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3.8 Choosing strategic direction
Strategic direction is guided by the marketing strategy:
§ It is the general path a business takes, based on its mission and achieving its objectives
§ The strategic direction influences how a business’s strategy develops and affects all areas of the business
§ To set: which markets to compete in, what products, which direction the business should grow in
Factors influencing what markets to compete in and products to offer:
Options for strategic growth:
Ansoff matrix- 4 different strategies that a business can use to grow- set the direction for growth & strategy development
§ Trying to increase your market share in existing market using sales promotion, pricing strategies, advertising- works
best in a growth market not well in saturated markets.
§ Choice to penetrate market further, consolidate present position, withdraw from market altogether or do nothing.
Low risk strategy due to knowledge and experience
§ Less costs no R&D, research. Purpose to increase market share
§ If you plan to divest or retrenchment= penetration
Product development: new products, existing market issues: some form of market research to meet evolving needs
§ Works best when market has good growth potential/ business has high market share, strong R&D/good CA. Makes
sense if you have brand loyalty, market leader, increase cash flow, effective team= lean design- price skimming –
higher profits`
§ Product developing strategy is followed- involves substantial modifications to remain competitive
§ Useful in competitive markets product differentiation. Need R&D funding with already established customers
, Market development: existing products, new markets
§ Extend products market into new areas. Market research- costs increase, doesn’t guarantee sales, cultural issues if
moving internationally
§ Seeking new geographical territories (exploit same market segment in different country) , promoting new uses ,
entering new market segments
§ Can be done through repositioning- focuses on different segment- research, adapt product, new advertising, and
promotion. New channels of distribution
§ If core competency is product- better positioned
§ Good strategy if a firm’s core competence are related to product than to its experience with a specific market
segment
§ More risky than market penetration, not familiar with needs and wants of new markets.
§ Good if you need to overcome domestic recession
Diversification: new product, new market
§ Very risky strategy, involves moving into markets that the business may have no experience of
§ Used when a business really needs to reduce dependence on product, high profits are likely, reduced risk
§ High risk strategy requiring both product and market development and maybe outside core competences
§ Organic growth: involve a move into new but related markets- vertical or horizontal integration
§ Higher costs- r&d, market research
§ Makes sense if product is in decline stage
Ansoffs matrix is used to decide on a growth strategy:
§ A tool for comparing the level of risk involved with the different growth strategies- helps managers to decide on
a direction
§ Decision making tool for marketing planning and developing a suitable strategy
§ Useful framework for analysing a range of strategic decision in relation to risks and rewards
§ Product development is less risky than diversification –
works best for firms that already have a strong competitive
advantage
§ Market penetration- least risky- most firms opt this
Disadvantages:
§ Fails to show that market development
and diversification strategies also tend to
require significant change in the day to day
workings of the company
Advantages:
§ Oversimplifies options available for
§ Doesn’t just lay out potential strategies for growth- growth. E.g. it might be a safe option to
forces manager to think about the expected risks of diversify by moving into your suppliers
moving in a certain direction business, know there’s a guaranteed
§ It forces market planners and management to think market
about the expected risks of moving in a certain direction § Fails to show that market development
§ It lays out possible strategies for growth
and diversification strategies require a
§ Discipline: it focuses the business
§ Sets out aims and objectives change to every day running of the
§ Presentable to stakeholders business
§ Assessment of alternatives- shows opportunity cost § Only a theoretical model
§ Creates a risk aware culture § Does not take into account the activities
§ Indicates level of risk and relevant risk of external competitors
§ Paralysis by analysis
§ Plans too optimistic e.g. transferrable skills
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