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Object & Strat 3.1

Theme 3

What are Strategies? Medium to long term plans made by a business to meet its corporate objectives/Once made are difficult to reverse
Who makes strategies? Made by senior managers/Require a lot of time and money
What is a mission? A mission is the overall reason for the business’ existence./It is the main purpose of a business and therefore determines the business’ strategic position.
What is a mission statement? Written statement that states the purpose of an organisation.
Why is a mission statement important? A mission statement provides a common focus for everyone within an organisation and hence a common sense of direction.
What is a corporate aim? The long term targets and plans to fulfill the mission statement
What are corporate objectives? The medium to long term quantifiable targets to fulfill the mission statement
What is a corporate strategy? The actions to be taken by the business to achieve its objectives
What will influence the corporate strategy? (1) Corporate objectives (2) Distinctive capabilities (3) Competitive environment (4) Leaders’ attitudes to risk (5) Local, national and global economic environment
What are Kay's distinctive capabilities? (1) Architecture (relationship with suppliers, employers/customers) (2) Innovation (bringing inventions to market) and (3) Reputation (through customer experience)
Examples of Kay's distinctive capabilities? Reputation (Lush) Innovation (Sony/Apple) Architecture (First Direct Bank)
What are the four potential strategies in the Ansoff Matrix? (1) Market penetration (2) Market development (3) New product development (4) Diversification
What is market penetration? Trying to sell more of an existing product to the existing market/Low risk strategy but limited reward
What are the possible approaches to market penetration? (1) Gain market share from competitors (2) Encourage customers to buy/consume more (3) Changes to the marketing mix (4) Extension strategies
What are the issues with market penetration? (1) Competitors’ reactions (2) Relatively short term only (3) Market may already be saturated (4) Cannibalisation
What is market development? Attracting new customers to buy existing products/Risk associated with lack of knowledge of customers e.g. may be new customer type or new location
What are the possible approaches to market development? (1) Enter a new international market (2) Change promotional tactics (3) New distribution channels e.g. e-commerce
What are the issues with market development? (1) The product may not be accepted, desired or understood in a new market (2) The business may not understand the new market (3) Alienation of current customers
What is product development? (1) Selling new and better products to existing customers E.g. Cadbury relaunches Christmas-themed products each year to recapture the interest of customers (2) Risk comes from not knowing the products, high R&D costs and competitors’ reactions
What are the possible approaches to product development? (1) Launch substantially improved version of existing products (2) Introduce complementary products (3) New product innovations
What are the issues with product development? (1) Risk of cannibalisation (2) May shorten product life cycle of existing products (3) Damage to brand
What is diversification? Selling new products to new markets High risk strategy as 2 elements are unknown - the market and the product High risk but also greatest potential for reward
What are the possible approaches to diversification? (1) R&D into new products and market research into new markets (2) Acquisitions of other businesses
What are the issues with diversification? (1) Relies on heavy investment (2) Cultural differences may exist (3) Brand name may be diluted
What is Porters Strategic Matrix? A matrix that categorises the marketing strategies a business can adopt to try and achieve a competitive advantage/ Analyses low cost v. differentiation/ He believes that businesses must put their flag in one camp and remain clearly focused on this
What is cost leadership? Lowest cost and Mass market e.g. Aldi/Ryannair
When is cost leadership useful? Useful in highly competitive market where there are very similar products e.g. Poundland/Primark/Customers may frequently switch
What is focused cost leadership? Lowest costs and Niche market
When is focused cost leadership useful? Useful when the business wants to offer very low prices to a small segment/Niche marketing but at low cost
What is differentiation? Highest differentiation and Mass market
When is differentiation useful? Useful in a highly technological markets where there are rapidly changing and evolving products and services/ Where customer needs are diverse e.g. Game
What is focused differentiation? Highest differentiation and Niche market
When is focused differentiation useful? Useful when a business wants to offer products and services to a small market segment/Products and services will be differentiated and aimed at a niche market e.g. Kopi Luwak Coffee Beans
