Topic 8 - Choosing Strategic Direction

Question 1

What model can businesses use to analyse their strategic position ?

Answer 1

Ansoff’s Matrix

Question 2

What are the 4 options to have on the ansoff matrix that can help you choose markets to compete in ?

Answer 2

Market penetration - existing goods and services in existing markets
Product development - new goods and services in existing markets
Market development - existing goods and services in new markets
Diversification - new goods and services in new markets

Question 3

What’s an example of market penetration?

Answer 3

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

For example, McDonald’s promoting its Happy Meal product range involves targeting an existing market with an existing product and is, therefore, market penetration.

Question 4

What’s an example of product development?

Answer 4

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

For example, KFC introducing a range of pizzas involves targeting a new product at an existing market and is an example of product development.

Question 5

What’s an example of market development?

Answer 5

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

For example, Raleigh selling its cycling products in a new country involves existing products but a new market and so is an example of market development.

Question 6

What’s an example of Diversification ?

Answer 6

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

E.g.Nike going into the car market

Question 7

What are the advantages of Diversification ?

Answer 7

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. - economies of scope

Question 8

What are the disadvantages of diversification?

Answer 8

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

Question 9

What are the influences on strategic direction ?

Answer 9

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 10

What’s an example of a company that have diversified ?

Answer 10

Procter & Gamble
Pringles
Ariel
Pampers

Question 11

What’s the benefit of brand diversification?

Answer 11

If one brand performs badly the others can perform the same (unaffected)
Economies of scope

Question 12

What are the risks of geographic diversification?

Answer 12

Political and environmental risk

Question 13

What happened to Procter and Gamble when they diversified geographically?

Answer 13

Procter & Gamble, the business that owns Pampers is also diversified geographically. It owned the Venezuelan Lavasan laundry brand and the Greek Essex laundry brand.

It exposed them to the political and economic instability of Venezuela & Greece

Question 14

What is P&G selling their Venezuelan Lavasan laundry brand an example of?

Answer 14

Retrenchment

Question 15

Why is P&G selling their Venezuelan Lavasan laundry brand an example of retrenchment ?

Answer 15

As it is the reduction of costs or spending in response to economic difficulty

Question 16

Who said that shareholders can diversify themselves so businesses shouldn’t do it?

Answer 16

Michael porter

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 17

When choosing how to compete with other businesses, a business may decide to compete what ?

Answer 17

price
customer benefits
Can use porters strategies

Question 18

What are porters strategies on how to compete ?

Answer 18

Cost focus
Cost leadership
Differentiation focus
Differentiation leadership

Question 19

What are the sources of competitive advantage in porters strategies?

Answer 19

Costs
Differentiation

Question 20

What are the markets where business compete in porters strategies ?

Answer 20

Broad
Narrow

Question 21

According to porter, when in a narrow market and you want to compete on costs how should you compete ?

Answer 21

Cost focus approach

Question 22

According to porter, when in a broad market and you want to compete on costs how should you compete ?

Answer 22

Cost leadership approach

Question 23

According to porter, when in a narrow market and you want to compete on differentiation how should you compete ?

Answer 23

Differentiation focus approach

Question 24

According to porter, when in a broad market and you want to compete on differentiation how should you compete ?

Answer 24

Differentiation leadership approach

Question 25

According to porter what is the cost leadership approach?

Answer 25

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.
For example, Aldi seeks a cost leadership approach as it aims to compete on price.

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 26

According to porter what is a differentiation approach ?

Answer 26

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.
For example, Apple competes within the market based on its iOS product and the benefits this can offer to consumers when compared to other operating systems.

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 27

According to Porter if a business fails to target customers based on cost or differentiation, what are they ?

Answer 27

Porter’s strategy classifies the business as a concern, known as ‘stuck in the middle’.

Question 28

What does Bowman’s strategic clock provide ?

Answer 28

An alternative approach to positioning and suggests a range of methods a business can use to remain competitive.

Question 29

What’s an example of Bowman’s strategic clock ?

Answer 29

A supermarket may offer a range of value products, with limited customer service, and self-service checkouts, though may still be competitive if the price charged for products is perceived as low enough by customers;

A supermarket may offer a range of high-quality products, with personal shopper services and staffed checkouts with bag packing staff, though with much higher prices, but may still remain competitive if the prices charged provide value when considering the benefits of shopping at this supermarket.

Question 30

What is the difficulty of competing on both price and customer benefits (Bowman’s clock) ?

Answer 30

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 31

What are the advantages of competitive advantage (Bowman’s clock) ?

Answer 31

Increase market share and sales revenue as customers are attracted to the business.

Question 32

What are the disadvantages of competitive advantage (Bowman’s clock) ?

Answer 32

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 33

What are the characteristics of low price of “no frills” on Bowman’s strategic clock ?

Answer 33

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.
Ryanair is an example of this positioning approach.

Question 34

What are the characteristics of hybrid on (Bowman’s strategic clock 3)?

Answer 34

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.
For example, Ikea offers high-quality products but advertises its competitive pricing.

Question 35

What are the characteristics of differentiation on (Bowman’s strategic clock 4)?

Answer 35

Differentiation as a viable position as customers who perceive a product to have high benefits will be willing to pay a higher price.
For example, Waitrose offers perceived benefits and is able to charge higher prices as a result.

Question 36

In Bowman’s strategic clock what are the influences on positioning strategy ?

Answer 36

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 37

In Bowman’s strategic clock what stuck in the middle ?

Answer 37

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.

Question 38

Selfridges offers a tailored experience where customers can receive a personal shopping experience.
How is it competing?

Answer 38

On customer benefits

Question 39

What’s an example of being stuck in the middle ?

Answer 39

In 2013, Marks & Spencer announced that they had lost focus on its clothing range and had become stuck in middle ground between cost leadership and differentiation.