strategic direction

what is strategy

• long term plan of how a business sets out to achieve its aims and objectives 

strategic direction

• determines the products it sells and the markets the business operates in

• will need to be constantly assessed and changes when necessary to keep up with dynamic markets 

what is this 

ansoff matrix

what is only way in which the strategic direction of a business can be analysed?

using ansoff matrix

what are the four sections of ansoff matrix

1. market penetration

2. product development 

3. market development 

4. diversification

what is market penetration

• selling products into existing markets 

reason for market penetration

• boost sales 

• aim to boost market share 

• might invest more in promotional activity or change its pricing to sell more 

• little risk

• may have little growth potential 

• in reality wouldn’t just focus solely on market penetration 

what is market development 

selling their existing products in new markets

features of market development

• new geographical markets or distribution channels, different demographic feature

benefit of market development

• already know the products

risk of market development

need to understand the conditions of new market, competitors, distribution systems which can be dangerous

what is product development

selling new products in an existing market

features of product development

• investment in R+D

• responding to changes in customer requirement 

• anticipating future change 

• new products take time 

what is diversification

selling new product in a new market

features of diversification

• high risk

• typically works with a brand which has high levels of brand loyalty

• can be the most suitable option as business may be less vulnerable to changes in one of its market segments

critique of ansoff martix

• simple and easy to use

• in reality there is a continuum

• a new product could mean a slight modification

• a new product to the business but not to the market

• several strategies can be pursued at the same time

factors affecting which strategy is chosen

• expected cost

• expected return

• opportunity cost

• risk

• fit with the resources and strengths of the business

• impact on other stakeholders

• ethical issues being involved

• Business objectives

  • Profit maximisation, growth, survival, market share

• Core competencies

  • What the business is good at (skills, technology, brand)

• Resources available

  • Finance, workforce skills, technology, time

• Risk appetite

  • Some strategies are riskier (e.g. diversification)

• Market conditions

  • Size, growth rate, competition, customer demand

• External environment (PESTLE)

  • Economic growth, technology, regulation, social trends

• Competition

  • Strength of rivals, barriers to entry

• Stakeholders

  • Shareholders (risk vs return), employees, customers

factors affecting which markets and products to choose

• Business objectives

  • Profit maximisation, growth, survival, market share

• Core competencies

  • What the business is good at (skills, technology, brand)

• Resources available

  • Finance, workforce skills, technology, time

• Risk appetite

  • Some strategies are riskier (e.g. diversification)

• Market conditions

  • Size, growth rate, competition, customer demand

• External environment (PESTLE)

  • Economic growth, technology, regulation, social trends

• Competition

  • Strength of rivals, barriers to entry

• Stakeholders

  • Shareholders (risk vs return), employees, customers