Choosing strategic direction
Chapter 9
Strategic direction: choosing which market to compete in and
what products to offer
Strategic direction
Strategic choice involve deciding direction + the methods to get there.
The strategic decision of a business refers to the decisions made regarding
markets + products to offer. With continuous changes, reviewing is
essential - strategic direction will change.
A manager will monitor key measures of performance to ensure all is on
target + review relevance. Changes in the business environment may
require a change in strategic direction - can completely change the shape
of the company over time e.g. Nokia began as a paper producer. Strategic
direction has changed as opportunities emerged in new markets, products
+ threats.
Ansoff matrix
Considers a strategy in terms of products offered + markets it operates in.
Existing products New products
Existing markets Market penetration New product
development
New markets Market development Diversification
● Market penetration
Developing strategies to boost sales of existing products in existing
markets - aims to boost market share e.g. investing in promotion or price
changes. Involves little risk as products + markets are familiar. Not
effective if the market is mature.
● Market development.
Offering existing products but targeting new market segments e.g.
geographical or demographic. It needs to ensure it understands the needs,
conditions, competitors + distributions systems of the new target market.
Existing businesses may respond aggressively.
● New product development.
New products for existing customers - may respond to changing
requirements or anticipating change. Investment can takes time + risk e.g.
Google Glass was withdrawn from the market for development.
● Diversification
, Offering new products to new customer groups. Risky because of
unfamiliarity. Spreads risk - less vulnerable to changes in one of its market
segments.
Value of Ansoff matrix
Provides a framework to analyse strategic options facing a business. In
reality, there are many degrees of ‘newness’. New may mean slightly
modified, new to the business but not the market or highly innovative. A
‘new’ market may expand into a region a few miles away or globally. Using
a scale on the axes shows how new products + markets are.
There may be several strategies being pursued at the same time e.g.
boosting sales whilst expanding overseas. Apple eg has market penetration +
market development.
Selecting a strategy
Factors:
– Expected costs e.g. GSK spent £2.5bn searching for new medicines
– Expected returns
– Opportunity costs
– Risk e.g. financial or risk to the brand
– The fit with the resources and strengths of the business. Affordable?
Chapter 9
Strategic direction: choosing which market to compete in and
what products to offer
Strategic direction
Strategic choice involve deciding direction + the methods to get there.
The strategic decision of a business refers to the decisions made regarding
markets + products to offer. With continuous changes, reviewing is
essential - strategic direction will change.
A manager will monitor key measures of performance to ensure all is on
target + review relevance. Changes in the business environment may
require a change in strategic direction - can completely change the shape
of the company over time e.g. Nokia began as a paper producer. Strategic
direction has changed as opportunities emerged in new markets, products
+ threats.
Ansoff matrix
Considers a strategy in terms of products offered + markets it operates in.
Existing products New products
Existing markets Market penetration New product
development
New markets Market development Diversification
● Market penetration
Developing strategies to boost sales of existing products in existing
markets - aims to boost market share e.g. investing in promotion or price
changes. Involves little risk as products + markets are familiar. Not
effective if the market is mature.
● Market development.
Offering existing products but targeting new market segments e.g.
geographical or demographic. It needs to ensure it understands the needs,
conditions, competitors + distributions systems of the new target market.
Existing businesses may respond aggressively.
● New product development.
New products for existing customers - may respond to changing
requirements or anticipating change. Investment can takes time + risk e.g.
Google Glass was withdrawn from the market for development.
● Diversification
, Offering new products to new customer groups. Risky because of
unfamiliarity. Spreads risk - less vulnerable to changes in one of its market
segments.
Value of Ansoff matrix
Provides a framework to analyse strategic options facing a business. In
reality, there are many degrees of ‘newness’. New may mean slightly
modified, new to the business but not the market or highly innovative. A
‘new’ market may expand into a region a few miles away or globally. Using
a scale on the axes shows how new products + markets are.
There may be several strategies being pursued at the same time e.g.
boosting sales whilst expanding overseas. Apple eg has market penetration +
market development.
Selecting a strategy
Factors:
– Expected costs e.g. GSK spent £2.5bn searching for new medicines
– Expected returns
– Opportunity costs
– Risk e.g. financial or risk to the brand
– The fit with the resources and strengths of the business. Affordable?
