OxfordAQA A-Level Business: Strategic options: choosing which markets to compete in and what products to offer (9725) – Revision Notes

These notes condense section 3.4.1 Strategic options: choosing which markets to compete in and what products to offer, in the OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Every point here is International A-level only, tested in Unit 4: Business strategy. Students completing the older 9625 specification should revise from their own specification. Longer explanations and case examples are in the study guide.

Practise: practice questions · Course page: OxfordAQA A-level Business · Checklist: printable 9725 list · SWOT data: 3.3.1 recall sheet · Diagnose gaps: free diagnostics

3.4.1 at a glance

Content	Must be able to
Strategy	Define it; explain its significance; state the four features of a strategic decision
SWOT and strategy	Calculate and interpret the 3.3.1 data, then use it to favour or reject a strategy
Strategy and functions	Explain how strategy drives functional objectives and decisions, and how functions limit strategy
Ansoff matrix	Classify options; assess the value of each of the four strategies
Functional implications	Apply each strategy to marketing, operations, HR and finance
Changing strategy	Explain reasons for change and the challenges it brings

Key definitions

• 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.
• Strategic decision: a decision that is difficult to reverse, high risk, involves significant resources and is usually one-off.
• SWOT analysis: strengths and weaknesses (internal, present) plus opportunities and threats (external, future).
• Functional decisions: choices made within marketing, operations, HR and finance to deliver the strategy.
• Ansoff matrix: a grid of four growth strategies defined by existing or new products and existing or new markets.
• Market penetration: more sales of existing products in existing markets.
• Market development: existing products in new markets (new places or new segments).
• Product development: new products for existing markets.
• Diversification: new products in new markets.

Significance of a strategy (four quick points)

1. Gives a common direction for every function.
2. Guides allocation of scarce resources.
3. Provides a benchmark for judging later decisions.
4. Builds on strengths and opportunities, raising the chance of meeting objectives.

The Ansoff matrix

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

Value of each, in one line each side:

Strategy	For	Against
Market penetration	Cheap, uses known products and customers	Limited by market size; rivals retaliate
Market development	New sales for proven products; spreads market risk	Unfamiliar customers, laws and competitors
Product development	Uses brand and customer knowledge	R&D cost; new products often fail; may cannibalise sales
Diversification	Spreads risk; access to new growth	No product or market knowledge; biggest outlay

Assessing value: what the right choice depends on

An “assess the value” answer weighs the option against the case, not against the textbook. Check:

• Objectives: rapid growth may justify more risk; survival or stable profit favours penetration.
• Market conditions: a saturated or shrinking home market weakens the case for penetration.
• Resources: spare capacity, cash, low gearing and relevant skills make development options realistic.
• Competitor response: strong rivals may match price cuts or copy new products quickly.
• Return against risk: a bigger expected gain can justify a riskier box if failure would not sink the business.

Worked reminder. A regional ice-cream maker has a loyal customer base, little cash and a stable market. Product development (new flavours for existing stockists) uses its brand at modest cost; diversification would need finance it does not have.

Method in steps: using SWOT to choose a strategy

1. Calculate the data given (margins, capacity utilisation, market share and growth, gearing, productivity, labour turnover).
2. Compare each figure with a benchmark (industry average, last year, target).
3. Classify each as a strength, weakness, opportunity or threat. Internal figures are S or W; market and environment trends are O or T.
4. Match: favour strategies that use strengths to take opportunities; reject ones that expose weaknesses to threats.
5. Judge: name the strategy the evidence supports and the main limitation (snapshot data, unweighted factors, missing information).

Worked reminder. A firm runs at 64% capacity utilisation, has gearing of 22% and faces a shrinking home market. Spare capacity plus borrowing headroom against a falling home market points away from penetration and towards market development, if a growing market elsewhere can be found.

Method in steps: functional implications

For any named strategy, take each function in turn and write action → consequence:

• Marketing: research, promotion, pricing, distribution → cost and time before sales arrive.
• Operations: capacity, new processes, suppliers, quality → disruption, investment, unit cost changes.
• HR: recruitment, training, new skills, workforce planning → cost, resistance, time to become productive.
• Finance: funding, budgets, cash flow, currency → borrowing raises gearing; returns arrive later than costs.

