Choosing Areas of Competition

Business: AQA A Level (2023 Specification), topic 7.7.1

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 is 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 the 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.

The process of increasing sales of existing products to existing markets.

Which of the following terms does this describe?
Which of the following is a disadvantage of diversification?