What are the problems with Porters Strategic Matrix? Not very relevant in dynamic markets/ Over simplifies the market structure/Can be possible for a store or business to offer a range of products to a range of customers and not be 'stuck in the middle' e.g. Debenhams
What is Product Portfolio Analysis? Looks at the range of products and brands that a business has under its control/This type of analysis can help a business identify where every single one of its products is positioned in the market
What are the aims of Product Portfolio Analysis? Reach a wide audience through product and market development Spread risk Objective of growth Identify and fill gaps in the market Economies of scale
What is a SWOT Analysis? A diagnostic tool used to identify the internal strengths and weaknesses and the external opportunities and threats to a business
Strengths and weaknesses are internal to the business. What functional areas can it relate to? (1) Financial performance e.g. profitability, liquidity, gearing (2) Resource management e.g. quality, stock control (3) Human resource management e.g. employer/employee relationships, workforce performance (4) Marketing e.g. brand recognition
Opportunities and threats are external to the business. What external influence can it relate to? Economic environment e.g. stable, declining, growth Political and legal environment Degree of competition Technological change Legislation Consumer trends Demographics
What is the political environment? The political environment is the government actions that impact on the strategic and functional decisions made by businesses
What can the Government do about Enterprise? The government can provide grants to businesses for specific purposes e.g. relocation The government can provide training to start up businesses in a variety of areas e.g. Financial (small business accounts) and Marketing (how to target market segments)
When are regulations used? Regulation is undertaken by government to create competitive markets. The government believes that this will protect the interests of consumers so that they are not exploited by businesses e.g. Energy
What are regulations? Regulation is the creation of rules and sanctions within an industry in order to modify the economic behaviour of firms
What are the benefits of regulations? Protecting consumers against the abuse of monopoly power that would lead to higher prices. To create an environment that will encourage businesses to strive for efficiency through reduced costs. To ensure quality and choice are maintained.
What is de-regulation? De-regulation is the opening up of markets to new competition through the removal of rules and regulations that created barriers to entry
What are the benefits of de-regulation? (1) The creation of competitive markets will lead to greater efficiency (2) Businesses will strive to reduce costs in order to compete effectively (3) Less government intervention allows firms to produce to the needs of the market
Why do Governments look to improve infrastructure? Governments will look to improve the infrastructure to help businesses operate more effectively. This will include: Transport network e.g. rail, road and air Provision of utilities e.g. Ensuring electricity, gas, water etc. are adequately supplied
What is urbanisation? A general movement of people towards cities and away from rural areas
What are the problems of urbanisation? It puts pressure on infrastructure with increased traffic congestion, demand for housing and other services such as education and health
What is migration? The movement of people between countries Net migration = relationship between migration and immigration
What are the effects of migration? Increases the supply of labour as more people come into a country seeking employment/Often willing to work for the minimum wage
Health care has been transformed with people living longer and healthier lives. How does this affect businesses? Health and fitness and healthy eating have led to increased demand for related businesses such as gyms / It has allowed for highly differentiated niche markets with specialist businesses developing new products e.g. protein products for bodybuilding
What is the Technological Environment? Technological environment describes the ongoing development of invention, innovation and sharing of technology or processes.
How has e-commerce helped consumers? It empowered consumers, providing information symmetry and greater buying power as consumers can shop around
What is e-commerce? E-commerce involves digitally enabled commercial transactions between and among organisations and individuals
What is legislation? Legislation involves creating and enacting laws in order to protect individuals, businesses and society as a whole
What is the Legal Environment? The legal environment describes the collection of legislation that impact on the activities of organisations
What is the purpose of competition law? Competition law looks to promote fair competition in markets and stop the abuse of consumers by businesses due to monopoly power.