Strategy and functions: the chain

Mission → corporate objectives → strategy → functional objectives → functional decisions

Two-way link: functions deliver the strategy, but their limits (cash, skills, capacity) decide which strategies are realistic.

Reasons for, and challenges of, changing strategy

Reasons	Challenges
New competitors or technology	Cost and time before results
Falling demand or a saturated market	Staff resistance and fear of change
New leaders or new objectives	Contracts, assets and stock tied to the old plan
Poor results under the current strategy	Culture and skills may not fit
Changes in the economy or law	Loss of confidence among investors, lenders, customers
New finance or resources available	The new strategy is itself uncertain

Must-know distinctions

• Strategy vs tactic: long-term direction vs short-term action.
• Strategic vs tactical decision: hard to reverse, high risk, large resources, one-off vs the reverse.
• Market development vs product development: the thing that is new is the market in one, the product in the other.
• Product development vs diversification: diversification also involves a new market.
• New segment vs new customers: selling to a new segment is market development; winning more customers in the same segment is penetration.
• Strengths/weaknesses vs opportunities/threats: internal and controllable vs external and outside the firm’s control.

Quick self-test

1. State the four features of a strategic decision.
2. A fruit-juice maker starts selling its current range in a neighbouring country. Which Ansoff strategy is this?
3. A mobile network offers home broadband to its existing mobile customers. Which strategy?
4. A coach company opens a hotel. Which strategy?
5. Hawksmere Bakery produces 4,600 trays a week; its capacity is 5,750 trays. Calculate capacity utilisation.
6. A penetration campaign would add 690 trays a week at Hawksmere. Calculate the new capacity utilisation.
7. Halvane Foods has sales of £2.73 million in a market worth £42 million. Calculate its market share.
8. A firm has non-current liabilities of £2.7 million and total equity of £8.1 million. Calculate gearing.
9. A market grows from £92 million to £96.6 million. Calculate the growth rate.
10. Distinguish between a strategy and a tactic.
11. Give two reasons why a business might change its strategy.
12. Explain why diversification is usually the highest-risk Ansoff strategy.

Answers

1. Difficult to reverse; high risk; involves significant resources; usually one-off.
2. Market development.
3. Product development.
4. Diversification.
5. 4,600 ÷ 5,750 × 100 = 80%.
6. (4,600 + 690) ÷ 5,750 × 100 = 92%.
7. 2.73 ÷ 42 × 100 = 6.5%.
8. 2.7 ÷ (2.7 + 8.1) × 100 = 2.7 ÷ 10.8 × 100 = 25%.
9. (96.6 − 92) ÷ 92 × 100 = 5%.
10. A strategy is a long-term plan to reach objectives; a tactic is a short-term action that helps carry it out.
11. Any two: new competition; falling demand or saturated market; new technology; new leadership or objectives; poor results; change in economy or law.
12. The business has no experience of either the product or the market, so it lacks knowledge, skills and customers, and usually needs the largest investment.

Where marks are usually lost

• Calling a price promotion or advert a “strategy” when it is a tactic.
• Placing a new customer segment in the same country under penetration instead of market development.
• Describing all four Ansoff boxes when the question asks you to assess one.
• Stating that market penetration is “risk-free”: rivals can still retaliate and the market may be saturated.
• Using SWOT labels with no figure, no comparison and no link to a strategy.
• Classifying a falling market as a weakness when it is an external threat.
• Writing functional implications that would apply to any strategy rather than the one named.
• Omitting non-current liabilities from capital employed when calculating gearing.
• Listing reasons for changing strategy without saying why they apply to the case business.
• Ending an evaluation without saying which strategy is best and what it depends on.

Official syllabus

OxfordAQA International AS and A-level Business (9725) specification, Version 1.1, for International AS exams May/June 2027 onwards and International A-level exams May/June 2028 onwards. Published by OxfordAQA.