Corporate Strategic Decisions

Topics: Marketing, Strategic management, Market penetration Pages: 7 (2392 words) Published: April 10, 2012
Corporate strategic decisions are usually based on the methods through which an organization could leverage its existing competitive advantage in promoting value and ensuring growth (Lynch, 2009), while sustainable competitive advantage depends largely on how well a company performs these actions (Porter, 2008). The need for companies to grow and expand has been known to drive product and marketing innovation, which in turn prompts them into adopting different organisational strategies, based on the products they sell and markets they target (Ansoff, 1984). The Ansoff Matrix, developed by Igor Ansoff in 1957 highlights four major strategic options (Figure 1) through which an organisation could adapt its new or existing products into a new or existing marketplace. The matrix is employed by businesses in decision-making processes surrounding product offerings and market growth strategies. The matrix is also known as the Product/Market growth matrix and it major function is to help organisations in evaluating available options for growth given their product and market mix. Johnson et al (2008) also depict it as a method of ascertaining the benefits or risks associated with each strategic option. The major strategic options available, as depicted in Figure 1, are for an organisation to penetrate its existing market, develop its market, develop its products or diversity completely with a new product into a new market.

Ansoff matrix
Figure 1: Ansoff Matrix. Source: Ansoff (1957), adapted from Lynch (2009) 2. QUADRANTS
As stated earlier, there are four output options for the Ansoff Matrix. The first of which is market penetration. This is a strategic option for an organisation seeking to expand its market share in an existing market, with an existing product. Mercer (1996) states that the growth strategy inherent in the Market Penetration option is for an organisation seeking to maintain or increase share of its existing products within the market place, gain market leadership, change competitive processes within a matured market, or increase awareness amongst existing consumers. According to Hooley et al (2004), the option to penetrate deeper within the marketplace is a low risk option that makes use of existing resources. A typical example of an organisation using this strategy would be Southwest Airlines. Southwest Airlines aggressively offers low cost flights within small distance cities. The company’s existing product is low cost travel, which is an industry dominated by several companies and witnessing high competitive pressures across all major markets. However, through its combination of aggressive marketing and low cost pricing, the company is able to dominate the market within Southwest United States (Shaw, 2007). Another example of market penetration strategy would be that of Pakistan State Oil. The company experiences competition from local and foreign oil companies that sell petroleum through retail petrol stations. However, it has been able to increase its market share from 40% to 65% over a period of 4 years by opening new retail outlets and investing in external advertisement (Economic Review, 2005). The strategy adopted by Pakistan State Oil is similar to that of Southwest Airlines, in that they operate within competitive markets, but by investing competitively, they are able to maintain market share and grow within their respective industries. This strategy also illustrates the low risk advantage of market penetration. The companies utilise existing products in an already known market. They do not have to invest in research and development or excessively advertise within a new market in order to create awareness. Adopting this strategy would cement the organisation’s position within the industry and increase the barriers for entry for new competitors (Porter, 2008). Since market penetration is focused on retaining existing customers, it is a lot cheaper than...
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