Evaluation of alternative growth paths available to organizations - Essay Example

? Ansoff’s Matrix Evaluation of alternative growth paths available to organizations Introduction A new entrant in a market needs to adopt certain techniques for market penetration. However, it must not expect a miracle to happen the moment it takes the first step. Everything takes some time and any initiative taken by a new entrant takes some time to fructify and yield desired results. There are four different strategies that can be chosen by a new entrant to penetrate a new market. These strategies are embodied in what is popularly known as Ansoff’s Matrix (Pearce and Robinson 2007). The four pronged attack that a marketer must implement in order to make a mark in a new market are aptly embodied in this matrix which clearly identifies between existing products and new products and existing markets and new markets. The pictorial representation of the matrix is: (tutor2u 2009) It is quite obvious that the strategies differ in different situations. If a company wishes to make its presence felt in an existing market with existing products it needs to adopt strategies that would help it in penetrating the market. But if the company is attempting to introduce new product in an existing market, it needs to concentrate more on strategies related to product development as that would help it in creating a firmer hold on the existing market. Similarly, if the company is attempting to introduce existing products in new markets, it must concentrate on strategies that are closely associated with market development. Whereas, if the company has grand plans of entering new markets with new products it must embark on a path of diversification and devise relevant strategies. Market Penetration Product/market placement This strategy attempts to increase the market share of an existing product in an existing market and is generally adopted by firms that want to increase their turnover without altering their product portfolios. Main Principles As the main emphasis is on increasing the turnover, management should concentrate on increasing sales personnel while offering attractive discounts and bargain sales that are made to appear genuinely appealing through aggressive sales promotion and advertising. However, there is no assurance that such moves would pay dividends and a firm should adopt such strategies only if it feels the market has not matured or its market share is steadily decreasing due to onslaught of rivals. Organizational Example The best example of such market penetration strategy is observed in the way Airtel is promoting its services in the mobile telephony market in India. Pros and Cons There is bound to be a lot of investment in advertising and promotion and per unit revenue gets reduced due to discounts. So, the sales volumes must be sufficiently large to offset these reductions. But that can never be guaranteed. However, if the venture becomes successful, the firm can earn substantial revenue. Market Development Product/market placement When a firm tries to discover new markets for an existing product it is termed as market development strategy. It is obvious that a new market would result in additional turnover and consequent bolstering of the bottom-line. Main Principles There are two basic methods of focusing on a potential market. Such a market can be configured on the basis of geographical location such as state, country, region or even a city, or it could be delineated on the basis of demographic divides as gender or age. It could even be demarcated on the basis of income or educational or family background. This move is obviously riskier than market penetration as the firm is entering new and uncharted territories and should be undertaken only after potential for further expansion in domestic market is exhausted. Organizational Example The best example of market development strategy is exemplified by the ventures made by Pakistan Oil Company in new markets in Afghanistan or the way Chinese products, especially consumer products that have expanded their market all over the world. Pros and Cons A venture into new and unexplored market entails huge expenditures in setting up requisite infrastructure and equally substantial expenditure in grabbing a share of mind space of prospective customers. But there are equally great risks in venturing into new and unexplored territories that could never be estimate in spite of the most detailed surveys and extensive analyses. Hence, this is a much greater risk that a firm has to take than the uncertainties faced in market penetration. But, rewards are also commensurately much greater. Product Development Product/market placement When a firm modifies an existing product so as to endow it with an additional features or benefits for the purpose of enticing new customers and retaining existing customers it is said to be following product development strategy. Such modification can result in an entirely new product that might be targeted towards a newly defined market segment or a niche market. Main Principles The total market where these modified products are offered remains essentially the same irrespective of the newly defined market segment or the niche sectors. Thus, the product does not differ radically from the original offering in the sense that it retains all the features and facilities that were present in the original product while providing improvements in certain specific areas or offer an overall upgrade. This not only helps to retain consumers that have