AQA A-Level Business: Choosing strategic direction (7132) – Revision Notes

These notes condense topic 8, Choosing strategic direction, from the AQA A-level Business (7132) specification (A-level only, sections 3.8.1 and 3.8.2). Full explanations and worked examples are in the study guide. When you are ready, try the practice set, then tick items off the checklist. The course page is AQA A-level Business and the free 10-minute diagnostics show where to focus.

Topic map

• 3.8.1 Strategic direction: which markets to compete in, which products to offer. Factors, Ansoff matrix (market penetration, market development, new product development, diversification), reasons for choosing and value of each.
• 3.8.2 Strategic positioning: how to compete on benefits and price. Porter’s low cost, differentiation and focus strategies; Bowman’s strategic clock; influences on the choice; value of each; benefits of competitive advantage; difficulties of maintaining it.

One line to remember: direction is where, positioning is how.

Factors influencing markets and products

Factor	Question to ask
Market size and growth	Is there room to expand?
Competition	How strong are rivals and barriers to entry?
Resources and finance	Can the business afford the move?
Core competencies	Does it use what the business is good at?
Attitude to risk	How much uncertainty will owners accept?
Objectives	Does it fit growth, profit or survival aims?
Information	Is there research and forecasting to support it?
Portfolio	Are current products ageing or strong?

Ansoff matrix

	Existing products	New products
Existing markets	Market penetration (lowest risk)	New product development
New markets	Market development	Diversification (highest risk)

Direction	Typical methods	Value	Limit
Market penetration	Promotion, price cuts, loyalty, wider distribution	Low risk, quick, builds on existing skills	Saturation, rival retaliation
Market development	New regions, countries, segments	New sales without redesign	Unfamiliar customers, regulation, set-up cost
New product development	Research and development, product extensions	Fresh portfolio, loyalty, premium prices	High cost, may fail
Diversification	Entering unrelated or new areas	Spreads risk, opens growth	Inexperience in both product and market

Method: recommend an Ansoff direction

1. Name the box and say what the product and market are in the case.
2. Give the reason it fits (resources, objectives, market state).
3. Give the main risk or cost.
4. Compare with one alternative.
5. Judge, with a condition (for example “if cash allows”).

Quick numbers

Market share = business sales / market sales × 100. Extra contribution = extra sales × contribution margin. Net gain = extra contribution - cost of the move. Payback (years) = cost / annual extra contribution. Expected sales = sum of probability × sales.

Worked reminder: Hollin Mills (a made-up firm) has sales of £3m in a £30m market, so share is 3 / 30 = 10%. A £120,000 campaign lifting share to 11% in a flat market adds £0.3m of sales. At a 40% margin that is £120,000, so the net gain is zero in year 1 and the move only pays off if the gain lasts longer.

Porter’s generic strategies

Strategy	Scope	Means	Risk
Low cost	Broad	Lowest unit costs; price can still equal rivals’	Rivals copy cost cuts; quality may suffer
Differentiation	Broad	Unique features, brand, service; price premium	Customers may not value the difference; high costs
Focus	Narrow niche	Low cost or differentiation inside one segment	Small demand; larger firms may enter

Stuck in the middle: no cost advantage and no clear difference.

Margin comparison reminder: profit margin = profit per unit / price × 100. A higher margin does not guarantee higher total profit; volume matters. For example a £26 profit on a £60 price is 43.3%, but 1,000 sales give £26,000 while a 20% margin on £30 sold 6,000 times gives £36,000.

Bowman’s strategic clock (standard form)

Position	Price and benefits	Verdict
1	Low price, low benefits	Niche only
2	Low price, standard benefits	Price war risk
3	Hybrid: low price, higher benefits	Needs very low costs
4	Differentiation, standard price	Strong, wide appeal
5	Focused differentiation: high price, high benefits	Niche premium
6	Higher price, standard benefits	Needs market power
7	High price, low benefits	Likely to fail
8	Standard price, low benefits	Likely to fail

Compare with Porter: the clock allows hybrid strategies and shows that moving price or benefits changes the position.

Influences on, and value of, positioning

• Influences: customers’ price sensitivity, size of the market, the business’s costs and resources, competitor positions, brand strength, technology, objectives.
• Low cost: volume and resilience in price wars; may need scale economies.
• Differentiation: loyalty and pricing power; needs spending on design and promotion.
• Focus: protection from large rivals; limited growth.
• Hybrid: wins share if sustained; difficult to maintain.

Competitive advantage

• Benefits: higher share, margins or premium prices; loyalty; resilience; attracts investors and staff.
• Difficulties of maintaining: imitation; technology change; shifting tastes; rising input costs; fading patents or brand appeal; the need for constant investment; dependence on a single supplier, product or person.

