Unit 8 - Strategic Direction

Question 1

Ansoff matrix

Answer 1

A marketing planning model that helps a business determine its product and market strategy for growth

Question 2

Market penetration

Answer 2

A growth strategy where a business aims to sell existing products into existing markets to increase market share
E.g. Aldi opening new stores in the Uk with same customers

Question 3

Product development

Answer 3

A growth strategy where a business aims to introduce new products into existing markets
E.g. Coca Cola life / technological innovation

Question 4

Market development

Answer 4

A growth strategy where the business seeks to sell its existing products into new markets
E.g. new geographical markets / targeting new customer segmentation

Question 5

Diversification

Answer 5

The growth strategy where a business markets new products in new markets
E.g. Lego

Question 6

Advantages and disadvantages of market penetration

Answer 6

+cost saving
+strengthen brand images and reputation by providing consistent value and quality to customer
+High profits due to economies of scale
+specialised expert in the market
-saturated market
-lower profit margins
-less brand recognition

Question 7

Advantages and disadvantages of product development

Answer 7

+keep up with latest technological developments and trends
+stay ahead of competition with innovative solutions
-upfront costs
-poor quality so poor image

Question 8

Advantages and disadvantages of market development

Answer 8

+access to new customers
+competitive edge
+improve quality of products
-not understanding customer needs
-increased competition

Question 9

Advantages and disadvantages of diversification

Answer 9

+increase market share
+reduce dependence on a single product to spread risk
+creates synergies
+enhanced reputation and brand recognition
+lower production costs
+more consistent demand
+greater income security
-little to no experience with product or market
-very risky

Question 10

Why do firms want monopoly power

Answer 10

• set high prices for customers
• drive down cost prices from suppliers
• achieve supernormal profit (profit above normal profit)
• control the level of quality in a product/service because customers can’t switch easily to substitute products

Question 11

What does Porters 5 Forces model show us?

Answer 11

• attractiveness of an industry
• if any one of the forces is particularly high then a firm might be able to develop a competitive advantage
• if competitors can be squeezed out of the industry the firm can achieve monopoly power

Question 12

What are Porters 5 Forces

Answer 12

• degree of rivalry
• threat of new entrants
• threat of substitutes
• bargaining power of buyers
• bargaining power of suppliers

Question 13

Barrier to entry

Answer 13

Firms want to develop barrier to entry to prevent other firms wanting to compete.
E.g. GoPro, Virgin Cola stopped by Coca Cola

Question 14

How to achieve barriers to entry

Answer 14

• gaining economies of scale
• stronger brand recognition e.g. maccies, Nike
• high capital start up requirement e.g. Peugeot
• access to distribution networks e.g. GoPro
• advances in learning e.g. Pfizer, Caterpillar
• government policy restricting competition

Question 15

Power of supplier

Answer 15

• charge higher price due to strong brand image so people will buy it
• lack of substitutes or alternatives
• high switching costs for customers
• threat of vertical integration
  E.g. Kylie Jenner Makeup, Taylor Swift slated Apple Music for not giving royalties so they changed the policy

Question 16

Power of buyer

Answer 16

• premium foods so “if you want to supply to us you have to pay us”
  Customers tend to enjoy strong bargaining power when…
• there are only a few of them
• customer purchases a significant proportion of output on an industry
• they possess a credible backward integration threat so they threaten to buy the producing firm/ its rivals
• they can choose from a wide range of supply firms
• they find it easy and inexpensive to switch to alternative suppliers

Question 17

Threat of substitutes

Answer 17

The extent to which the threat depends on…
- to which the price and performance of the substitute can match the industry’s products
- willingness of the customers to switch
- customer loyalty and switching costs
E.g. new products, Tv stations, chocolate, car manufacturers

Question 18

Degree of competition

Answer 18

If there is intense rivalry in an industry, it will encourage businesses to engage in..
- price wars
- investment in innovation of new products
- intense promotion
E.g. Apple vs Samsung, holiday companies, internet providers