Unit6. Chapter 36. Strategic Choice

Question 1

Ansoff’s matrix

Answer 1

a model used to show the degree of risk associated with the four growth strategies of: market penetration, market development, product development and diversification.
- 2 main variables in strategic marketing decision:
+ the market in which the firm was going to operate
+ the products intended for sale

Question 2

market penetration

Answer 2

achieving higher market shares in existing markets with existing products
e.g. Aer Lingus (2009) reduced its prices -> higher market share -> potentially damaging price war that reduces the profit margins of all firms in the industry.

Question 3

product development

Answer 3

the development and sale of new products or new developments of existing products in existing markets.
e.g. Diet Pepsi or 4G cellphones.

Question 4

Market development

Answer 4

the strategy of selling existing products in new markets

Question 5

diversification

Answer 5

the process of selling different, unrelated goods or services in new markets

• outside core competences of the firm
• risk level is proportional to chance of high profit.
• gain a foothold in an expanding industry
• reduction of overall business-portfolio risk.
  e. g. Tata Industries - from steel to tea bags.
• vertical/ horizontal integration can be less risky than unrelated diversification, which takes the business into a completely different industry.

Question 6

Evaluation of Ansoff’s matrix

Answer 6

• Allows to analyse the degree of risk associated with each one.
• > apply decision-making techniques to assess the costs, potential gains and risks associated with all options.

DRAWBACKS:

• Only 2 main factors in the strategic analysis of a business’s options. (SWOT & PEST?)
• Recommendations lack depth and hard environmental evidence.
• Lack of management judgement - analytical tool for making the final choice.
• not a detailed marketing options.

Question 7

Force-field analysis

developed by Kurt Lewin

Answer 7

technique for identifying and analysing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining forces)

Question 8

Conducting a force-field analysis

Answer 8

1. Analyse the current situation and the desired situation.
2. List all of the factors driving change towards the desired situation.
3. Allocate a numerical score to each force, indicating the scale or significance of each force: 1 = extremely weak and 10 = extremely strong.
4. Chart the forces on the diagram with the driving forces on the left and restraining forces on the right.
5. Total the scores and establish from this whether the change is really viable - is it worth going ahead? If yes, then the next stage is important.
6. Discuss how the success of the change or proposed decision can be affected by decreasing the strength of the restraining forces and increasing the strength of the driving forces.

Question 9

Evaluation of force-field analysis

Answer 9

• Widely used in change situations
• Limitations:
  + Unskilled or inexperienced managers could fail to identify all of the relevant forces involved in the change process.
  + The allocation of numerical values to the driving and constraining forces is rather subjective.
  e.g. 2 managers undertake the same force-field analysis -> arrive different values ratio -> different decisions

Question 10

Decision tree

Answer 10

a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result.

Question 11

Features of decision trees

Answer 11

• Constructed from left to right
• Each branch represents an option together with a range of consequences or outcomes and the chances of these occurring.
• Decision points (decision nodes) are denoted by a square
• A circle (chance node) shows that a range of outcomes may result
• Probabilities are shown alongside of possible outcomes: measure chance of an outcome occurring
• The economic returns are the expected financial gains or losses of a particular outcome.

Question 12

expected value

Answer 12

the likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur.

Question 13

Main advantages of decision trees

Answer 13

• Force the decision maker to consider all of the options and variables related to a decision
• Put these on an easy-to-follow diagram, which allows for numerical considerations of risk and economic returns to be included
• The approach encourages logical thinking and discussion amongst managers.

Question 14

Potential limitations of decision trees

Answer 14

• The accuracy of the data used. Estimated economic returns may be quite accurate when they concern projects where experience has been gained from similar decisions. Decision trees is a useful guide.
• The probabilities of events occurring may be based on past data, but circumstances may change.
• Conclusion must be that decision trees aid the decision-making process, but they cannot replace either the consideration of risk or the impact of non-numerical, qualitative factors on a decision.
• Expected values are average returns, assuming that the outcomes occur more than once. Average is not the final result. Decision trees allow a quantitative consideration of future risks to be made - do not eliminate those risks.