3.8.1 Strategic direction : choosing which markets to compete in and what products to offer

What is increasing sales in an existing market called?

market penetration (going deeper into something you already have) e.g Coca-Cola heavily advertising during Christmas times to sell more of its existing canned drinks

What is introducing a new product into an existing market called?

product development e.g Apple launching the Apple Watch for fitness enthusiasts or the Airpods for music lovers

What is introducing an existing product into a new market called?

market development e.g Starbucks selling drinks in a new country or them opening up a drive-thru to cater to a new demographic 

What is increasing sales in a new market called?

diversification e.g Sainsbury’s selling clothing through ‘Tu’

What risk level is diversification?

high risk

What risk level is market penetration?

low risk

What risk level is market development?

medium risk 

What risk level is product development

medium risk

Name 3 advantages of market development

• low costs because by using a product that’s already successful you’re saving on research and development

• the risk is spread because sales aren’t dependent on one market 

• high growth potential as there is an untapped market that can offer massive, long term sales

Name 3 disadvantages of market development

• no knowledge of new customers' culture, tastes or laws regarding that market which risks big mistakes.

• it’s expensive to set up new distribution, supply chains and retail space overseas.

• trade barriers such as tariffs and quotas  when crossing international borders.

Name 3 advantages of market penetration

• low risk as you know your customers well

• lower costs due to using existing suppliers and factories and economies of scale

• fastest way to build capital as everything is already set up

Name 3 disadvantages of market penetration

• aggressively competitive pricing may cause competitors to do the same cutting down profits for businesses market wide

• competitors are reactive to pricing changes limiting any competitive edge gained

• harder to get big sales in saturated markets

Name 3 advantages of diversification

• spreads the business risk over unrelated industries

• success in a new high-growth sector can improve gains for the main business

• a famous brand name can help jump start the growth in a new market 

Name 3 disadvantages of diversification

• failure is likely as the product and the market are unmarked territory

• if the new venture fails, it can damage the existing brand reputation

• no expertise or experience in the two unknowns aformentioned

Name 3 advantages of product development

• loyal customers guarantee sales early on

• keeps customers as they don’t need to seek alternative services from other businesses

• strong previous knowledge of customers helps with knowing their needs in a new product

Name 3 disadvantages of product development

• high research and development costs, a lot can be lost if the product fails

• cannibalisation : the new product may siphon sales from your previous products

• takes a long time to develop a product from a concept

Name two disadvantages of using Ansoff’s matrix

• too simple

• while providing which strategy to choose it doesn’t explain how to execute it

Name two advantages of using Ansoff’s matrix?

• helps evaluate future options

• highlights risk allowing business to make informed decisions