8.1 - Choosing areas of Competition

• 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 are the choices of which markets to compete in, what products to offer and which direction the business should grow in
• Marketing strategy


  Decides on markets and products
• 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
• Strategic growth


  Different options for how a business can grow
• Igor Ansoff


  Came up with four different strategies that a business can use to grow
• Market penetration


  1. Trying to increase your market share in your existing market

  2. Using sales promotions, pricing strategies and advertising

  3. Works best in a growth market

  4. Doesn't work well in saturated markets
• New product development


  1. Selling new products in your existing markets

  2. Best when market has good growth potential

  3. Business has high market share, strong R&D and a good competitive advantage
• Market development (or market extension)


  1. Selling existing products to new markets

  2. Can be done through repositioning - focusing on a different segment of the market

  3. Need to research the target market segment and adapt product or promotion

  4. Can also target new market segments by using new channels of distribution
• Diversification


  1. Selling new products to new markets

  2. Very risky strategy

  3. Used when business needs to reduce dependence on limited product range

  4. Used if high profits are likely, which reduces the risk
• 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
• 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
  • This was the first American fast food chain to open in the UK
  • There are now over 750 outlets across the UK and Ireland
  • These outlets were 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