Areas of legislation affecting businesses include......... (1) Ability of businesses to issue free carrier bags (2) Display of cigarettes (3) Living wage (4) Trading hours (5) Labelling and packaging (6) Advertising
How can Environmental Legislation reduce a businesses negative impacts on the environment? (1) Limits to emission levels to sea, rivers and air (2) Guidelines, limits and bans on waste disposal (3) Quotas on use of finite resources e.g. fishing quotas
What is the competitive environment? The competitive environment is the degree of rivalry within a market
What is incremental change? Takes place over time
What is disruptive change? Change that is rapid and unexpected having a dramatic affect on the way in which an industry or businesses operate
What are Porters Five Forces? (1) Entry threat (barriers to entry) (2) Buyer power (Customers) (3) Supplier power (Suppliers) (4) Rivalry (5) Substitute threat
What are barriers to entry? Barriers to entry are any factors that stop a firm from entering a market. Some markets will have high barriers to entry e.g. the cost of research and development in hi-tech industries.
What are examples of Barriers to Entry? (1) High costs to enter the market, especially high capital costs Economies of scale e.g. bulk buying (2) Unfair competition e.g. predatory pricing – attempting to force competitors out of a market e.g. selling products below cost price for a period
What are substitute threats in Porters Five Forces? This occurs when businesses within an industry are faced with the threat of a similar product from another industry. The threat is seen as the level of risk that the business or industry will face due to the substitute product. e.g. bicycles for cars
What is meant by Buyer Power (Customers)? Powerful customers are able to exert pressure to drive down prices, or increase the required quality for the same price, and therefore reduce profits in an industry.
If a firms supplier has bargaining power what will they do? (1) Exercise that power (2) Sell their products at a higher price (3) Squeeze industry profits
What is meant by Competitive rivalry? This looks at the degree of competition in the industry. The fewer the competitors, the more attractive a business becomes.
When do firms suppliers have the bargaining power? (1) There are only a few large suppliers (2) The resource they supply is scarce (3) The cost of switching to an alternative supplier is high (4) The product is easy to distinguish and loyal customers are reluctant to switch
What factors determine the bargaining power of customers? (1) Number of customers - Smaller the number of customers the greater their power (2) The size of their orders - The bigger the order the greater their power
What is monopolistic competition? Many businesses competing in the industry selling differentiated products
What is perfect competition? Many businesses in the industry with no influence on market price
What are the issues with Porters Five Forces? (1) Its static (2) It ignores trends in market size (3) It ignores whether the market size is expanding or declining
Businesses need to critically assess whether corporate aims continue to reflect the current corporate vision. Explain why? The content of business aims will change over time to reflect changing social attitudes e,g, Apple’s new mission statement - ‘to make the best products on earth, & to leave the world better than we found it’ - emphasises its commitment to sustainability
State why mission statements are criticised Mission statements are criticised as being no more than an exercise in PR e.g. KFC’s mission "To sell food in a fast, friendly environment that appeals to health-minded consumers" - later launched a burger with layers of deep-fried chicken
Businesses need to critically assess whether corporate aims and mission statements continue to reflect the current corporate vision. Explain why? Revising the business aim and revisiting the mission statement should be seen as a natural step for growing businesses. It is a chance to involve a variety of stakeholders including workers and suppliers in determining the direction of the business
Define Ansoffs Matrix Ansoff’s Matrix is a tool for businesses with a growth objective. It is used to identify an appropriate corporate strategy and identify the level of risk associated with the chosen strategy
Define the Boston Matrix The Boston Matrix is a portfolio analysis tool that considers the relative market share of a firm's products and the rate of growth within the market in which each product is sold
Describe Stars from the Boston Matrix Stars are products sold in high-growth markets and have a high level of market share/Market Penetration Strategy is likely to be used/Possible Cash Cows
Define a Cash Cow from the Boston Matrix Cash Cows are sold in lower-growth markets and have a high market share/Cash cows generate more cash than they need to maintain their market position and can be used to fund the development of other products in the portfolio
Describe Question Marks from the Boston Matrix Question Marks are sold in high-growth markets and have a relatively low market share/Question Marks require significant investment if they are to improve their level of market share and become Stars
Define a dog from the Boston Matrix Dogs are sold in low-growth markets and have a relatively low market share/Dogs have little potential for future growth and should be divested so that finance and effort may be invested in other products
Define Distinctive Capability When a business has a particular strength that is very difficult for competitors to copy, it has a distinctive capability
Created by: durquhart1
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