Marketing Strategy (AQA A-Level Business): Revision Notes
Marketing Strategies
Understanding strategic direction and marketing strategy
Strategic direction refers to the overall path that a business follows to achieve its mission and objectives. Think of it as the business's long-term route towards success. This direction influences how the entire business strategy develops and impacts all operational areas.
The marketing strategy plays a crucial role in guiding this strategic direction. It determines two fundamental decisions:
The Two Core Marketing Strategy Decisions:
- Which markets the business will compete in
- Which products the business will offer
These decisions are shaped by thorough market research, careful analysis, and an honest assessment of the business's internal skills and available resources.
Factors influencing market choice
When deciding which markets to enter, businesses consider several important factors:
Type of product
The nature of what you're selling significantly affects your market choice. For instance, some products work better in B2B markets (business-to-business) than in B2C markets (business-to-consumer). Similarly, certain products are better suited to niche markets (small, specialised markets) rather than mass markets (large, general markets).
Level of competition
Businesses naturally prefer markets with a low level of competition, as this gives them a better chance to establish themselves and gain market share. They also tend to favour growing markets over saturated markets, where demand has plateaued and opportunities for expansion are limited.
External factors
Various external influences can create opportunities or barriers in different markets. These include political factors (government policies and regulations), social factors (demographic changes and cultural trends), and economic factors (economic conditions and consumer spending power). A business must carefully assess these factors when choosing where to compete.
Internal resources
A company's own capabilities play a vital role in market selection.
For example, if a business only has a small production facility, it might be more practical to focus on niche markets rather than attempting to compete in mass markets where higher production volumes are essential.
Attitude to risk
Some businesses are comfortable taking big risks and will target new and unknown markets. Others prefer a more cautious approach, sticking to familiar territory. This attitude significantly influences market choice decisions.
Factors influencing product choice
Several key factors shape decisions about which products to develop and offer:
Research and development (R&D)
Companies with a strong R&D department can create new and innovative products. This capability opens up opportunities to develop products that competitors don't offer, potentially giving the business a significant competitive advantage.
Competitors
Businesses must constantly monitor their rivals. If a competitor launches a new, successful product, a company might decide to develop a similar product to remain competitive in the market. This reactive strategy helps businesses avoid losing market share.
Technology
Technological changes can force product adaptation. For example, a television manufacturer needs to develop smart TVs to keep pace with market expectations and competitor offerings.
Critical Point: Failing to adapt to technological shifts can leave a business behind and result in losing market share to more innovative competitors.
Finances
Product development requires investment. Businesses with healthy finances and adequate working capital can afford to spend money developing new products. Those with limited resources may need to focus on improving existing products instead.
External factors
Just like with market choice, external elements such as social trends, economic conditions, and environmental concerns influence product decisions. Businesses must ensure their product offerings align with these external pressures and opportunities.
Ansoff's growth strategies
Igor Ansoff developed four distinct strategies that businesses can use to achieve growth. Each strategy sets a different direction for business development and carries varying levels of risk.
Market penetration
This strategy focuses on increasing your market share within an existing market using your current products.
Worked Example: Market Penetration in Action
If a washing powder manufacturer currently holds 25% market share, they might aim to reach 30% through:
- Better promotions
- Competitive pricing strategies
- Enhanced advertising campaigns
This represents a 5 percentage point increase in market share within their existing market.
Market penetration works best in a growth market where overall demand is expanding. However, it's less effective in saturated markets where demand has stopped growing and competition for existing customers becomes intense.
Risk level: This is the least risky strategy because you're operating in familiar territory with products you already understand.
New product development
This approach involves selling new products to your existing markets. It makes sense when the market shows strong growth potential and your business has solid R&D capabilities plus a competitive advantage in product innovation.
Because you're launching new products, there's more risk than market penetration, but you're at least selling to customers you already understand.
Risk level: Moderate risk due to product uncertainty, but mitigated by market knowledge.
