Strategic options: choosing which markets to compete in and what products to offer (A Level) flashcards

Topic 11: Strategic options: choosing which markets to compete in and what products to offer

Strategy vs tactic

Strategy: a long-term plan for how a business will achieve its objectives, including which markets it competes in and what products it offers. Tactic: a short-term action that helps carry out a strategy (a price promotion or an advert).

The four features of a strategic decision

Difficult to reverse, high risk, involves significant resources, and usually one-off.

The Ansoff matrix

Existing products, existing markets: market penetration (lowest risk). Existing products, new markets: market development. New products, existing markets: product development. New products, new markets: diversification (highest risk).

A business sells its current products to a new customer segment in its home country. Which Ansoff strategy is this?

Market development: a new segment is a new market. Winning more customers in the same segment would be market penetration.

Why is diversification usually the highest-risk Ansoff strategy?

The business has no experience of either the product or the market, so it lacks knowledge, skills and customers, and it usually needs the largest investment. It does spread risk across markets.

Market penetration and product development: one for and one against each

Market penetration: cheap, uses known products and customers; but limited by market size and rivals retaliate. Product development: uses brand and customer knowledge; but R&D cost, new products often fail and may cannibalise sales.

What does the right Ansoff choice depend on?

Objectives (rapid growth may justify more risk), market conditions (a saturated market weakens penetration), resources (spare capacity, cash, low gearing, skills), competitor response, and return against risk.

Using SWOT data to choose a strategy

Calculate the data, compare each figure with a benchmark, classify it (internal figures are S or W; market and environment trends are O or T), favour strategies that use strengths to take opportunities, then judge and state the main limitation.

The chain from mission to functional decisions

Mission → corporate objectives → strategy → functional objectives → functional decisions. Functions deliver the strategy, but their limits (cash, skills, capacity) decide which strategies are realistic.

Reasons for and challenges of changing strategy

Reasons: new competitors or technology, falling demand, new leaders or objectives, poor results, changes in the economy or law. Challenges: cost and time, staff resistance, contracts and assets tied to the old plan, culture and skills may not fit, loss of confidence.