Unit 8- Choosing Strategic Direction Flashcards
What is Ansoff’s matrix?
The matrix is a planning tool to help decide on the best way (strategy) to achieve growth.
The matrix suggests 4 strategies
Depending on two key choices:
-what product to offer?
-which market to compete in?
the strategies also range in levels of risk.
What strategy sits on the existing market and existing products bit?
Market Penetration
What strategy sits on the existing market and new products bit?
Product Development
What strategy sits on the new market and existing products bit?
Market Development
What strategy sits on the new market and new product bit?
Diversification
What is Market Penetration’s risks, pros and cons?
Level of risk: Least riskiest
Ways of trying to increase market share:
-Sell more products
-Use sales promotion
-Increasing advertisement
Issues:
-Difficult in saturated markets
What is Product Development’s risks, pros and cons?
Level of risk: Medium
Ways of introducing new products:
-Increase brand loyalty
-Be a market leader
-Higher cash flow for R&D
-Use extension strategies
Issues:
-Still requires market research and needs to meet customers requirements
What is Market Development’s risks, pros and cons?
Level of risk: Medium
Ways of achieving this:
-Core competency
-Increase advertising
-New market segment
-Market research
-Omni/Multi channels (Like E-commerce)
Issues:
-You need to understand why you are in the untapped market / new market
What is Diversification’s risks, pros and cons?
Level of risk: High
Ways of achieving this:
-Market research and R&D (High Costs)
-Good brand image
-Launch new products into new markets
-Buy businesses in different industries
Issues:
-High Costs
What are the two types of Diversification?
Related Diversification:
There is link between the products or markets
Unrelated Diversification:
No link between products or markets
Factors affecting choice of strategy?
-Changes in technology (need for new product)
-Law (ban on existing product)
-Competitor’s actions
-Barriers to entry (Porter 5 forces)
-Corporate objective
-Financial resources
-Ability to innovate
-Boston matrix (gap?)
-Shareholders’ attitude to risk
etc.
What is Porter’s Generic Strategies?
Porter’s generic strategies model suggests that a business should follow one of three positioning strategies in order to compete within its market.
What are the sections in Porter’s Generic Strategies?
-Cost Leadership
-Differentiation
-Focus (Cost or Differentiation)
What does Cost leadership focus on and examples?
This strategy requires:
-Focus on cost-minimisation
-Large sales volume
-Economies of scale
-Power over suppliers
-Efficiency
-Aldi, Lidl
What does Differentiation focus on and examples?
This strategy requires:
-Strong USP
-Focus on innovation
-High profit margins
-Developing brand loyalty
Apple, Mercedes
What does Focus on and examples?
This strategy requires:
-A lucrative niche market
-Clear focus on one segment
Left hand store, Bees Wrap
When are you likely to fail?
Not being the cheapest or not offering strong differentiation means being “stuck in the middle” & likely to fail
What are the influences on strategy?
Competitors
How strong are the competitors a business faces in its chosen strategic position? What advantages, if any, do those competitors face?
External Environment
Careful and regular scanning of changes in the external environment is key to effective strategic positioning. For example, changes in the political and/or regulatory environment can create opportunities as well as pose threats to the existing positions of businesses in a market.
Core Competencies
A honest view about the ability of the business to compete is essential. Does the business has a unique selling point that might enable it to sustain a strategy of differentiation?
If innovation is key to positioning, does the business have the appropriate resources, organisational culture and reward systems to create a suitable flow of innovation?
What are the ways of approaching Cost Leadership?
-Use bargaining power to negotiate the lowest prices from supplier
-High levels of capacity utilisation
-High Levels of productivity
-Access to the most effective distribution channels
-Effective use of technology in the production process
-Achieving economies of scale through growth
-Lean production (e.g. JIT)
What are the ways of approaching differentiation?
-Superior product quality
-Heavy investments in R&D as well as market research to meet the needs of a specific market
-Branding (strong customer recognition and brand loyalty)
-Consistent and heavy promotional support
-Industry wide distribution across all major channels (E.g the product or brand is an essential item to be stocked by retailers)
What is Bowman’s Clock
The Bowman’s model is a strategic tool to help decide on how to compete. This tool offers 8 strategies
The clock suggests 8 strategies depending on choices made on:
-price
-perceived value
What are the Bowman Clock strategies in order?
1) Low price / Low perceived value
2) Low price
3) Hybrid
4) Differentiation
5) Differentiation Focus
6) Risky High margins
7) Monopoly Pricing
8) Reduce in market share
(1) What is low price and low percieved value?
-Generic product
-Usually inferior product
-Very low profit margins
-This strategies relies on high sales volume & economies of scales
e.g: Kodak Batteries sold in Poundland (£2)
(2) What is low price?
Cost leadership position
Low profit margins
Some perceived value
This strategies also relies on high sales volume & economies of scales
e.g: Ryanair
(3) What is hybrid?
Some differentiation
Appear to offer good balance between price & value
Attracting aspirational customers but still price conscious
e.g: Ikea
(4) What is differentiation?
Strong USP & differentiation:
-Brand name
-Features
-Quality
-Customer service
-Delivery time, etc.
-PED is less sensitive
e.g: Tesla
(5) What is focused differentiation?
Specialist niche/market
Very strong USP or differentiation
Premium prices
High profit margins
e.g: Bentley
(6) What is risky high Margins?
Often new & high tech products attracting early adopters
Uses a skimming pricing strategy
This strategy requires focus on innovation
e.g: Google Headband / Hollister
(7) What is Monopoly Pricing?
Premium prices for low value
Unsustainable strategy unless in a monopoly position
Success of this strategy may depend on the power of regulators
e.g: Royal Mail, Southwest trains
(8) What is loss of market share?
Appears to be over priced for products or services that are similar to what other businesses provide
Unsustainable strategy unless the business is selling a complementary product or a product reaching the end of its life cycle (no competition)
e.g: Debenhams
What is the problem with strategies 6,7,8?
According to Bowman, the last 3 strategies, 6, 7 & 8 are highly likely to fail as they are seen as unfair by the customer
What are the influences on Bowmans Clock?
Internal:
-Strengths /Weaknesses
-Strategic Direction
-Core competencies of the business
-Corporate objectives
External:
-Opportunities and threats
-Competitors positions
-Market conditions
-Gap in the market
What are the benefits of a competitive advantage?
-Customer loyalty
-Potentional to charge a premium price
-Potential to increase market share
- Reputation as either low-cost or highly differentiated
-Created barriers to entry
How can a business maintain a competitive advantage?
-Gaining strong brand loyalty
-Protecting unique features through intellectual property protection by applying for either a patent, copyright or trademark
-Pricing competitors out of the market by using a destroyer pricing strategy
-Responding quickly to change to maintain first mover advantage
