BUSINESS 3.8 - Choosing Strategic direction

What is the Ansoff Matrix?

tool used to analyse and plan growth strategies 

What are the 4 strategies of the Ansoff Matrix? 

product development, market development, market penetration, diversification 

What is market development strategy?

selling existing products in a new market

What are advantages of market development?

increased EOS, increased revenue

What are disadvantages of market development?

new market may resist the product

What is product development strategy? 

developing new products for existing markets 

What are advantages of product development?

meet customer needs

What are disadvantages of product development?

no success guarantee

What is diversification strategy? 

developing new products for new markets 

What are advantages of diversification?

expands product portfolio

What are disadvantages of diversification?

high risk and cost

What is market penetration strategy?

selling more existing products in existing markets

What are the advantages of market penetration?

improved EOS

What is a disadvantage of market penetration?

limited sales opportunity

which Ansoff Matrix strategy is the riskiest? 

diversification strategy 

What are the criticisms of Ansoff? 

no consideration for external environment, only outlines strategies for growth, subjective bias 

What did Porter suggest?

two strategies, differentiation and low cost are effective strategies for firms to gain competitive advantage

What are Porter’s generic strategies?

coat leadership. cost focus, differentiation leadership, differentiation focus

What is a competitive advantage?

advantage over competitors by offering consumers greater value

What is cost leadership?

being the lowest cost producer in a mass market to benefit from economies of scale

Why is low cost a competitive advantage?

higher profit margin, can offer lower prices

What are features of a low cost business?

high productivity/efficiency, high capacity utilisation, cheap supplier deals, access to large distribution channel

What are examples of low cost businesses?

aldi, poundland

What is differentiation leadership?

making products different from rivals in a mass market

What are advantages of differentiation leadership?

increased profits, can charge premium prices, hard to imitate, can make products price inelastic

What are disadvantages of differentiation leadership?

mass market is more competitive

How can businesses achieve differentiation?

product quality, strong branding, wide distribution, wide promotion

What is differentiation focus?

making products different from rivals in a niche market

What are the dangers of Porter’s generic strategies

being “stuck in the middle”

What is a cost focus strategy?

being the lowest cost producer of a niche market

What is being “stuck in the middle”?

when businesses have neither the lowest cost or biggest differentiation

What are hybrid strategies?

having both a low cost and differentiation (ikea)

What are the two types of competitive advantage?

comparative advantage, differential advantage

What is comparative advantage?

the ability to produce goods or services at a lower cost

What is a differential advantage?

the ability to offer a product or service that is perceived as unique

What are the benefits of a competitive advantage?

profitability, market share, bargaining power, innovation

What are the challenges of maintaining a competitive advantage?

technology, competitors, differentiation, consumer preferences, globalisation