This would be the most ideal situation as the company will look increase the revenues and profitability of the business by penetrating the exisiting market with their proven product. A company may seek to eliminate the weaker competitors in the market by using economies of scale to offer the product at a lower price to the market. This will increase their market share as well as driving out weaker competitors. How do companies do penetrate the market? Well, there are several options and avenues a company may seek to take.
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This would be the most ideal situation as the company will look increase the revenues and profitability of the business by penetrating the exisiting market with their proven product. A company may seek to eliminate the weaker competitors in the market by using economies of scale to offer the product at a lower price to the market. This will increase their market share as well as driving out weaker competitors.
How do companies do penetrate the market? Well, there are several options and avenues a company may seek to take. Increasing their advertising and marketing in the market will help penetrate and attract customers — they also might seek to modify and innovate the product so it becomes more attractive for consumers.
Ansoff was always quick to point out that the company must still possess a competitive advantage for market penetration to be effective. Product Development Next up is the product development stage. This is when the market is existing but the product is new and still needs to be developed somewhat. For example, Apple would have taken this strategic choice when developing and launching the version of the Apple Watch.
They already had a devoted customer base market based on their strong brand but wanted to release a new product — the Apple Watch. This would involve product development, research into customers needs as well as what the competition was doing. Apple would also have to consider the costs of producing a new product — new machinery, technology as well as the time and effort in training the workforce to produce and sell the new product.
There is also no guarantee of success with a new product. It might have completely flopped and failed to make a profit or even cover their costs. On the flip side, it might exceed expectations and also increase the market share of the company and bring new customers to the market.
So you can see this strategic choice carries a higher risk and is more cost involved but the upsides are also there for every one to see.
This was the case with Lucozade who felt their market was limited as it was seen as a drink to aid recovery from sickness. However, they made the decision to promote it as a sports drink and also develop the product to fit that market.
It resulted in a whole new customer base and increased their market share and sales figures at the same time. A lot of big global corporations use this strategy to increase their dominance in their market and leverage of the strong brand and identity by appealing to new customers.
Diversification Finally, the strategic choice of diversification will be chosen if a company is trying to create new markets with a completely new product. This is a massive risk as there are no indications it will be a success. It could turn out to be a stroke of genius, however, if the company are confident their new product is revolutionary and will create a significant demand in the market. Costs, of course, will be high as the product will need to be developed while the market will also need to be created.
Generally speaking there are two types of diversification. Vertical Integration — involves taking over a supplier or a customer to increase the chances of success in the marker place. Horizontal Diversification — means developing a complimentary product to whats already being produces.
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CIMA E2 Project and Relationship Management