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Syllabus C. Strategy C5. Strategic Choices

C5e. Ansoff matrix

Strategic Choice

Ok so we've looked at the environment - and called this strategic position (or strategic analysis).

This will almost always Question 1 part a)

Now our attention turns to Strategic Choice

This will tend to be question 1b) or c)

So, due to our studies so far, we now understand our environment and our SWOT.

So what should we do now - what options do we have that maximise our strengths & opportunities and minimise our weaknesses and threats?

In the exam something will probably be going wrong, or things are happening in the environment that mean we need to change somehow

Now this causes us a problem. 

In Question 1a) we will have been looking at the environment USING THE CASE given to us - and just slotting the info into maybe PESTEL or 5 FORCES and saying why they are important

Here, though things are completely different - the examiner is now saying SUGGEST a strategic option - which means you need to think of something yourselves (eek!)

Well before you run off and hide in the corner, I have some good news for you..

Ansoff  has created a really useful model to help you in the exam.....

So to grow, the company must:

  1. sell more in its existing markets (try to make its existing markets bigger)

  2. sell new products in its existing markets

  3. sell existing products in new markets or new market segments (for example in other countries)

  4. sell new products in new markets

These are strategic directions that Ansoff described in his growth sector matrix above

Although you won't have to do all of these in the exam (often you don't need any model at all), I thought I'd show you how useful Ansoff is by showing where all the other models in this section fit into it..

    1. Market Penetration

      A sensible choice in a growing market. This would mean a bigger potential demand as time goes by.

      Equally, not so good in a declining / mature market 

      How to do it

      • Persuade existing customers to buy more, through more use and marketing

      • Persuade customers who have not bought your product before to buy it now. 

        Maybe by advertising or special promotional offers.

      • Persuade customers to switch from competitors. 

        (notice how 1 and 2 increase total demand whereas 3 just takes a bigger share)

    2. Market Development

      How to do it

      • Start selling in new geographical markets (through regional, national or international expansion).

      • Offer slightly differentiated versions of existing products, or by making them available through different distribution channels.

    3. Product Development

      Why choose this strategy?

      • You have a strong brand and can extend the goodwill to new products.

      • You have a strong research and development department or a strong product design team.

      • To respond to a new product by a major competitor

      • To respond to changing customer needs / tastes or just making use of new technologies now available

    4. Diversification

      • Concentric diversification

        (also called related or horizontal diversification), means that the new product-market area is related in some way to the entity’s existing products and markets

      • Conglomerate diversification

        which means that the new product-market area is not related in any way to the entity’s existing products and markets.

        These could both be achieved by (most likely) acquiring existing companies abroad or at least entering into JVs and franchises etc or it could also be done by simple organic growth - though this would be far harder and slower (though the returns may be greater)