8 - Choosing strategic direction (The value of different strategic…
8 - Choosing strategic direction
Strategic direction refers to a course of action or plan that is hoped will lead to the achievement of long-term goals.
Factors influencing which markets compete in and which products to offer
When an organisation undertakes a
, it examines the
internal strengths and weaknesses
This analysis can be used in
choosing the organisation's strategic direction
, seeking to build on its
develop any opportunities
Alternatively, it may wish to
address any weaknesses or threats
. The choice of strategic direction can be further analysed using the
The Ansoff Matrix
strategic or marketing planning tool that links a business's marketing strategy with its general strategic direction.
The matrix identifies four strategies...
: involves finding new markets for existing products using market research and segmentation to identify new groups of customers.
New product development
: involves producing new products for existing markets.
: increased market share in existing markets achieved by selling more products to either existing or new customers.
: the most risky strategy, involving new products in new areas.
Link to the Ansoff matrix:
Factors impacting the choice of strategic direction...
Barriers to entry.
: organisations will seek
to enable them to
stay ahead of competitors
, although sometimes they'll need to be
responding to competitors.
available is likely to have an impact on strategic direction, which will be
in relation to the
process by which a business can be analysed, where benefits and costs are quantified and then the costs subtracted from the benefits.
corporate social responsibility
, the ethics involved may be an
Objectives and attitude to risk
: some businesses may be
strategies that are
what they know
rather than adopting a
more risky strategy
that offers fast growth.
The reasons for choosing and the value of different options for strategic direction
Market penetration (existing products in existing markets)
It can be
in terms of the
developing new products
investigating and analysing unfamiliar markets.
require potential for growth
within the market, otherwise if the market is
may be needed to
away from competitors.
Market development (existing products in new markets)
Good strategy for a business
and the business remains f
ocused on its core function
to new markets
markets being accessible
and could be
New product development (new products in existing markets)
Good for an organisation with a
strong brand name
e.g. Virgin Media.
and also if there is
of the market to be
However, may involve
producing and selling
products that it has
with, and where they
may be already established.
Diversification (new products in new markets)
e.g. an alcoholic drinks business moving into soft drinks
(no previous industry experience).
May be chosen if the
industry is in
or has become
for a business and
However, it involves
as a business is
in which it has
How to compete in terms of benefits and price
Porter's generic strategies
describe how a business might pursue competitive advantage across its market using a low-cost, differentiation or focus strategy.
The three strategies...
: involves making products
. Methods may be through
quality, durability, functionality, customer service, or a brand image that's valued by customers
research and development
sales and marketing.
: an organisation
focuses on a particular niche
in the market. However, within that, it is
how to achieve a competitive advantage
and whether a
strategy will be chosen.
: not just having
being the leader
in terms of cost in your industry. To pursue this strategy, an organisation
needs to be confident
maintain its leadership
. It must have a
sustainable low-cost base
access to capital
invest in technology
further reduce costs
Link to porter's generic strategies:
Bowman's strategic clock
model used to explore strategic positioning in order to arrive at the most competitive position in the market.
eight strategic positions
varying levels of price and value
, as well as identifying the
likelihood of success
of each strategy.
Eight positions on the clock...
: offers customers
high perceived value
is important as it
enable higher prices
to be charged,
e.g. Nike, BMW.
high perceived value and price,
such as where markets are
margins are high
, as with designer products,
e.g. Gucci, Armani and Rolex.
Hybrid (moderate price/moderate differentiation)
: offers products at a
higher perceived value
and gains a
Increased price/standard product
: this can only be
premium price cannot be justified
will not survive
: companies operating here are
e.g. Aldi and Lidl
High price/low value
: a classic monopoly position that fortunately for consumers is
unlikely to exist in a market economy.
Low price/low added value
: offers bargain basement - not popular as there is a
lack of differentiated value
is only achieved by
selling high volume
Low value/standard price
: involves a
business losing sales.
Link to bowman's strategic clock:
Strategic positioning of a business relates to how that business is perceived relative to other businesses in the same industry.
Influences on the choice of a positioning strategy
strengths and weaknesses of the competitors
of their value brand and quality may influence positioning.
: relates to
and may be analysed in terms of
existing and potential customers
The business itself
: relating to the
of the business and its
, what it is good at, what it is known for and where it wishes to go.
The value of different strategic positioning strategies
Although the model produced by
, it gives an
insight into the possibilities
available to a business in terms of
little used by businesses
today, it enables students to more easily understand positioning.
Porter's generic strategies
low cost versus differentiation
easier to use
and may provide a
into the business world.
positioning strategies has some
message from both models
is that any business needs to
treat positioning seriously
, ensuring that the strategy chosen
fits clearly with its mission
how customers perceive
the organisation and their
of a product or service is
to the generation of
The benefits of having a competitive advantage
is gained by an organisation when it
provides the same value as its competitors
but at a
charges a higher price
than competitors due to
: achieved through higher volume in a cost leadership strategy or from higher margins in a differentiation strategy.
: should be greater from having a competitive advantage.
However, these benefits are
dependent on having a competitive advantage
not easy for competitors to duplicate or beat
- it needs to be
The difficulties of maintaining a competitive advantage
Developments in technology