1.7 Growth and Evolution

By Alex Arancibia, for Nuevo Mundo High SchoolSources:

Business and Management for IB, Paul Hoang, 2007

Business and Management for IB, Peter Stimpson, 2011

Business and Management for IB, Paul Clark, 2009

Business and Management for the IB Diploma, Lloyd Gutteridge, 2009

THE ANSOFF MATRIX

Market PenetrationThe business focuses on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

• Secure dominance of growth markets

• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

• Increase usage by existing customers – for example by introducing loyalty schemes

Market Development

It's the name given to a growth strategy where the business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

• New geographical markets; for example exporting the product to a new country

• New product dimensions or packaging

• New distribution channels

• Different pricing policies to attract different customers or create new market segments

Product development

It's the name given to a growth strategy where a business aims to introduce new products into existing markets.

• This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

Diversification

• It's the name given to the growth strategy where a business markets new products in new markets.

• This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.

• For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

Strategic AllianceStarbucksAccording to Rebecca Larson, assistant Professor of Business

at Liberty University, Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers. In 1996, Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-based drink, Frappacino. A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the Starbucks logo on the cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in grocery stores. In 2006, Starbucks formed an alliance with the NAACP, the sole purpose of which was to advance the company's and the NAACP's goals of social and economic justice.

Strategic AllianceIn R&D: Microsoft and Nokia- a

software partnership forNokia’s Windows Phones.

WATCH VIDEO

Porter's Generic Strategies

1. Cost Leadership

2. Differentiation

3. Focus

Cost LeadershipBeing the lowest-cost producer in the

industry for a certain level of product quality will allow the firm to make higher profits than rivals or, if it lowers its prices below the average of competitors, to increase market share.

Cost LeadershipCost leadership often stems from the following

internal strengths:

● high levels of investment in advanced production methods, requiring access to much capital

● efficient production methods, e.g. low stock levels and low numbers of components used to shorten the production process

● efficient distribution channels, e.g. Ryanair only uses the internet for selling tickets and communicating with customers.

DifferentiationThis strategy involves developing a product

or service that offers unique features valued by customers. The value added to the product or service by these features may allow the firm to charge a premium price for it.

DifferentiationApple’s constant research into innovative products

allows it to charge high prices for its differentiated products. A differentiation strategy often results from the following internal strengths:

● excellent research and development facilities and a track record in developing unique products

● corporate reputation for innovation and quality

● strong sales team able to promote the perceived strengths of the brand and the products.

Focus (a.k.a Niche)This concentrates on a narrow market

segment, aiming to achieve either a cost advantage or differentiation. This can lead to a high degree of customer loyalty within the market segment.

Focus (a.k.a Niche)This concentrates on a narrow market

segment, aiming to achieve either a cost advantage or differentiation. This can lead to a high degree of customer loyalty within the market segment.

Economies of Scale

Economies of ScaleOperating at full capacity Ben Rishi is operations manager for a factory

making saucepans. The weekly maximum capacity of the factory is 3000 units. The main limit on capacity is the old-fashioned machine for stamping out the metal pans from sheet metal. Purchasing another machine would be expensive – and would require an extension to the building. Workers are working very long shifts. Ben has also been working long days to ensure that all the factory works at full capacity. For the last three months, demand has been high and last week there were orders for 3100 pots. Ben is under pressure from his managing director to see that this number is produced. Ben is unsure whether to recommend purchasing the new machine or to buy in components from another fi rm in the city that has spare capacity.