and competitors)
• Unlikely to need significant new market research
• But will the strategy allow the business to achieve its growth objectives.

Question 6

What is Product development?

Answer 6

This is a growth strategy where a business aims to introduce new products into existing markets.

Question 7

What are the key points of product development?

Answer 7

• This strategy is driven by investment in new product development
• Usually requires consistent, long term investment in research & development
• Technological innovation provides significant opportunities for product development strategies
• Brand extensions are also examples of product development

Question 8

Evaluation of Product development

Answer 8

• This is a strategy that often plays to the strengths of an established business
• Strong emphasis on effective market research and successful innovation.
• A great way of exploiting the existing customer base who may respond positively to new products.

Question 9

What is market development?

Answer 9

This growth strategy involves a business seeking to sell its existing products into new markets.

Question 10

What are they key points of market development?

Answer 10

• New geographical markets (exporting to emerging markets)
• New distribution channels (e.g. using e-commerce and mail order)
• Different pricing policies to attract new customers in different segments

Question 11

Evaluating market development

Answer 11

• A logical strategy where existing markets are saturated or in decline
• Often riskier than product development - particularly expansion into international markets
• Existing products may not suite new markets: depends on customer needs.

Question 12

What is Diversification?

Answer 12

A growth strategy where a business markets new products in new markets. `

Question 13

What are the key points of diversification?

Answer 13

• Innovation and research and development: develop new solutions
• Acquire an existing business in the market
• Extended an existing brand into the new market

Question 14

Evaluating Diversification

Answer 14

• Inherently risky strategy
• No direct experience of the product or market
• Few economies of scale
• However, if successful, overall risk of the business is spread

Question 15

What did Porter write about strategic positioning?

Answer 15

Porter suggested two overall business strategies that could be followed in order to gain competitive advantage.

Question 16

What are the two strategies that porter wrote about to gain competitive advantage?

Answer 16

• Differentiation

- Low cost

Question 17

What is competitive advantage?

Answer 17

An advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

Question 18

What does low cost strategy involve?

Answer 18

This typically involves production or operations on a large scale which enables the business to exploit economies of scale (which therefore reduces unit costs)

Question 19

What is the objective of a low cost strategy?

Answer 19

With this strategy, the objective is to become the lowest-cost operator in a market or industry.

Question 20

Why is cost leadership potential such a effective strategic positioning?

Answer 20

• If selling prices are broadly similar, the lowest-cost operator will enjoy the highest profits.
• Lowest-cost operator can also offer the lowest prices (gain market share)

Question 21

What are suitable markets for a low-cost strategy?

Answer 21

• A standard product
• Little product differentiation
• Where branding is relatively unimportant (through many successful low-cost operators build brands that emphasise and are associated with low-cost positioning)

Question 22

What are the key features of business that successfully position themselves using a low cost strategy include?

Answer 22

• High levels of productivity and efficiency
• High capacity utilisation
• Large scale = economies of scale
• Use bargaining power to negotiate lowest prices from suppliers
• Lean production methods and low-cost culture
• Access to the widest and most important distribution channels

Question 23

What is strategic positioning through differentiation?

Answer 23

With a differentiation strategy, businesses aim to offer a product that is distinctively different from the competition, and where the customer values that differentiation.

Question 24

How can a business attempt to differentiate its product or service?

Answer 24

• Superior product quality (features, benefits, durability, reliability)
• Branding (strong competition recognition & desire ; brand loyalty)
• Wide distribution across major channels (i.e. the product or brand is an essential item to be stocked by retailers)
• Sustained promotion - often dominated by advertising, sponsorships

Question 25

What is hybrid strategies (low cost & differentiation)

Answer 25

Is it possible to adopt a hybrid positioning strategy and attempt to be both low - cost and differentiated. Some businesses believe this is possible.