already been using this product but also oftentimes attract new converts who switch their existing preferences for other suppliers in favor of the modified product offered by the firm. Organizational Example The best example would be McDonald’s who in spite of being the market leader in fast food industry regularly markets new types of burgers. Pros and Cons This is by far the safest strategy for business growth. As the existing product is not immediately withdrawn, the risk of losing existing customers is non-existent and if the new product gets accepted by customers there is always the possibility of reaping rich dividends. The investment in modifying an existing product is decidedly less than the investment involved in other two strategies discussed earlier. Diversification Product/market placement Any strategy that modifies an existing product can be called a diversification strategy but diversification in particular means modifying an existing product for penetrating a new market. Though there is no restriction on marketing absolutely new products in a new market, generally firms prefer to market existing products that have been modified to suit the requirements of the new market. Main Principles Generally firms opt for this strategy when existing market is either saturated or firms are unable to retain their market shares in that market. It has been a common strategy for manufacturers of high end technological products to diversify into other sectors when they find it difficult to sustain their profits with existing product portfolio. Organizational Example Canon has been a premier manufacturer of cameras but it diversified into a whole new range of office products as soon as it realized it would not be possible to retain its premier position on the strength of cameras alone. Pros and Cons This is surely the safest option available for an organization opting to strengthen its financial and market position. However, the inherent risk of not properly understanding the nuances of a new customer base always remains in such a strategy. Requisite Managerial Skills The basic element of management is to get work done through others and the essence of a good manager is how well they can motivate their subordinates and also peer group so that they put in their best efforts so that corporate goals are achieved without much trouble (Hannagan 2005). Thus, it can be hardly be overemphasized that leadership plays a very important role in any company’s attempt to explore new markets. Though it cannot be denied that some people are natural leaders and have the necessary qualities of a successful leader right from their birth there is an influential school of management thinkers that are of the opinion that leadership skills can also be taught and those that are not natural leaders can also be groomed to become effective leaders through properly designed training schedule (Horner 1997). An effective leader would be one who understands the general cultural tendencies of the people that they lead and what the followers expect from the leader. In this context it must be mentioned that though it might seem that democratic style of leadership is the best among all the styles, the style that would be most effective entirely depends on the cultural background of the followers (Cole 2004). In this connection, it also should be mentioned that a potential leader must be well versed in Hofstede’s cultural dimensions (Hofstede 1983). A reasonable level of knowledge of cultural diversities would surely help a leader to frame proper strategies and adopt leadership styles that would be genuinely effective in a particular situation. All companies face severe diffciluties while enetring new markets or introducing new products. It is a trying time both for the organisation and its employees. In such a situation managers must be very efficent in carrying out their controlling fucntions as effective controlling is possibly the only way such difficult times can be successfully overcome. A very good example of such effective controlling is put forward in how Apple Computers introduced a drastic regime of cost cutting measures when a new competitor, the IBM emerged in personal computing market in early 1980s. Apple could effectively implement such a severe cost cutting program as its managers were very efficient in communicating capabilities (Weijrich and Koontz 1993). Organizations that are engaged in entering new markets or introducing new products must have managers that have very good communicating skills since such times are rather difficult for organizations and they need complete support of employees to make their new ventures commercially successful (Weijrich and Koontz, Essentials of Managemnt 1998). This possibly brings us to the last criterion that has a very significant impact on companies that are attempting to break into new markets or are trying to market a new product. Such companies need to have a very high degree of coordination between all stakeholders to become economically successful in their ventures. There may be situations where the company needs to react or be proactive very quickly in order to either adjust to sudden market fluctuations or to take advantage of some changes in market parameters as entry or exit of a competitor so that it is able to retain its existing market share or grab a larger chunk of the market, it can only be possible if there is perfect coordination between stakeholders who might be independent organizations in their own right. An example of such independent stakeholders