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Business strategies - Coggle Diagram
Business strategies
Business strategies
Defensive strategies are used when the business experiences financial distress and want to avoid the closing down of the business.
Divestiture occurs when the business sells some of its more fixed assets to increase cash flow and pay off some of its debts.
Divestment refers to a business selling its ownership/liquid assets, to downscale and make the business more manageable.
Retrenchment refers to letting go employees, to downsize, restructure, or discontinue a business function. Reducing staff increases the amount of funds available to businesses, to pay off their debts.
Liquidation occurs when businesses sell whatever assets they have left, with the aim of closing down and paying off any debts owed.
Diversification strategies focus on expanding a business's operations into a new market. This strategy is used to increase their competitive advantage and prevent industry downturn.
Horizontal diversification occurs when the business introduces new products unrelated to existing products, which are produced using new technology. These new products will appeal to a new market.
Should be used when:
-customers are loyal.
-new products are of high quality.
-new products follow a good pricing strategy.
Conglomerate diversification occurs when the business adds multiple new products that are unrelated to the existing market but appeal to new customers. These multiple new products appeal to multiple different customers. This strategy is used to expand the business and increase its profitability,
Concentric diversification occurs when new products related to existing products are introduced to the market and produced using the same infrastructure and technology. The aim is to appeal to new customers.
Impact:
-increase in market share.
-improved business image.
-a retained competitive advantage.
-customer loyalty.
Intensive strategies
Market development refers to a business introducing an existing product to a new market, to expand the business's operations.
Products are priced differently and may require investment, and research into sources of distributing the product.
Product development refers to introducing a new product into an existing market. This is only done when a business has successfully identified a gap in the market. This process may be expensive because additional skills need to be aquired.
Steps:
-Brainstorm ideas.
-Select the best idea.
-Design and test the product.
-Determine profit margins.
-Test the actual product.
-Test the acceptability of the product in the market.
Market penetration occurs when existing products are sold to an existing market to increase their market share.
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Impact:
-known products are marketed.
-Customer's needs are known, and the business knows competitors.
-doesn't require loads of investment.
Impact of intensive strategies:
-The business increases its market share.
-Power over prices of products increases.
-Customer satisfaction and loyalty is enhanced.
Integration strategies:
Horizontal integration occurs when businesses take over other businesses in the same industry or that sell similar products. This is to reduce the amount of competitors in the market and increase their market share.
Impact:
-Reduces the threat of substitute products.
-obtains more power in the market environment.
-retrenchments could occur.
-not easy to take over the business and make it successful.
-Consumers face decreased options but increased prices.
Vertical integration:
-Forward vertical integration occurs when businesses take control over other businesses down the supply chain.
-Backward vertical integration occurs when businesses take over their suppliers to decrease their reliance on suppliers.
Impact:
-A good strategy to deal with shortages.
-The business can gain control over quality and delivery.
-reduces the threat of substitutes.
-Internal infrastructure and organization may change.
-Businesses can monopolize the market.
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Business strategies refer to long-term plans generated to achieve a goal, to the benefit of the business.
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A PESTLE analysis is an industrial tool used to identify the challenges and opportunities in the macro environment.
Social factors:
-Unemployment levels increase prices. Businesses can increase employment opportunities or lower prices.
-A language barrier makes it difficult for businesses to operate. Employ an interpreter.
-Improve security to decrease crime rates.
Technological factors:
-Research technological innovations to stay up-to-date.
-Train employees to operate machinery.
-Acqiure funds and research affordable technology
Economic factors:
-High inflation rates affect the product costs. Businesses could consider decreasing profits.
-take out loans when interest rates are favorable.
-trade with countries that have affordable exchange rates.
Legal factors:
-Comply with all laws to avoid penalties.
-If compliance with laws is time-consuming, plan beforehand.
-Budget accordingly for high legal costs.
Political factors:
-research government policies so they do not affect the business.
-be aware of countries with favorable trade agreements.
-be aware of any policies that could affect the operations of the business.
Environmental factors:
-Label products to ensure no harmful chemicals are present.
-Use cost-effective clean disposal methods.
-Use recyclable materials.
Porter's five forces is a model used by businesses, who have influence on their competitiveness, in the market environment.
The power of buyers:
-Buyers are powerful if there are a few of them, they purchase in bulk, and there is a wide range of suppliers.
-constantly research buyers.
-determine the number and importance of each buyer.
The threat of substitute products:
-This exists when the demand for a particular product is influenced by the price of an alternative product.
-be aware of competitors and substitutes.
-be aware of improvements to substitutes.
-provide unique goods and services.
-research what products buyers use.
Supplier power:
-Supplies have power when they are few or provide unique resources, and are demanded by many businesses.
-Monitor the quality and efficiency of resources provided by suppliers.
-conduct research into alternate suppliers.
Competitive rivalry:
-The more competition, the less power businesses shave over the market.
-Identify competitors and determine their strengths and weaknesses.
-Monitor competitors because they may set off price wars.
The threat of new entrants:
-Low barriers make it easy for new businesses to enter the market. Identify and Improve those barriers to prevent new entrants.
-High profits attract competitors. More competition decreases the power of the business.
Business environment
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The macroenvironment cannot be influenced by businesses, but can be prepared for
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