Strategies that give firms a competitive edge

Businesses across the globe are faced with tough competition from their peers in one way or the other. As a result, business executives are left with no option than to make sustainable strategic choices if they want to remain in business and be relevant, as well as have competitive edge. Farida and Setiawan (2022)’s study of 150 Small and Medium Enterprises (SMEs), published in Journal of Open Innovation: Technology, Market, and Complexity, find a positive impact of business strategies on competitive advantage. 

Market Analysis Models such as Porter’s Five Forces, SWOT Analysis, and Market Segmentation, as well as Product analysis models such as BCG Matrix, Product Life Cycle, Value Chain Analysis and Conjoint Analysis could be employed in assessing the situation prior to making strategic choices. Additionally, hybrid models such as McKinsey 7S Framework and Ansoff Matrix are equally useful. However, this article seeks to focus on Ansoff Matrix model.

Market and Product Analysis

Stanley et al. (2012), in their article, Creating and exploiting market knowledge assets, published in Journal of Business Strategy, posit that, “Satisfying customer needs requires the firm to understand those needs, share the knowledge regarding those needs throughout the firm, and take coordinated action to develop the products and services that actually satisfy the needs”. 

Ansoff (1957), in his growth vector matrix, contends that, there should be a link between a firm’s current products and markets and its future products and markets when planning its growth strategies. To achieve growth, the company must sell more in its existing markets [try to make its existing markets bigger]; sell new products in its existing markets; sell existing products in new markets or new market segments; and also sell new products in new markets. The Ansoff growth vector matrix, also called Ansoff Product–Market Model, is comprised of four strategies namely market penetration strategy, market development strategy, product development strategy, and diversification strategy.

Market penetration strategy: With this strategy, an entity seeks to sell more of its current products in its existing markets. This strategy is a sensible choice in a market that is growing fast. With fast growth, all the companies competing in the same market can expect to benefit from the rising sales demand. Market penetration strategy is more difficult to implement when the market has reached its maturity stage, or is growing slowly. But, dire consequences await a firm that does not take any swift measure when competitors take significant strategic actions likely to be much more aggressive, innovative and competitive.

Market development strategy: This strategy involves a firm opening up new markets for its existing products. With this strategy, a firm could start to sell its current products in new geographical markets by expanding to, say, the six (6) newly created regions of Ghana, and internationally if there is the prospect of demand for its products going very high. Furthermore, firms could also attract customers in new market segments by offering lightly differentiated versions of their existing products, or by making them available through different distribution channels. 

Product development strategy: Under this strategy, new products are produced for an existing market. Several reasons could be assigned for choosing this strategy, some of which are: the firm may have a very strong brand name for its products, and it can extend the goodwill of the brand name to new products; the firm may have a strong research and development department or a strong product design team which it is putting to good use. As a result, it is coming up with new products for which support is much needed; with a strategic initiative aimed at beating any potential threat of new entrants who might imitate its existing products, a firm could make use of new technological developments by producing a new range of products or product designs, thus increasing its product portfolio; the market has growth potential for the entity’s new products being developed; and, day in day out, the needs of customers are changing, so that new product development is essential for the survival of the firm. 

Diversification strategy: Diversification is a strategy of selling new products in new markets. This strategy is of two folds, thus, Concentric Diversification and Conglomerate Diversification. With concentric [horizontal] diversification, the new product-market area is related in some way to the entity’s existing products and markets. This strategy seeks to use the company’s existing technological know-how and experience in a related but different product-market area so as to spread its risk profile and thus neutralize any loss that may arise as a result of dealing in only one aspect of the market, or having only one type of product. As for conglomerate diversification, the new product-market area is not related in any way to the entity’s existing products and markets. 

Both forms of diversification are normally achieved in practice by means of an acquisition strategy. Thus, it involves buying companies that are already operating in the new product-market areas. For Brown and Moles (2014), Diversification is a fundamental ingredient in financial risk management since it allows for the spreading of risk. 

Firms that take the above strategies seriously will experience increases in growth and wealth.

The writer is a member of The Chartered Institute of Tax Law and Forensic Accountants – Ghana, and a student of Institute of Chartered Accountants – Ghana. 
Email: ekornunye@gmail.com