1.

What is a marketing strategy?

Ans: A strategy is a long-term plan to achieve certain objectives. A marketing strategy is therefore a marketing
plan designed to achieve marketing objectives. For example, marketing objective may relate to becoming the market
leader by delighting customers. The strategic plan therefore is the detailed planning involving marketing research,
and then developing a marketing mix to delight customers. Every organization needs to have clear marketing
objectives, and the major route to achieving organizational goals will depend on strategy. This term originate from
military use (military strategy before and during a military campaign is the general policy overview of how to defeat
the enemy). Developing a strategy involves establishing clear aims and objectives around which the framework for a
policy is created. Having established its strategy, an organization can then work out its day-to-day tools and tactics to
meet the objectives.
Marketing can thus be seen as the process of developing and implementing a strategy to plan and coordinate ways of
identifying, anticipating and satisfying consumer demands, in such a way as to make profits. It is this strategic
planning process that lies at the heart of marketing.

2.

Explain how the diversification strategy within the Ansoff matrix differs from the other three strategies?

Ans: Ansoffs product/market growth matrix suggests that a business attempts to grow depend on whether it
markets new or existing products in new or existing markets.

The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction
for the business strategy. These are as given below.
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on selling existing products
into existing markets. A market penetration marketing strategy is very much about business as usual. The business
is focusing on markets and products it knows well. It is likely to have good information on competitors and on
customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Market development
Market development is the name given to a growth strategy where the business seeks to sell its existing products into
new markets. for example
New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)
Different pricing policies to attract different customers or create new market segments

Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into
existing markets. This strategy may require the development of new competencies and requires the business to
develop modified products which can appeal to existing markets.
Diversification
But the diversification is the name given to the growth strategy where a business markets new products in new
markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or
no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it
expects to gain from the strategy and an honest assessment of the risks. However, for the right balance between risk
and reward, a marketing strategy of diversification can be highly rewarding. There are two types of diversification:
concentric, horizontal.
Concentric diversification
This means that there is a technological similarity between the industries, which means that the firm is able to
leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial
adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the
marketing effort would need to change.
It also seems to increase its market share to launch a new product that helps the particular company to earn profit. For
instance, the addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialties
Ltd. is an example of technological-related concentric diversification.
The company could seek new products that have technological or marketing synergies with existing product lines
appealing to a new group of customers. This also helps the company to tap that part of the market which remains
untapped, and which presents an opportunity to earn profit..
Horizontal diversification
The company adds new products or services that are often technologically or commercially unrelated to current
products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain
market segments. For example, a company that was making notebooks earlier may also enter the pen market with its
new product.
3.

4.

Show with examples how research into product development at a local level helps organizations to respond to the
needs of its local environment.

Why some diversification decisions might be higher risk than others?

Ans: Diversification is a strategic option that many managers use to improve their firms performance. This
Interdisciplinary research attempts to verify whether firm level diversification has any impact on performance. The
study finds that on average, diversified firms show better performance compared to undiversified firms on both risk
and return dimensions. It also tests the robustness of these results by classifying firms by performance class. The
results show that among the best performing class of firms, undiversified firms have higher returns, but these returns
are accompanied by high variance. Whereas, highly diversified firms show lower returns, and much lower variance.
Results further show that diversified firms perform better than undiversified firms on risk and return dimensions, in
the low and average performance classes. If managers of such firms opt for diversification, their returns will decrease,
but their riskiness will reduce proportionately more than the reduction in their returns. In such firms, there will be a
tradeoff between risk and return.
It is associated with higher risks as it requires an organization to take on new experience and knowledge outside its
existing markets and products. The organization may come across issues that it has never faced before. It may need
additional investment or skills. On the other hand, however, it provides the opportunity to explore new avenues of
business. This can spread the risk allowing the organization to move into new and potentially profitable areas of

operation. A business which is successful, it can never guarantee success in every ventures it undertakes.
Diversification is a means by which a firm expands from its core business into other product markets. Research
shows corporate management to be actively engaged in diversifying activities. Rumelt (1986) found that by 1974
only 14 percent of the Fortune 500 firms operated as single businesses and 86 percent operated as diversified
businesses. Many researchers note a rise in diversified firms. European corporate managers according to a survey not
only favor it but actively pursue diversification. As in any economic activity there are costs and benefits associated
with diversification, and ultimately, a firm's performance must depend on how managers achieve a balance between
costs and benefits in each concrete case. Moreover, these benefits and costs may not fall equally on managers and
investors. Researchers in finance argue diversification benefits managers because it buys them insurance, and
shareholders usually bear all the costs of such insurance. Diversification can improve debt capacity, reduce the
chances of bankruptcy by going into new product/ markets (Higgins and Schall 1975, Lewellen 1971), and improve
asset deployment and profitability (Teece 1982, Williamson 1975). Skills developed in one business transferred to
other businesses, can increase labor and capital productivity. A diversified firm can transfer funds from a cash surplus
unit to a cash deficit unit without taxes or transaction costs. Diversified firms pool unsystematic risk and reduce the
variability of operating cash flow and enjoy comparative advantage in hiring because key employees may have a
greater sense of job security (Bhide 1993). These are some of the major benefits of diversification strategy.
Diversification, firm size, and executive compensations are highly correlated, which may suggest that diversification
provides benefits to managers that are unavailable to investors (Hoskisson and Hitt 1990), creating what economists
call the agency problem (Fama 1980) and managers stand to lose if they become unemployed, either through poor
firm performance or bankruptcy (Bhide 1993, Dutta, Rajagopalan and Rasheed 1991, Hoskisson and Hitt 1990).
Diversification can also lead to the problem of moral hazard, the chance that people will alter behavior after entering
into a contract-as in a conflict of interest by providing insurance for managers who have invested in firm specific
skills, and have an interest in diversifying away a certain amount of firm specific risk and may look upon
diversification as a form of compensation (Amihud and Lev 1981, Bhide 1993). Although it may be necessary for a
firm to reduce firm specific risk to build relations with suppliers and employees, only top managers can decide what
is the right amount of diversification as insurance (Bhide 1993). Diversification can be expensive (Jones and Hill
1988, Porter 1985) and place considerable stress on top management (McDougall and Round 1984).
These are the costs of diversification. (source: Journal of Financial and Strategic Decisions Volume 11, Number
2, Fall 1998)