Chapter 3 Strategic Alternatives and Formulation

Chapter 3: Strategic Alternatives and Formulation

Learning Objectives

• Understand different growth strategies in tourism and hospitality using Ansoff’s Matrix.

• Differentiate between three generic competitive strategies: overall cost leadership, differentiation, and focus.

• Identify requirements and limitations for each generic strategy.

• Discuss the downsides/risks of using each of the generic strategies.

• Explain various types of innovative strategies.

• Provide examples of strategic alliances, partnerships, and mergers/acquisitions.

• Utilize tools for strategy formulation.

Growth Strategies

Ansoff's Matrix

• Market Penetration: Focus on maximizing presence in existing markets through aggressive marketing and enhanced offerings.

• Market Development: Expand by introducing current products to new markets based on geography or demographics.

• Product Development: Innovate by introducing new products/services to existing markets to meet changing customer preferences.

• Diversification: Launch new products/services in new, untapped markets.

Competitive Strategies

Three Generic Strategies

1. Overall Cost Leadership

   • Achieve low cost through efficient facilities and cost minimization in operations.

2. Differentiation

   • Offer unique products/services with a focus on brand loyalty and features.

3. Focus

   • Concentrate on specific buyer groups or segments with a tailored strategy.

Risks of Generic Strategies

• Overall Cost Leadership: Risks include technological changes, competitive pressure from imitators, and cost inflation.

• Differentiation: Risks include eroding cost advantages and losing brand loyalty due to price competition.

• Focus: Risks arise if competitors find niches within the targeted market or market needs evolve.

Innovative Strategy

• Based on market and technology.

Types of Innovation

1. Incremental: Improvements using existing technology in the current market.

2. Disruptive: Unique offerings that threaten traditional methods.

3. Architectural: Adapting existing technology for new markets.

4. Radical: Using new technology to create new market opportunities.

Strategic Alliances

• Cooperative agreements between organizations without forming new entities.

Joint Ventures

• Creation of a new entity through contributions from two or more organizations.

Mergers and Acquisitions

• Combining organizations; mergers usually between similar sized firms, acquisitions are typically larger acquiring smaller companies.

Tools for Strategy Formulation

• TOWS Matrix: Analyzes strengths, weaknesses, opportunities, and threats to create strategies.

• McKinsey 7S Model: Aligns internal elements for change management.

• BCG Matrix: Evaluates brand portfolio based on profitability.

• SOSTAC: A strategic marketing model detailing situation, objectives, strategy, tactics, action, and control.

• Business Model Canvas: Framework for defining and linking business ideas to economic value.