INTRODUCTION TO

BUSINESS AND MANAGEMENT

(IBM)
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MA 2020/2021
Week 07a

Copyright University of Reading

WEEK 7: STRATEGIC CHOICE &
BUSINESS FINANCE

Part 1: Strategic Choice

• Ansoff’s Matrix
• Vertical Integration

Part 2: Business Finance

• Accounting and finance objectives
• Setting financial objectives
• Benefits of setting financial objectives

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STRATEGIC CHOICE

 Decision Making Tools: Ansoff‘s Matrix

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ANSOFF MATRIX
The Ansoff Matrix is used in the strategy stage of
the marketing planning process. It is used to identify
which overarching strategy the business
should use and then informs which tactics should
be used in the marketing activity. Sometimes an
organisation will adopt two strategies to reach
different markets.

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ANSOFF’S MATRIX

It is a strategic tool used to help a business

that wishes to grow.

It examine strategies in terms of the

products offered and the markets a
business operates in.

Ansoff’s believed that growth strategies should consider:

• The product it produces
• Selling existing products - Are there more
opportunities for existing products?
• Developing new products - Are new products
required?
• The market it operates in
• To remain in the existing market - Is there potential
growth?
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• To enter new ones - Should the firm seeks new
 ANSOFF’S MATRIX (CONT.)
Existing Product New Product
MARKET PENETRATION PRODUCT DEVELOPMENT
• This involves selling more of existing • This involves developing new products
product in existing market aimed at existing customers
• Aiming higher market shares • For example: Brand extension, focusing
Existing Market

• For example: Increased promotion, on customer needs such as introducing

Increased usage by existing customers new flavours
through loyalty scheme, price adjustments, • It often involves innovation – With 4G
more distribution channels, product mobile (cell) phones – These brand new
improvements products can offer a distinctive identity to
• Least risk – Business is established in the the business.
market and has knowledge of it • Can be risky – Developing new products
is expensive, with no guarantee of
success
MARKET DEVELOPMENT DIVERSIFICATION
• This involves finding new customers for • This involves selling new products to
existing product new customers
New Market

• For example: Exporting to a new foreign • Market research will be required

market, new product dimensions or • High risk – But if successful, the business
packaging, new distribution channels, is no longer reliant on one market
different pricing policies to create a new
market segments
• Careful market research is required –
Danger of alienating existing customers
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ANSOFF’S MATRIX [CONT.]

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WHICH GROW OPTION IS MOST
RISKY?

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ANSOFF’S MATRIX [CONT.]
Market Product Market Diversification
Penetration Development Development
Same products for New products for New customers for New product for
existing customers existing customers existing product new customers

Minimal risk Moderate risk Moderate risk High risk

Seek to Innovation to Entering overseas Spreading risks
maintain/increase replace existing markets
market share products

Intense Product New distribution Use of subsidiaries

competition improvements channels and strategic
business units

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EXAMPLE OF MARKET PENETRATION
• In 2013, Samsung reduced the European prices of its range
of 4k TVs by up to €1,200. This was in response to price
cuts by other manufacturers – but Samsung’s reductions
were larger in an attempt to increase market share.
• Due to the incredible strength of Coca-Cola’s brand, the
company has been able to utilise market penetration on an
annual basis by creating an association between Coca-Cola
and Christmas, such as through the infamous Coca-Cola
Christmas advert, which has helped boost sales during the
festive period.

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EXAMPLE OF PRODUCT DEVELOPMENT

• The launch of Diet Pepsi took an existing product,

developed it into a slightly different version and sold it in the
soft drinks market where Pepsi was already available.
• The launch of Cherry Coke in 1985 – Coca Cola’s first
extension beyond its original recipe – and a strategy
prompted by small-scale competitors who had identified a
profitable opportunity to add cherry-flavoured syrup to
Coca-Cola and resell it. The company has since gone on to
successfully launch other flavoured variants including lime,
lemon and vanilla.

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EXAMPLE OF
MARKET DEVELOPMENT
• Lucozade used to be promoted as a health tonic for people with colds and
influenza. It was successfully repositioned into the sports drink market,
appealing to a new, younger range of consumers.
• Dell or HP can use existing business-computer systems and repackage them for
sale to consumer markets.
• Adobe Photoshop. It protected its price difference of hundreds of dollars of its
original professional product by offering a reduced 'home' version that had a
restricted set of functions.
• The sale of high-end sports equipment, which is now almost exclusively sold
online rather than through sports equipment retailers.
• The sale of DVDs in retail outlets like supermarkets and gas stations rather than
specialist entertainment stores selling predominantly music and video products.

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EXAMPLE OF DIVERSIFICATION
• The Virgin Group is constantly seeking new areas for
growth; the expansion from a media empire to an airline and
then a train operator, then into finance.
• Tata Industries in India is another classic example of a very
diversified business, making a huge range of products –
from steel to tea bags. Related diversification, e.g.
backward and forward vertical integration in the existing
industry, can be less risky than unrelated diversification,
which takes the business into a completely different
industry.

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VERTICAL INTEGRATION
It involves acquiring a business in the same
industry but at a different stage of the supply
chain.

Forward Integration
This is an integration of a business that is closer to final
consumers. It involves a business activities are expanded to
include control of the direct distribution or supply of a company's
products.
For example, a manufacturer buying a retailer

Backward Integration
Here the acquisition is operates earlier in the supply chain.
It involves the purchase of, or merger with, suppliers up the
supply chain.
For example, a manufacturer buying a raw material
or component supplier
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EXAMPLES OF
VERTICAL INTEGRATION
Film distributors
Brewers owning/ Record labels and
owning cinemas +
operating pubs or radio/ online music
digital streaming
buying hop farms stations
platforms

Drinks Technology
manufacturers such Pig processing companies growing
as Coca Cola business buying a vertically through
integrating with pig farm hardware, software
bottling plants and services

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REFERENCES
Marcouse, I., Miles, B., Surridge, M., & Gillespie, A. (2008). OCR
Business studies for AS. (1st ed.). London, England: Hodder Education.

Mottershead, A., Challoner, S., & Grant, A. (2008). AS Business Studies.

(2nd ed.). Oxfordshire, England: Philip Allan Updates.

Mottershead, A., Grant, A., & Kelt, J. (2009). OCR Business studies for
A2. London, England: Hodder Education.

Mottershead, A., Grant, A., & Kelt, J. (2015). Business for A Level
includes AS Level. (1st ed.). London, England: Hodder Education.

Stimpson, P. & Farquharson, A. (2015). Cambridge international AS and

A level business course book. (3rd ed.). Cambridge, England:
Cambridge University Press.

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