Selecting Market Strategies-Chapter 9
- Created by: Emma Boyle
- Created on: 02-01-15 18:39
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- Selecting Marketing Strategies-Chapter 9
- Differentiation vs. Cost Leadership
- Every business strategy needs a find a basis for competitive advantage. This means that business strategy must involve the analysis of Porter's five competitive forces.
- Five forces analysis considers:
- New Entrants
- Substitute products
- Power of buyers and sellers
- The level of competition between firms
- Five forces analysis considers:
- Every business strategy needs a find a basis for competitive advantage. This means that business strategy must involve the analysis of Porter's five competitive forces.
- Cost Leadership
- By pursuing a strategy of cost leadership, a firms sets out to become the lowest-cost producer in its industry
- It produces on a large scale and gaining economies of scale
- Its products will tend to be standard and mass produced
- Key to success with cost leadership-achieve low costs and set prices close to industry average
- Problems with Cost Leadership
- This strategy occurs if customers perceive the quality/value of products to be lower than competitors
- Reduction in quality may lead to a forced reduction in prices, thus profit
- If competitors lower their costs to match the firm's level, cost leadership will be lost
- Differentiation
- In order to compete in the mass market, a firm needs to make sure that its product is different from competitors
- If the consumers value this difference, it will benefit the firm in two ways:
- Increased sales volume
- Greater scope of charging s higher price
- Differentiation can be based on a number of characteristics such as:
- Superior performance
- Product durability
- After-sales service
- Design, branding and packaging to improve the attractiveness of a product
- Clever promotional and advertising campaigns to boost brand image and sales
- Different distribution methods
- Pursuing a policy of differentiation can add value by creating a USP. This may be real, such as a different design or different components, or it may be based on image and branding
- Ansoff Matrix
- The matrix shows the degree of risk involved in different business strategies
- Market Penetration
- Market Penetration is keeping an existing product in an existing market
- Safest and most common strategy
- May involve finding new customers
- Could increase use among existing customers
- Product Development
- Product Development is a new product in an existing market
- Boosting share of existing market with new products
- Quite high risk as many new products fail
- Could target competitors strengths
- Develop new niches e.g. Side-stepping the competition
- Market Development
- Market Development is an existing product in a new market
- Quite high risk due to lack of new knowledge
- Quite high risk as you may lack market knowledge
- They have the option of repositioning your product or move abroad
- Diversification
- Diversification is a new product in a new market
- Could spread risk but could be high risk
- Factors influencing business strategy
- Management objectives and corporate objectives
- Risk and management attitude to risk
- Ltd or Plc
- Financial situation of company
- Culture of company e.g. flexibility to change
- Entering International Markets
- Exporting
- Business manufacturers in its own country then sells goods overseas. However, control of marketing may be passed to an agent/retailer overseas
- Setting up a base overseas
- Setting up a factory in a new country e.g. Nissan in the UK, avoids tariff barriers
- Joint Ventures
- Working in partnership with another company who may have more local knowledge overseas e.g. apple working with China mobile in China to ensure wide distribution
- Franchising
- Ensures rapid growth without risking finance as the franchisee pays to use the brand format
- Licensing
- Applies to manufacturing where a royalty is given to the parent company by the licensee
- Benefits of International Marketing
- Wider target market resulting in sales growth
- Profit Growth
- Economies of Scale
- Spreading risk
- Risks of International Marketing
- Culture differences e.g. Tesco's setting up in China
- Legislation and regulation
- Economic issues e.g. exchange rates
- Ethical issues e.g. use of sweat shops
- Exporting
- Assessing the effectiveness of marketing strategies
- We assess the effectiveness of a marketing strategy in two ways: Market Share and Sales Revenue
- Reasons why a marketing strategy might fail to meet its sales objectives
- Not enough money spent on the marketing of the product
- Other cheaper competition in the market
- Unrealistic objectives
- Poor product
- Economic state of country
- Changes in views of health of the public
- Differentiation vs. Cost Leadership
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