Market development (or market extension)
This strategy means selling your existing products to new markets. It can be achieved through repositioning – focusing on a different segment of the market – which requires research to understand the new target audience and potentially adapting your product or promotion to suit their needs.
Alternative Approaches to Market Development:
Businesses can target new market segments by using new channels of distribution. For instance, using e-commerce to sell directly to consumers rather than going through a retailer or agent.
Market development can also involve expanding into new geographical markets to reach the same market segment. For example, a business successful in one region might move into a different country.
Risk level: Moderate to higher risk due to unfamiliarity with the new market, though products are proven.
Diversification
This is the most ambitious strategy: selling new products to new markets. Diversification is a very risky strategy because the business moves into markets where it may have no experience whatsoever.
Businesses typically choose diversification when they need to reduce their dependence on a limited product range. However, even when high profits seem likely, diversification still reduces overall risk by spreading the business across multiple markets and products, protecting against failure in any single area.
Risk level: Highest risk – you're dealing with both unfamiliar products and unfamiliar markets simultaneously.
Ansoff's matrix as a decision-making tool
Ansoff's matrix is a practical framework that helps managers compare the level of risk involved with different growth strategies. The matrix plots products (existing vs new) against markets (existing vs new), creating four distinct strategic options.
Structure of the matrix
| Existing Products | New Products | |
|---|---|---|
| Existing Markets | Market penetration | Product development |
| New Markets | Market development | Diversification |
Understanding Risk Progression:
Risk increases as you move from top-left (lowest risk) to bottom-right (highest risk) in the matrix.
Advantages of Ansoff's matrix
The matrix doesn't just present potential strategies – it forces managers to think about the expected risks of moving in a particular direction. This consideration of risk versus reward helps businesses make more informed strategic decisions.
Most firms opt for market penetration as their starting point because it represents the least risky approach to growth.
Disadvantages of Ansoff's matrix
One limitation is that the matrix fails to show that both market development and diversification strategies tend to require significant changes in day-to-day operations. These aren't just strategic shifts – they demand substantial organisational transformation.
Critical Limitations to Consider:
Some critics argue that Ansoff's matrix oversimplifies the options available. For example, diversification doesn't necessarily have to be unrelated to current operations. A business might safely diversify by moving into a supplier's business, as there's already a guaranteed market for that product (themselves).
Finally, product development is less risky than diversification, but it works best for firms that already possess a strong competitive advantage – something the matrix doesn't explicitly consider.
Case study: KFC's international market development
Real-World Example: KFC's UK Market Expansion
KFC's expansion from the USA to the UK market demonstrates market development in action.
Timeline:
- 1952: KFC began operating in the USA
- 1965: Extended their market by opening an outlet in Preston, UK – the first American fast food chain to open in the UK
- 1986: KFC GB Ltd acquired by PepsiCo
Success Metrics: The expansion proved remarkably successful – there are now over 750 outlets across the UK and Ireland.
Strategic Analysis: Using Ansoff's matrix, we can see that KFC's market development strategy involved taking an existing product (their fast food business model) and developing it in a new market (the UK). This was a safer option than diversification, particularly since the UK had no other fast food chains in 1965, meaning KFC faced no competition when they entered the market.
This real-world example shows how understanding Ansoff's strategies can help explain successful business growth and expansion decisions.
Key Points to Remember:
- Strategic direction is guided by marketing strategy, which determines which markets to compete in and which products to offer.
- Market and product choices are influenced by both internal factors (resources, R&D capability, finances) and external factors (competition, technology, economic conditions).
- Ansoff's four growth strategies are: market penetration (lowest risk), product development, market development, and diversification (highest risk).
- Ansoff's matrix helps businesses visualise risk levels across different growth strategies – the further from existing products and markets, the higher the risk.
- Market penetration is the most popular initial strategy because it involves the least risk, while diversification is the riskiest but can reduce dependence on limited product ranges.