Choosing an Appropriate Market (AQA A Level Business): Revision Note

Choosing strategic direction

• Strategic direction is the long-term path a business chooses to follow to achieve its objectives and fulfil its vision

  • It sets out where the company wants to go and the steps it will take to get there

Why clear strategic direction matters

• Guides decision-making

  • When everyone knows the way in which the business is moving, it is easier to choose the right projects and make the right investment

• Aligns the team

  • A clear direction helps staff understand priorities and work together towards the same goals

• Focuses resources

  • It ensures money, people and time are used on activities that move the business forward, not on distractions

• Measures progress

  • With a defined path, managers can track progress and adjust plans if things aren’t working as expected

Factors that determine strategic direction

1. Leadership and management style

   • The experience, vision and attitude to risk of the senior team influence whether a company aims for rapid growth, cautious expansion or innovation leadership

2. Financial resources

   • The amount of cash a business has and its access to credit determine how big or fast a business can invest in new facilities, technology or staff

3. Organisational culture and values

   • A company’s shared beliefs, such as a focus on teamwork, customer service or ethical practice, guide choices about new markets, partnerships and ways of working

4. Technological Capabilities

   • The skills, systems and digital tools a firm already has, or can build, affect whether it can pursue strategies based on, for example, automation or online services

Ansoff's matrix

• Ansoff’s Matrix is a tool for businesses who want to grow quickly and have a growth objective

• It is used to identify an appropriate strategic direction and identify the level of risk associated with the chosen strategy

• The model considers four elements, which are broken down into two categories

  • The market - existing and new markets

  • The product - existing and new products

Ansoff's strategic matrix

Market penetration

• The least risky strategy to achieve growth is to pursue a strategy of market penetration 

  • This involves selling more products to existing customers by encouraging

    • More regular use of the product

    • Increased usage of the product

    • Brand loyalty of customers

Market development

• Market development involves finding and exploiting new market opportunities for existing products by

  • Entering new markets abroad

  • Repositioning the product by selling to different customer profiles (selling to other businesses as well as direct to consumers)

  • Seeking complementary locations

    • E.g. M&S Food has achieved significant growth since teaming up with fuel retailers such as BP and Applegreen and providing express retail outlets 

Product development

• Product Development involves selling new or improved products to existing customers by

  • Developing new versions or upgrades of existing successful products

  • Redesigning packaging and aesthetic features

  • Relaunching heritage products at commercially convenient intervals

    • E.g. Lindt relaunches Christmas-themed products each year, often with a subtle design change, to recapture the interest of customers 

Diversification 

• Diversification is the most risky growth strategy, as it involves targeting new customers with entirely new or redeveloped products

  • Examples of diversification include

    • UK supermarket Tesco launching a range of financial products, including current accounts and credit cards

    • Café chain Greggs launching a range of themed clothing products