Unit 8

Question 1

Ansoff Matrix

Answer 1

• strategic planning tool used to plan future growth strategies.
  1. market penetration - least riskiest (same market + product)
  2. product development - (new product, same market)
  3. market development - (new market, same product)
  4. diversification - most riskiest - (new product + market)

Question 2

market penetration

Answer 2

• existing market + product = least riskiest
• may be achieved via marketing - increasing advertising

Mcdonalds

Question 3

product development

Answer 3

• developing a new product in the same market

example: organic Coca Cola

Question 4

market development

Answer 4

• growth via expansion ~ selling existing product to new market
  this may be via new distribution channels e.g. e-commerce, stores etc
  or selling to international markets

Examples: Mcdonalds , starbucks in china

Question 5

diversification

Answer 5

• producing a new product in a new market - most riskiest & most expensive.
• requires R&D and market research

Examples: Mcdonalds hotel,

Question 6

Porters 5 forces

Answer 6

1. threat of new entrants
2. bargaining power of suppliers
3. bargaining power of consumers
4. degree of rivalry
5. threat of substitute products

Question 7

Threat of new entrants

Answer 7

• how difficult it is to enter a market
  Barriers to entry:
• Economies of scale - low unit costs
• cost of entry
• product differentiation

Question 8

bargaining power of suppliers

Question 9

bargaining power of consumers

Answer 9

• price/ income elasticity of demand gives consumers more power

Question 10

degree of rivalry

Question 11

threat of substitutes

Question 12

porters generic strategies

Answer 12

• used to find a way to achieve sustainable competitive advantage over other competing products & firms in a market.

1. cost leadership - lowest cost in a mass market
2. differentiation - unique brand/product etc in a mass market

Stuck in the middle - multiple strategies but not achieving any of them

3. cost focus - being the cheapest provider in a niche market
4. differentiation focus - most unique in a niche market

Question 13

Cost leadership - competitive advantage

Answer 13

• MASS MARKET

Achieved thru:
- economies of scale
- low cost production facilities
- employing tight cost control methods
- selling basic products that solves the problem

Examples: Walmart, Southwest, Amazon, Ryanair
- all businesses that are very profitable and operate at the lowest cost in their market.

Question 14

Differentiation - competitive advantage

Answer 14

MASS MARKET
- achieved thru:
-unique product features/ branding/ designs
- higher quality
- higher customer service levels
~ these are usually priced higher than their competitors.

Examples: Louis Vuitton, Apple, Lego, Harley - Davidson.

Question 15

Stuck in the middle

Answer 15

• pursuing multiple strategies but failing to achieve any of them.

Examples: Sony - Tv’s are not cheaper nor any uniquer in comparison to other brands.

Question 16

cost focus

Answer 16

• niche market
• set out to become the lowest cost producer for a specific niche within an industry
• only difference btwn this and leadership is that this focuses on niche markets within an industry excluding the other segments.

Example: Monster Energy drinks, SanDisk, NetJets

Question 17

differentiation focus

Answer 17

• niche market
• most unique and desirable provider for a specific niche within an industry
• the only difference btwn this and differentiation is that this focuses on narrower slice of industry excluding other segments

Examples: the whole foods market - niche market that focuses on selling organic and natural produce at higher prices which customers are willing to pay for.

Question 18

organic growth

Answer 18

internal growth (growth within the business)
- e.g. increasing product range, opening new stores, new locations - franchising
- ansoff’s matrix
- slower growth

Question 19

inorganic growth

Answer 19

external growth - outside of the business but within the industry.
e.g. mergers x takeovers (acquisitions)
- faster growth

Question 20

reasons for taking over a business

Answer 20

• larger customer base = grow quicker
• combined expertise + new skills
• growing brand image w out having to establish it yourself
• increase market share, revenue global + domestic expansion
• eliminate competition + secure better distribution

Question 21

reasons for takeovers failing

Answer 21

• lack of research + knowledge of new market = taking over a business in a market that they’re not familiar with
• higher costs + poor communication
• lack of decisive management + loss of key personnel
• incompatibility of management styles, structure + culture
• upset customers + suppliers
• resistance of employees to the change, change of management etc

Question 22

horizontal integration

Answer 22

• the coming together of two firms in the same industry and the same market
  examples: EE & Three, Volkswagen x Skoda

Question 23

pros and cons of horizontal integration

Answer 23

pros:
- reduces the amount of competition in the market
- increases businesses market share + customer base
- take advantage of internal economies of scale
- buying existing brand is cheaper than developing own brand = can make entry barriers higher for rivals

Question 24

forward x backward vertical integration

Answer 24

forward - taking over distribution channels e.g. buying out manufactures or stores that sell your product
examples: brewery’s buy out pubs to sell their drinks in

backwards - taking over suppliers in supply chain e.g. Birdseye have bought farms that produce their ingredients - farmers pay them rent

examples of businesses that own their supply chain = Shell, BP

Question 25

pros x cons of vertical integration

Answer 25

+ creates barriers to entry = easier access to raw materials compared to rivals who may have to pay more + control of supply chain = reduces unit cost & improves quality of products + better control of distribution = can add channels to improve revenue

Question 26

conglomerates

Answer 26

when a business takes over a business that does not operate in the same market/ product area e.g. Unilever owns Ben & Jerry's ice cream, Lipton tea and offers household items

Question 27

oligopoly

Answer 27

- a market where there are a few dominant firms e.g. the car market, tech/ phone market

Question 28

economies of scale - internal

Answer 28

internal: - purchasing = bulk buying which leads to discounted products = cheaper - technical = purchasing latest technology to improve productivity and efficiency - managerial = hiring managers that prioritise cost cutting and boosting efficiency - marketing = spreading marketing spend over larger range of products - network = adding customers + users to already established networks e.g. phones - financial = larger firms benefit from access to more + cheaper finance

Question 29

economies of scale - external

Answer 29

external (all competitors benefit) - infrastructure/ geographic areas : e.g. creative media in London examples: - having specialist supplies close by - access to research + dev facilities - pool of skilled labour to choose from

Question 30

diseconomies of scale

Answer 30

(rising unit costs) -issues w communication + lack of synergy = reduces productivity leading to higher costs ~ often linked to managerial diseconomies of scale - control - problems w monitoring quality + productivity, increasing wastage of resources - co operation - workers in larger firms may develop sense of alienation + loss of morale

Question 31

joint ventures

Answer 31

- 2 businesses joining together in certain areas as a separate business entity example: L'Oreal, Hotel Shilla + Anchor equity partners came together to launch new luxury cosmetic brand "shihyo" - Korean cosmetic brand