would be supplier of raw materials, manufacturers of components, dealers and retailers and excellent coordination between such stakeholders is imperative to attain the requisite flexibility in logistics that can make or mar a company’s fortunes in a new market (Simatupang, Wright and Sridharan 2002). Business Environment faced by Nokia in Europe The macro environment is of utmost importance that needs to be very carefully studied by the management of a company before it attempts to enter into a new market or offer new products in an existing market. A case in point could be the state of telecommunications industry and the position of the largest manufacturer of mobile handsets – Nokia in Europe in 2001 (Boddy 2008). Political-Legal – The auction of 3G spectrum by governments of European Union had left most network operators reeling under heavy financial burden and thus they were unable to invest huge amounts of money to subsidize manufacture and sale of mobile handsets. Nokia had been benefitting hugely from such subsidies from network operators and thus suddenly faced a huge gap in funding and started facing an unexpected working capital deficit due to governmental decision and action. Economic – Global economic slowdown had been especially severe in Europe and this caused a serious dent in effective demand for mobile handsets. Actually one must understand that demand for mobile handsets is essentially derived demand (Lynch 2005). Such demand depends entirely on the demand for the primary commodity which in this case is network service. With global meltdown, the demand for network services, especially from the multinational corporations, had gone down drastically and the net effect of such a slowdown was sluggish demand for Nokia mobile handsets. Socio-Cultural – With Nokia dominating the mobile handset market for such a considerable period, there was a big possibility that customers might tire of the brand and would no longer be inclined to buy any product of the company (Haag 2006). Technological – Though there was a lot of hype about 3G-technology the ground reality was much different from what was anticipated and touted around. It was assumed and expected that 3G-technology would be rolled out in European countries very rapidly but such a roll out faced various technical hurdles and the end result was network companies were heavily indebted but were not in a position to take genuine advantage of the new technology. There was another determining factor. Proper use of 3G-technology can only be possible if hand-held computing and mobile telephony could merge in one instrument. One must not forget iPad was not there during those days and tablet PCs were nowhere in the scene. So, instruments that could truly let customers enjoy the full range of benefits provided by 3G-technology were not readily available and so customers also were not that much convinced about the necessity to pay more for a service that they could not full advantage of. Marketing strategies of Nokia Nokia faced a rather piquant situation where it faced working capital crisis and a possible lack of customer enthusiasm for its new offerings in 3G enabled mobile handsets. In order to survive, it had to adopt all the four strategies postulated by Igor Ansoff (Ansoff 2007). Market Penetration – European markets were not ready for 3G technology and market response was lukewarm. But Nokia had already invested a lot of funds in manufacturing 3G enabled mobile handsets. So, the only option to get out of this imbroglio was to penetrate markets outside Europe (such as Brazil or India) where 3G technology was still not available but there was enough scope of selling earlier generation handsets as mobile telephony was penetrating at an extremely fast pace in these markets. Market Development – Almost as a corollary to the above criterion, Nokia also took advantage of marketing by using latest internet technologies and made a mark for itself in the mobile handset market. Though internet in Brazil and India remained restricted mainly to large cities but high levels of population density made it worthwhile for Nokia to advertise through attractive and user friendly websites. Product Development – Brazil and India were extremely price sensitive markets and majority of customers were mainly worried about the price rather than aesthetics or high end functional facilities and applications. So, Nokia had to spend considerable time and energy to develop products that were exclusively tailored to generate large sales volumes in these markets. Diversification – As a new entrant in a nascent market, Nokia cemented its position by providing some value added services in the form of allowing customers of high end mobile handsets (though there were not very many customers in this category) to download free of cost several applications that increased the attractiveness of the mobile handsets and most certainly added a sense of glamour and pride to the owners of these handsets. Thus, Nokia, in a planned manner, sowed the first seeds of a high end handset market. References Ansoff, H. Igor. Startegic Management: Classic Edition. London: Palgrave Macmillan, 2007. Boddy, D. Management: An Introduction. Harlow: Pearson Education, 2008. Cole, G. Management Theory and Practice. London: Thomston, 2004. Haag, S. Management Information Systems for the Information Age, Third Edition. Ryerson: McGraw-Hill, 2006. Hannagan, T. Management Concepts and Practice. London: Ft Prentice Hall, 2005. Hofstede, G. 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