Question 26

Low cost of Ikea

Answer 26

• Achieves its low prices via cost leadership:
  Furniture is flat packed to reduce storage space.
• Large out of town retail units spread fixed costs
• Products are made in China and Malaysia reducing unit costs
• Low margins/ high volume allows economies of scale

Question 27

Different at Ikea

Answer 27

• Unique/ unusual design
• Localisation of product range
• Targeting the young, global middle class

Question 28

Define Low-cost positioning

Answer 28

Where a business is able to operate at the at the lowest unit cost in the market, enabling it to charge lower prices than the competition or earn higher profit margins.

Question 29

Define differentiation positioning

Answer 29

Where a business is able to distinguish its product or service in the minds of consumers as offering better value - perhaps through quality, branding or other attributes that consumers value.

Question 30

What is Bowmans strategic clock?

Answer 30

Bowmans strategic clock is a model that explores the option for strategic positioning, i.e. how a product should be positioned to give it the most competitive position in the market.

Question 31

What is the purpose of Bowmans strategic clock?

Answer 31

The purpose of the clock is to illustrate that a business will have a variety of strategic options of how to position a product based on two dimensions - price and perceived value.

Question 32

Explain price and low value added (position 1)

Answer 32

Not a very competitive position for a business. The product is not differentiated and the customer perceives very little value, despite a low price. This is a bargain basement strategy. The only way to remain competitive is to be cheap and hope that no one else is able to undercut you.

Question 33

Low price (position 2)

Answer 33

Businesses positioning themselves here to be low cost leaders in a market. A strategy of cost minimisation is required for this to be successful, often associated with economies of scale. Profit margins on each product are low, but the high volume of output can still generate high overall profits. Competition amongst business with a low price position is usually intense - often involving price wars.

Question 34

Hybrid (position 3)

Answer 34

A hybrid position involves some element of of low price, but also some product differentiation. The aim is to persuade consumers that there is good added value through the combination of a reasonable price and acceptable product differentiation. This can be a very effective positioning strategy, particularly if the added value involved is offered consistently.

Question 35

Differentiation (position 4)

Answer 35

The aim of a differentiation strategy is to offer customers the highest level of perceived added value. Branding plays a key role in this strategy, as does product quality. A high quality product with strong brand awareness and loyalty is perhaps best placed to achieve the relatively price and added value that a differentiation strategy requires.

Question 36

Focused differentiation (position 5)

Answer 36

This strategy aims to position a product at the highest price levels, where customers buy the product because of the high perceived value. This positioning strategy is adopted by luxury brands who aim to achieve premium prices by highly targeted segmentation, promotion and distribution. Done successfully, this strategy can lead to very high profit margins, but only the very best products and brands can sustain the strategy in the long term.

Question 37

Risky high margins (position 6)

Answer 37

This is a high risk positioning strategy that you might argue is doomed to failure, eventually. With this strategy, the business sets high prices without offering anything extra in terms of perceived value. If customer continue to buy at these high prices, the profits can be high. But eventually customers will find a better positioned product that offers more perceived value for the same or lower price. Other than in the short term, this is an uncompetitive strategy. Being able to sell for a price premium without justification is tough in any normal competitive market.

Question 38

Monopoly pricing (position 7)

Answer 38

Where there is a monopoly in a market, there is only one business offering the product. The monopolist doesn’t need to be too concerned about what value the customer perceives in the product. There are no alternatives. Fortunately, monopolies are tightly regulated to prevent them from setting prices as they wish.

Question 39

Loss of market share (position 8)

Answer 39

This position is a recipe for disaster in any competitive market. Setting a middle-range or standard price for a product with low perceived value is unlikely to win over many consumers who will have much better options. (e.g. higher value for the same price from other competitors).

Question 40

Give an overview of Bowman’s Strategic clock

Answer 40

Three of the positions (6,7,8) are uncompetitive. These are the ones where price is greater than perceived value. Provided that the market is operating competitively, there will always be competitors that offer a higher perceived value for the same price, or the same perceived value for a lower offer.