Unit 8 - Strategic Direction Flashcards
Ansoff matrix
A marketing planning model that helps a business determine its product and market strategy for growth
Market penetration
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
Product development
A growth strategy where a business aims to introduce new products into existing markets
E.g. Coca Cola life / technological innovation
Market development
A growth strategy where the business seeks to sell its existing products into new markets
E.g. new geographical markets / targeting new customer segmentation
Diversification
The growth strategy where a business markets new products in new markets
E.g. Lego
Advantages and disadvantages of market penetration
+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
Advantages and disadvantages of product development
+keep up with latest technological developments and trends
+stay ahead of competition with innovative solutions
-upfront costs
-poor quality so poor image
Advantages and disadvantages of market development
+access to new customers
+competitive edge
+improve quality of products
-not understanding customer needs
-increased competition
Advantages and disadvantages of diversification
+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
Why do firms want monopoly power
- 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
What does Porters 5 Forces model show us?
- 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
What are Porters 5 Forces
- degree of rivalry
- threat of new entrants
- threat of substitutes
- bargaining power of buyers
- bargaining power of suppliers
Barrier to entry
Firms want to develop barrier to entry to prevent other firms wanting to compete.
E.g. GoPro, Virgin Cola stopped by Coca Cola
How to achieve barriers to entry
- 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
Power of supplier
- 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
Power of buyer
- 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
Threat of substitutes
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
Degree of competition
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
Marketing strategy challenge
To find a way of achieving a sustainable competitive advantage over the other competing products/ firms in a market
Competitive advantage
An advantage over competitors gained by offering consumers greater value, either by means of lower prices of by providing greater benefits and service that justifies higher prices
Porters generic strategies
Model used in order to gain competitive advantage. Differentiation and cost leadership strategies seek competitive advantage in broad range of market or industry segments. Differentiation focus/ cost focus strategies best used in a narrow market/industry
Cost leadership
- Become the lowest cost producer in the industry
- involves production on a large scale which enables the business to exploit economies of scale
- important as if selling prices are broadly similar, the lowest cost producer will enjoy the highest profits
- high levels of productivity
- high capacity utilisation
- use of bargaining power to negotiate the lowest prices for production
- lean production methods
- access to most effective distribution channels
Cost focus
- business seeks a lower cost advantage in just one or a small number of market segments
- product will be basic
Differentiation focus
The classic niche marketing strategy
- business aims to differentiate (add value) within just one or a small number of target market segments
- highest quality
- specialist expertise / experience
- exclusiveness
Differentiation leadership
Business targets much larger markers and aims to achieve competitive advantage across the whole of an industry
- selecting one or more criteria used to buyers in a market
- charging premium price for the product to reflect high production costs and extra value added
- give customers clear reasons to prefer the product over others
- not easy strategy as it needs sustainable investments
Focus
- due to clustering of firms in different market segments, competitive advantages can be gained also from a focus on a niche market
- firms not focusing in either will risk as they will be “stuck in the middle”
Market based view
Focuses on external factors like industry structure and competitive forces. Gain advantage by…
- analysing market conditions
- responding to opportunities/ threat
- positioning themselves effectively against competitors to meet customer needs
Resources based view
Business strategy emphasises leveraging a company’s unique internal resources and capabilities to achieve competitive advantages. Focused on acquiring valuable, rare, inimitable and non substitutable resources (VRIO)that are difficult for competitors to replicate to help firms maintain sustained success
Knowledge based view
Emphasises the importance of knowledge as a key resource for competitive advantage. Focuses on acquiring, sharing and leveraging both tactical and explicit knowledge within the organisation, fostering innovation and continuous improvement to stay ahead in the market
Learning economy
Retaining knowledge within a business as learning is most important process
Capability based view
Focuses on the abilities a firm has rather than its knowledge / resources. Focuses on developing and leveraging a company’s unique capabilities (skills, processes, routines) to achieve competitive advantage. Capabilities to adapt to changing market conditions and outperform competitors
Relational based view
Emphasises the importance of relationships and networks with external partnerships e.g. suppliers, customers
