3.8 - Choosing strategic direction

4 components of Ansoff Matrix

1) Market penetration - developing strategies to boost sales of existing products in existing markets.

2) Market development - offering existing products but targeting new market segments

3) New product development - developing new products for existing customers

4) Diversification - new products to new customer groups

What is strategic positioning

• How a business is perceived relative to other businesses in the industry

Components of Porter’s competitive strategy

1) Cost leadership strategy - achieving lower costs than rivals in the same industry

2) Differentiation strategy - offering more benefits than rivals in the same industry

Ways to achieve a cost-leadership strategy

• Lower input costs - e.g owning suppliers

• Economies of Scale - be able to spread fixed costs over more units if the business is big enough

• Experience - managers and employees being more experienced than rivals enables them to source cheaper materials and make more effective decisions

• Products/process design - product design more efficient than competitors

Differences between Porter’s strategies

1) Cost leadership with parity - charging same price as rivals but lower costs so higher profit margin

2) Cost leadership with proximity - having lower price than rivals but costs are lower so can still make same or higher profits

3) Differentiator - charge higher price and still make high profit margin if additional charge for added benefits is more than cost of providing them

Influences on a positioning strategy

1) Where competitors are positioned

2) The external environment

3) Strengths and competences of the business

Ways to protect competitive advantage

1) Legal protection - e.g laws by government to protect industry or business from foreign competition or patents which give legal protection to new inventions for given number of years

2) Control over resources - e.g ownerships of different stages of the supply chain

3) Culture - difficult to copy as influenced by lots of factors such as experience of members and history of business

3 Sources of sustainable competitive advantage

1) Innovation - can protect some developments with a patent or process can be secret

2) Architecture - strong relationships between customers and suppliers which cannot be easy to replicate

3) Reputation - takes time to build and cannot be easily copied

5 parts of Bowman’s strategic clock