3.8 Choosing strategic direction

• Strategic direction

  Choosing which markets to compete in and what products to offer

  
• Strategy

  A long-term plan of how a business sets out to achieve its aims and objectives
• Choosing strategic direction

  1. Decide what direction the business would like to move

  2. Set out a plan to achieve it
• The strategic direction a business chooses determines the products it sells and the markets it operates in

  
• Most firms operate in dynamic markets with changing internal and external factors. This constant change will require the firm's strategic direction to constantly be assessed and changed when necessary

  
• Ansoff's Matrix

  A marketing planning model that helps a business determine its product and market strategy

  
• Market penetration

  A growth strategy where the business focuses on selling existing products into existing markets
• Objectives of market penetration

  • Maintain or increase the market share of current products
  • Secure dominance of growth markets
  • Restructure a mature market by driving out competitors
  • Increase usage by existing customers
• A market penetration marketing strategy is very much about "business as usual". The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
• Market development

  A growth strategy where the business seeks to sell its existing products into new markets
• Approaches to market development

  • New geographical markets
  • New product dimensions or packaging
  • New distribution channels
  • Different pricing policies to attract different customers or create new market segments

  
• Market development is a more risky strategy than market penetration because of the targeting of new markets
• Product development

  A growth strategy where a business aims to introduce new products into existing markets
• Factors important for a successful product development strategy

  • Research & development and innovation
  • Detailed insights into customer needs (and how they change)
  • Being first to market
• Diversification

  The growth strategy where a business markets new products in new markets
• Diversification is an inherently more risk strategy because the business is moving into markets in which it has little or no experience
• Factors impacting the choice of strategic direction

  • The level of risk involved, including the management and owner's attitude to risk
  • The level of shareholder support
  • The impact on the existing brand image and customer reaction
  • The existing employee reactions
  • Existing strengths, assets and skills and their fit with the new direction
  • Availability of staff, skills, assets and investment
  • Costs of pursuing the strategy and the firm's financial position
  • The likely returns in sales and profit
  • The opportunity costs
  • CSR and ethical factors
  • Any potential government intervention
• Porter's Generic Five Forces

  Strategies that could be adopted in order to gain competitive advantage
• Cost leadership

  The objective is to become the lowest-cost producer in the industry
• Characteristics of a cost leadership strategy

  • Produce on a large scales as this enables businesses to exploit economies of scale
  • Associated with large scale firms offering standard products with relatively little differentiation that are readily acceptable to the customers
  • Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share
  • High levels of productivity
  • High capacity utilisation
  • Use of bargaining power to negotiate the lowest prices for production inputs
  • Lean production methods (e.g. JIT)
  • Effective use of technology in the production process
  • Access to the most effective distribution channels
• Cost focus

  Businesses seek a lower-cost advantage in just one or a small number of market segments
• Differentiation focus

  Businesses aim to differentiate within just one or a small number of target market segments
• Differentiation leadership

  Businesses targets much larger markets and aims to achieve competitive advantage through differentiation across the whole of an industry
• Methods to achieve differentiation leadership

  • Superior product quality (features, benefits, durability, reliability)
  • Branding (strong customer recognition & desire; brand loyalty)
  • Industry-wide distribution across all major channels (i.e. the product or brand is an essential item to be stocked by retailers)
  • Consistent promotional support – often dominated by advertising, sponsorship etc

  
• Bowman's Clock Strategy

  A model that explores the options for strategic positioning (ie how a product should be positioned to give it the most competitive position in the market)
• Low price and low value added

  Not a very competitive position, the product is not differentiated (very standardised) and the customer perceives very little value, despite a low price
• Low price

  Low cost leaders in the market, cost minimisation is needed, often associated with economies of scale
• Hybrid

  Elements of low price and differentiation, the aim is to persuade consumers that there is a good added value through the combination of a reasonable price and acceptable product differentiation
• Differentiation

  The aim is to offer customers the highest level of perceived added value, branding plays a key role in this strategy, as does the quality of the good
• Focused differentiation

  Customers buy the product because of a high perceived value with a higher price, adopted by luxury brands, who aim to achieve premium prices by highly targeted segmentation, promotion, and distribution
• Risky high margins

  A high risk positioning strategy with high prices without offering anything extra in terms of perceived value
• Monopoly pricing

  Only one business offering the product, the monopolist doesn't need to be too concerned about that value the customer perceives in the product
• Loss of market share

  Setting a middle range or standard price for a product with low perceived value is unlikely to win over many customers
• Influences on the choice of positioning strategy

  • Competitors
  • Core competencies
  • External environment
• Competitive Advantage

  An advantage over competitors gained by offering consumers greater value, either by providing lower prices or by providing greater benefits and service that justifies higher prices
• It distinguishes a company from its competitors, contributes to higher prices, more customers, and brand loyalty, and remains one of the main goals of any firm
• To build a sustainable differentiation strategy, firms need to build their reputation around those distinctive characteristics and make their expertise exceptionally visible to your target audience
• The difficulties of maintaining a competitive advantage include it can be hard to maintain your target audience when tastes and fashions are constantly changing and customers are always wanting something different, and many competitors will always try to outdo you and bring out new product ranges and decrease prices even further