Strategy Development

Digital Marketing - Study Notes:

Corporate strategy is concerned with the scale and scope of the organization’s business areas. This is different from the business strategy, which is concerned with how a firm competes within a particular market.

Corporate strategy covers two main scopes of activities (Grant, 1998):

• Product scope: This relates to the range of product and services a firm should specialize in.
• Market scope: This concerns which markets, including different geographies, a firm should focus on.

The combination of these two scopes of activity defines the alternative growth directions available for a company. Known as Ansoff’s Matrix, four different strategy directions are available to companies for strategic development (Johnson et al., 2017).

Market penetration strategy

Market penetration implies increasing the share of current markets with the current product range. This strategy builds on established strategic capabilities, so the organization doesn’t need to venture into uncharted territory.

The organization’s scope is exactly the same. Moreover, greater market share implies increased power vis-à-vis buyers and suppliers, in terms of:

• Porter’s Five Forces – for example, a lowered bargaining power of buyers and suppliers
• Greater economies of scale, leading to lowered cost and prices
• Experience curve benefits – for example, Pepsi’s increase of bottle size from 500ml to 600ml

Product development

Product development is where organizations deliver modified or new products, or services, to existing markets. This can involve varying degrees of diversification along the product axis. The introduction of Pepsi Cherry shows a new product aimed at an existing market.

Market development

Market development can be more attractive by being potentially cheaper and quicker to execute than product development. It involves offering existing products to new markets, be they new users or new geographies.

Again, the degree of diversification varies along the market axis, and typically entails some product development as well, if only in terms of packaging or service. International market development strategies are considered part of this strategy direction. Pepsi introduced Pepsi Max, which is the low-calorie version of Pepsi aimed at the segment of the market concerned about high-calorie drinks.

Diversification

Diversification takes the organization beyond both its existing markets and its existing products. In this sense, it radically increases the organization’s scope. Diversification will be developed in more detail in the next sections of this workbook. The acquisition of Walkers, a chip (or crisp in the UK) manufacturer, is an example of diversification for Pepsi.

Whichever strategic direction an organization decides to pursue, it can select from several methods for developing its strategy (Johnson, 2017). Consider, for example, a company that wants to strengthen the competitive position in its core market by implementing a market penetration strategy to gain market share through cost reduction, reflected in more competitive prices.

This strategy can be achieved through different methods. Cost reductions could be achieved by the following:

• Internally by increasing efficiency of current operations
• By strategic alliance with distributors and/or suppliers
• By the acquisition of a competitor to gain market share and therefore obtain cost reductions associated with economies of scale.

Two methods of development are widely implemented by organizations:

• Horizontal integration sees a company expanding by acquiring or merging with competitors or businesses in the same industry.
• Vertical integration is when expansion happens through taking over other vertical functions of the industry’s value chain, such as owning production or distribution.