6.3. Strategic choice Flashcards
Define Ansoff matrix
a model used to show the degree of risk associated with the four growth strategies of: market penetration, market development, product development and diversification
Define market penetration
achieving higher market shares in existing markets with existing products
(existing-existing)
What does market penetration serve to achieve?
- Maintain or increase the market share of current products - this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling.
- Secure dominance of growth markets.
- Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors.
- Increase usage by existing customers. For example by introducing loyalty schemes.
- 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.
Define product development
the development and sale of new producst or new developments of existing products in existing markets
(new-existing)
Define market development
the strategy of selling existing products in new markets
(existing-new)
How to achieve market development?
- New geographical markets; for example exporting the product to a new country
- New product dimensions or packaging: for example New distribution channels
- Different pricing policies to attract different customers or create new market segments
Define diversification
the process of selling different, unrelated goods or services in new markets
Advantages of Ansoff matrix
- It forces market planners and management to think about the expected risks of moving in a certain direction
- It lays out possible strategies for growth
- Discipline: it focuses the business
- Sets out aims and objectives
- Presentable to stakeholders
- Assessment of alternatives- shows opportunity cost
- Creates a risk aware culture
- Indicates level of risk and relevant risk
Disadvantages of Ansoff matrix
- Fails to show that market development and diversification strategies require a change to every day running of the business
- Only a theoretical model
- Does not take into account the activities of external competitors
- Paralysis by analysis
- Plans too optimistic e.g. transferrable skills
- Accurate predictions are difficult- unforeseen events
- Recommendations based on Ansoff would tend to lack depth and hard environmental evidence
Define force field analysis
technique for identifying and analysing the positive factors that support a decision (driving forces) and negative factors that constrain it (restraining forces)
How to conduct a force-field analysis?
- Analyse the current situation and the desired situation
- List all of the factors driving change towards the desired situation
- List all of the constraining factors against change towards the desired situation
- Allocate a numerical score to each force, indicating the scale or significance of each force: 1 = extremely weak and 10 = extremely strong
- Chart forces on the diagram with driving forces on left and the other on the right
- Total scores and establish from this whether the change is really viable
- Discuss how the success of the change or proposed decision can be affected by decreasing the strength of the restraining forces and increasing the driving forces
8.
Advantages of force field analysis
- On A Force Field Analysis provides a visual summary of various forces for and against a particular change, with all the information that has been collected regarding a potential decision into a single graph.
- Force Field Analysis help us identify obstacles that lie ahead so that we can make a plan to strengthen the forces supporting the decision and take actions to reduce or avoid the forces preventing it.
- A Force Field Analysis Diagram can be used as a visual aid, and it will help simplify communication among the staff and to break down communication barriers.
- A Force Field Analysis diagram can assist the group to develop a common understanding of the subject, and all the groups members will have a clear concept of the opinions and the options related to the situation.
Disadvantages of force field analysis
- Unskilled or inexperienced managers could fail to identify all of the relevant forces involved in the change process
- The allocation of numbers - subjective
Define decision tree
a diagram that sets out the options connected with a decision and the outcomes and economic returns that may result
Define expected value
the likely financial result of an outcome obtained by multiplying the probability of an event occurring by the forecast economic return if it does occur
