Corporate Strategy

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Choosing Which Markets to Compete In

Businesses can use Ansoff’s Matrix to analyse their strategic direction.

Market penetration involves increasing sales of existing products to existing markets.
For example, McDonald's promoting its Happy Meal product range involves targeting an existing market with an existing product and is, therefore, market penetration.

Market development involves targeting existing products at new markets to increase sales.
For example, Raleigh selling its cycling products in a new country involves existing products but a new market and so is an example of market development.

Product development involves targeting new products in existing markets to increase sales.
For example, KFC introducing a range of pizzas involves targeting a new product at an existing market and it an example of product development.

Diversification involves targeting new products at new markets to increase sales.
Advantages:
- Diversification can provide large rewards as a business can benefit from both selling a new product and accessing a new market.
- Diversification can spread risk as it gives businesses an alternative if demand for one product declines.
Disadvantages:
- Diversification involves new products and new markets and a business will, therefore, have limited expertise in each which increases risk.

The level of risk accepted by a business can influence the overall choice of direction.
Opportunity costs can influence the overall choice of direction as a business may need to decide whether it is willing to forfeit the benefits of an alternative direction.
Business culture can influence the overall choice of direction as culture and leadership must support the strategic direction chosen.

When choosing how to compete with other businesses, a business may decide to compete on either price or customer benefits:

A business may decide to compete against other businesses on the basis of price; for example, discount retailers often try to price-match or undercut one another to remain competitive.

A business may also decide to compete against other businesses on the basis of the benefits it can offer customers.
- For example, Google’s Google Docs and Microsoft’s Office 365, compete in terms of the benefits they can offer customers: both products offer customer email access, digital storage, and document editing capabilities.

The cost leadership approach is taken by businesses which compete on price, and which seek to be the cheapest retailer or producer within the market.
- For example, Aldi seeks a cost leadership approach as it aims to compete on price.
Businesses can increase their competitiveness by reducing their costs, for example negotiating better deals with suppliers and producing their own products if this can be done at a cost lower than the cost of buying such products from suppliers.

The differentiation approach is taken by businesses which compete in terms of the benefits offered to customers from the purchase of its products or services.
- For example, Apple competes within the market based on its iOS product and the benefits this can offer to consumers when compared to other operating systems.
Businesses can increase their competitiveness by investing in research, development, and innovation so that the products and services it offers continue to increase in terms of the benefit offered to customers.

If a business fails to target customers based on cost or differentiation, Porter’s strategy classifies the business as a concern, known as ‘stuck in the middle’.