Choosing strategic decision

• define strategic decision


  describes how a business plans to get to where it wants to be in the long term
• once corporate objectives have been agreed, the business should follow the stages outlined by:

  - analysing the existing internal strengths & weaknesses of the firm

  - analysing the external environment to assess opportunities & threats such as PESTLE

  - applying investment appraisal of planned strategic options
• in most cases strategic decision is concerned with a firm using it's understanding of environments in order to choose...

  - the products it should produce

  - the markets in which to sell those products
• define ansoff's matrix


  a strategic or marketing planning model that can be used to help a business decide its strategic direction in terms of its product portfolio & target markets
• ansoff's matrix image

  
• existing product, existing market

  choice whether to market penetrate, consolidate, withdraw or do nothing
• market penetration


  promoting growth in existing markets with existing products

  - increase brand loyalty

  - encourage more regular use

  - encourage more use on each occasion
• consolidation


  concentrating activities on those areas where the firm has established a competitive advantage or competence & focusing its attention on maintaining its market share

  - if this is promoted by falling profits = retrenchment
• what is retrenchment?


  cutting back on activities in order to save costs e.g redundancies or sale of assets
• withdrawal


  through the sale or part of the business, might be appropriate if there is an irreversible decline in demand or the firm can't match new competitors
• doing nothing

  continuing with the existing strategy, appropriate in short term maybe not long term
• existing products, new markets

  market development followed to extend product market into new areas

  e.g new geographical locations, new uses, entering new market segments
• new products, existing markets

  product development, involve substantial modifications or additions to a product range in order to maintain competitive advantage

  useful in competitive markets where firms need to maintain product differentiation

  some instances products changed completing others spin off's made

  might need extensive R&D funding
• new products, new markets

  diversification, high risk strategy because requires both product & market development & may be outside core competencies of the firm
• reasons for choosing & value of different options for strategic decision

  Ansoff used to assess the degree of risk

  e.g market penetration less risky than diversification

  however Ansoff can oversimplify level of risk, depends on business
• reasons for choosing & value of a strategy of market penetration

  - growth in existing market

  - scope to encourage greater frequency of use

  - some customers encourages to use product in different ways

  - modifying marketing mix, potential to attract customers away from competitors
• benefits of market penetration

  - low risk

  - cost of implementing low

  - business plays to its strengths

  - higher volume, greater scope for economies of scale
• reasons for choosing & value of a strategy of product development

  - scope to adapt quality

  - existing product become obsolete or out of date, needs replacing

  - existing product created a need or desire for complementary products

  - R&D led to creation of new innovative product

  - market researches reveal potential for new product which would serve unrecognised customer needs
• benefits of product development

  - stay competitive

  - build product portfolio on strength of existing brands

  - new products with patent give firm monopoly power

  - compete effectively in increasingly segmented markets
• reasons for choosing & value of a strategy of market development

  - scope to enter new markets

  - new markets reached easily from existing channels

  - spare capacity & high fixed costs, cost effective to increase levels of production

  - firms greatest strength is reputation of existing products
• benefits of market development

  - easy to enter new markets successfully

  - firm not changing its core function

  - product proved it can be successful

  HOWEVER culture in new markets differs from existing markets
• reason for choosing & value of a strategy of diversification

  - existing products/markets are in decline

  - existing markets saturated & no scope for expansion in them

  - senior managers want to avoid complacency & wish to give firm new challenge
• benefits of diversification


  - can enable business to grow when market is saturated

  - spread risks when business faces potential decline

  - can create a synergy where 2 different business may gain some benefits of being united
• evaluation of Ansoff's matrix

  - no account of actions of competitors e.g doing/planning

  - no account for competitors reaction to strategy

  should be used alongside other info when deciding strategic decision of a business
• define strategic positioning


  the view people take of a business that results from the businesses strategic decision making
• in most cases strategic positioning based on 2 key factors....

  - cost

  - differentiation
• porters generic strategy

  porter suggests firms that achieve 'sustainable competitive advantages' do so through cost leadership, differentiation or focusing

  
• low cost / cost leadership

  firm sets out to become the lowest cost producer in its industry by producing on a large scale & gaining economies of scale

  depends on PED
• a low cost strategy may arise because a firm identifies an opportunity to reduce costs, this may result from a number of sources...

  - introduction of new method of production

  - new suppliers that are cheaper

  - new tech

  - new distribution method that lowers rent & transportation

  - improvements in productivity that reduce unit costs
• permanent cost leadership is hard to achieve, but may be created by...

  - patents

  - economies of scale

  - creating barriers to entry
• cost leadership example


  Ryanair

  - always on time

  - only use 1 type of aircraft

  - no cleaners

  - hire indirect staff

  - steps built into aircraft
• focused cost leadership example

  claires

  - low supplier costs

  - target 5-12yr old girl
• companies successful in costs leadership usually have access to...

  - capital to invest

  - efficient logistics

  - low cost base (labour, materials, facilities)
• define product differentiation


  the degree to which consumers see a particular brand as being different from other brands
• advantages of differentiation


  - charge premium price

  - higher sales value

  - customer loyalty

  - brand awareness
• product differentiation can be based on....

  - superior performance

  - product durability

  - after sales service

  - design

  - clever marketing

  - different distribution methods
• example of focused differentiation

  1st class airlines

  - Quantas, Emirates, Singapore airlines

  OR

  Rolls Royce
• example of differentiation


  tea at the Ritz
• focus strategies


  concentrate on particular niche markets & by understanding the dynamics of that market & unique needs or customers develop uniquely low cost or well specified products for the market

  take a segment of market poorly served by main players & take on cost leadership or differentiation
• evaluation of porters strategy

  high price, low differentiation = monopolies e.g Anglian water

  hybrid, mid price, mid differentiation = use economies of scale e.g nike, VW