Must-know distinctions

• Direction (Ansoff) versus positioning (Porter, Bowman).
• Low cost versus low price.
• Differentiation versus focus: broad versus narrow scope.
• Market development (same product, new market) versus diversification (new product and new market).
• New product development (new product, same market) versus diversification.
• Margin versus total profit.

Applying the models in a case study

Models earn credit when they explain something in the case. A short chain of analysis often works well: identify the choice, link it to a case fact, show the effect on the business, then weigh it.

1. Pick the model that matches the question. A question about where to sell points to Ansoff. A question about how to win customers points to Porter or Bowman.
2. Quote one fact or figure from the case (market share, margin, cash balance, rival behaviour).
3. Explain the consequence: for example, a low cash balance makes costly market development harder to fund.
4. Weigh it against an alternative or a limit.
5. Reach a judgement and say what it depends on.

Useful evaluation criteria for this topic are risk, cost, speed of return, fit with objectives, and how easily rivals can respond. The time period also matters: penetration may be best this year, while new product development may protect the business over five years.

Linking Ansoff and positioning

Direction and positioning interact. A business that moves into a new market (market development) must also decide how to compete there. A firm with a strong premium brand may keep a differentiation strategy abroad, or it may find overseas customers more price-sensitive and move towards a hybrid position. Diversification into a market where rivals already hold low-cost positions can be hard for a firm with no scale economies.

Worked reminder: Marrick Dairy (invented) wants to sell its premium yoghurt, priced at the high end with high perceived benefits (Bowman position 5), in a neighbouring country where shoppers buy mainly on price. This is market development. If it cuts its price to compete, its position slides towards the hybrid, and costs would have to fall to protect margins. If it keeps the premium price, it should target a narrow segment of affluent shoppers, which is a focus approach. Either way, the analysis names the Ansoff box and the positioning choice.

Quick self-test

1. Name the four Ansoff directions.
2. Which Ansoff direction is usually highest risk?
3. Sales are £5m in a £50m market. State the market share.
4. A campaign costs £90,000 and adds £200,000 of sales at a 35% contribution margin. Calculate the net gain.
5. Define differentiation as a Porter strategy.
6. What does “stuck in the middle” mean?
7. Which Bowman positions are generally seen as unsustainable?
8. Give two difficulties of maintaining a competitive advantage.
9. A £48 product costs £36 to make. Calculate the profit margin.
10. A project costing £300,000 returns £120,000 a year. Calculate payback.
11. A firm sells 8,000 units at a profit of £4 per unit under strategy A and 3,000 units at £9 under strategy B. Which gives the higher total profit?
12. Name one reason a business with weak cash flow might prefer market penetration.

Answers

1. Market penetration, market development, new product development, diversification.
2. Diversification.
3. 5 / 50 = 10%.
4. Extra contribution is 200,000 × 0.35 = £70,000. Net gain = 70,000 - 90,000 = -£20,000, a loss in year 1.
5. Making the product seem unique to customers so they accept a higher price or buy more.
6. Having neither the lowest costs nor a clear difference, so no advantage.
7. Positions 6, 7 and 8 (higher price or low benefits).
8. For example imitation by rivals and changing technology (also acceptable: shifting tastes, rising costs).
9. Profit £12; 12 / 48 = 25%.
10. 300 / 120 = 2.5 years.
11. Strategy A: £32,000. Strategy B: £27,000. A is higher.
12. It is the lowest-cost, lowest-risk direction and uses existing products and markets, so it needs less investment.

Where marks are usually lost

• Describing a model without linking it to the facts of the case.
• Calling a move “diversification” when only the product or only the market is new.
• Stating that cost leadership means charging the lowest price.
• Forgetting to subtract the cost of the strategy when calculating net gain.
• Quoting margin when the question asks for total profit, or the reverse.
• Treating Bowman positions 6 to 8 as acceptable choices.
• Evaluating with no judgement or no criterion such as risk, cost or time.
• Listing benefits of competitive advantage without saying why it might not last.
• Using the same example in both an Ansoff and a Porter answer without linking them.

Frequently asked questions

What are the four Ansoff directions? Market penetration, market development, new product development and diversification. Diversification, with a new product in a new market, is usually the highest risk.

What is the difference between strategic direction and strategic positioning? Direction is where a business competes: which markets and which products, analysed with Ansoff’s matrix. Positioning is how it competes on benefits and price, analysed with Porter’s strategies and Bowman’s clock.

What does “stuck in the middle” mean in Porter’s strategies? A business that is stuck in the middle has neither the lowest costs nor a clear difference from rivals, so it has no competitive advantage.

Which positions on Bowman’s strategic clock are unsustainable? Positions 6, 7 and 8 are generally seen as unsustainable because they combine a higher price with low benefits, so customers receive poor value.

Official syllabus

AQA AS and A-level Business specification (7131 and 7132), section 3.8 Choosing strategic direction (A-level only).