Unit 8: Choosing strategic direction:

• Strategic direction


  The general path a business takes, based on its mission and achieving its objectives
• Strategic direction influences how a business's strategy develops and affects all areas of the business
• Key factors in setting strategic direction


  • Choices of which markets to compete in
  • What products to offer
  • Which direction the business should grow in
• Marketing Strategy


  Decides on Markets and Products
• Factors influencing choice of markets and products


  • Market research and analysis
  • Internal skills and resources
• Factors influencing choice of markets


  • Type of product
  • Level of competition
  • External factors
  • Internal resources
  • Attitude to risk
• Factors influencing choice of products


  • Research and development (R&D)
  • Competitors
  • Technology
  • Finances
  • External factors
• Market penetration


  Trying to increase your market share in your existing market
• New product development


  Selling new products in your existing markets
• Market development (or market extension)


  Selling existing products to new markets
• Diversification


  Selling new products to new markets
• Diversification is a very risky strategy, as it involves moving into markets that the business may have no experience of
• Ansoff's Matrix


  A tool used to decide on a growth strategy
• Ansoff's Matrix


  • Compares the level of risk involved with different growth strategies
  • Helps managers decide on a direction for strategic growth
• The advantage of Ansoff's matrix is that it doesn't just lay out potential strategies for growth, it also forces managers to think about the expected risks of moving in a certain direction
• One disadvantage of the matrix is that it fails to show that market development and diversification strategies also tend to require significant change in the day-to-day workings of the company
• Product development


  Less risky than diversification, but works best for firms that already have a strong competitive advantage
• Market penetration


  The least risky strategy of all, so most firms opt for this approach to start with
• Some people believe that Ansoff's matrix oversimplifies the options available for growth
• Diversification doesn't have to be completely unrelated to what the business does currently, it might be a safe option to diversify by moving into your supplier's business, as you know there's a guaranteed market for that product
• KFC International Market Development


  • KFC's expansion from the USA market to the UK market
  • KFC began operating in the USA in 1952 and extended their market by opening an outlet in Preston, UK in 1965, the first American fast food chain to open in the UK
  • There are now over 750 outlets across the UK and Ireland, run as a franchise by an independent company, KFC GB Ltd, until it was bought by PepsiCo in 1986
• KFC's market development strategy


  The result of taking an existing product, their fast food business model, and developing it in a new market, the UK
• This is a safer option than diversification, particularly since the UK had no other fast food chains in 1965 so there was no competition
• Positioning Strategy


  An important Strategic Choice
• Strategic positioning


  • Choosing how to compete with the other businesses in the market
  • Part of the marketing strategy
  • Influences the general direction a business develops in
  • Affects all areas of the business
• Different positioning strategies work for different companies
• Choosing the right positioning strategy


  • Should play to the company's strengths and give them a competitive advantage
  • The wrong positioning strategy can be disastrous
• Factors affecting positioning strategy


  • The product itself
  • State of the economy
  • Company's image and resources
  • Company's mission
• Competitive Advantage


  • Customers see an advantage to buying its products compared to its competitors products
  • Often gained through a firm's core competences
• Types of competitive advantage


  • Cost advantage
  • Differentiation advantage
• Cost advantage


  Selling a similar product at a lower cost than its rivals
• Businesses with cost advantage


  • Low-cost airlines like Easyjet and Ryanair
• Differentiation advantage


  Selling better products at the same or a slightly higher price
• Competitive advantage can build brand loyalty
• Maintaining competitive advantage can be tricky
• Porter's Three Generic Strategies


  • Cost Leadership
  • Differentiation
  • Focus
• Cost Leadership strategy


  • Calls for the lowest cost of production for a given level of quality
  • Suits big firms with large and efficient production facilities, benefiting from economies of scale
• Differentiation strategy


  • Requires a product with unique attributes which consumers value
  • Allows businesses to charge premium prices
• Businesses that benefit from differentiation


  • Innovative
  • Have strong branding
  • Offer quality products
• Focus strategy


  • Concentrates on niche market segments to achieve either cost advantage or differentiation
  • Suits firms with fewer resources who can target markets with specific needs
  • Firm usually has loyal customers, making it very hard for other firms to compete