Unit 8- Choosing Strategic Direction

Question 1

what is meant by market penetration?

Answer 1

Market penetration involves increasing sales of existing products to existing markets.

Question 2

what is meant by market development?

Answer 2

Market development involves targeting existing products at new markets to increase sales.

Question 3

what is meant by product development?

Answer 3

Product development involves targeting new products in existing markets to increase sales.

Question 4

what is meant by diversification?

Answer 4

Diversification involves targeting new products at new markets to increase sales.

Question 5

what is an advantage of diversification?

Answer 5

• Diversification can provide large rewards as a business can benefit from both selling a new product and accessing a new market.
• Diversification can spread risk as it gives businesses an alternative if the demand for one product declines.

Question 6

what is a disadvantage of diversification?

Answer 6

Diversification involves new products and new markets and a business will, therefore, have limited expertise in each which increases risk.

Question 7

what are some influences of strategic direction?

Answer 7

• The level of risk accepted by a business can influence the overall choice of direction.
• Opportunity costs can influence the overall choice of direction as a business may need to decide whether it is willing to forfeit the benefits of an alternative direction.
• Business culture can influence the overall choice of direction as culture and leadership must support the strategic direction chosen.

Question 8

what did Michael porter argue about diversification?

Answer 8

Michael Porter argued that businesses should not diversify themselves. He said that shareholders can diversify their own shareholdings in businesses, so there was no benefit from businesses diversifying.

Question 9

what are some ways a business may choose to compete?

Answer 9

PRICE OR CUSTOMER BENEFITS

Question 10

how might a business compete in terms of price?

Answer 10

A business may decide to compete against other businesses on the basis of price; for example, discount retailers often try to price-match or undercut one another to remain competitive.

Question 11

how might a business compete in terms of customer benefits?

Answer 11

A business may also decide to compete against other businesses on the basis of the benefits it can offer customers.

Question 12

what are porters strategies?

Answer 12

• cost leadership
• cost focus
• differentiation leadership
• differentiation focus

Question 13

what is meant by cost leadership and whats its benefit?

Answer 13

• The cost leadership approach is taken by businesses which compete on price, and which seek to be the cheapest retailer or producer within the market.
• Businesses can increase their competitiveness by reducing their costs, for example negotiating better deals with suppliers and producing their own products if this can be done at a cost lower than the cost of buying such products from suppliers.

Question 14

what is meant by differentiation leadership and whats its benefit?

Answer 14

• The differentiation approach is taken by businesses that compete in terms of the benefits offered to customers from the purchase of its products or services.
• Businesses can increase their competitiveness by investing in research, development, and innovation so that the products and services it offers continue to increase in terms of the benefit offered to customers.

Question 15

what does porters strategy consider a business which fails to target customers based on cost or differentiation?

Answer 15

If a business fails to target customers based on cost or differentiation, Porter’s strategy classifies the business as a concern, known as ‘stuck in the middle’.

Question 16

explain the purpose of the Bowman’s strategic clock model?

Answer 16

Bowman’s strategic clock provides an alternative approach to positioning and suggests a range of methods a business can use to remain competitive.

Question 17

explain the difficulty of competing on both price and customer benefits

Answer 17

Offering products with perceived high benefits but at a low price, or offering products with low perceived benefits at a high price, will not offer a realistic or viable position for a business to take; they are destined, ultimately, for failure.

Question 18

whats an advantage of competitive advantage?

Answer 18

Competitive advantage can increase market share and sales revenue as customers are attracted to the business.

Question 19

whats a disadvantage of competitive advantage?

Answer 19

Competitive advantage, if it cannot be protected, can be copied by competitors who want to share a business’s success, resulting in the competitive advantage no longer existing.

Question 20

explain the low price position on Bowman’s strategic clock

Answer 20

Low-price of “no-frills” is a viable position as customers who perceive a product to have very low perceived benefits will be willing to buy the product or service assuming it has a low price.

Question 21

explain the hybrid position on Bowman’s strategic clock

Answer 21

Hybrid is a viable approach, especially for businesses seeking to gain market share, as customers are willing to buy a product or service for a low price if there are some perceived benefits.

Question 22

explain the differentiation position on Bowman’s strategic clock

Answer 22

Differentiation as a viable position as customers who perceive a product to have high benefits will be willing to pay a higher price.

Question 23

what are some influences on positioning strategy?

Answer 23

• A business must consider the business’ competences. If the business’ competencies are in offering high-quality products which offer benefit to customers, a position focussing on price may be challenging.
• A business must consider the presence and location of competitors as the position of a competitor may affect and influence the decisions made by a business trying to compete.

Question 24

what is a disadvantage of being ‘stuck in the middle’ in terms of Bowman’s strategic clock?

Answer 24

• Being stuck in the middle can be fatal to a business as customers seeking cost leadership will seek to purchase from a retailer focussed on cost leadership.
• Customers wishing to purchase differentiated products will purchase from a retailer offering differentiated goods; there is no middle ground for retailers or producers to occupy.