L6M2 Exam Dumps - CIPS Level 6 Professional Diploma in Procurement and Supply Questions and Answers

Evaluation of Strategic Decisions: Market Penetration, Product Development, and Market Development

Introduction

Strategic decisions in business involve selecting the best approach togrow market share, increase revenue, and sustain competitive advantage. According toAnsoff’s Growth Matrix, businesses can pursuefour strategic directions:

Market Penetration(expanding sales in existing markets with existing products)

Product Development(introducing new products to existing markets)

Market Development(expanding into new markets with existing products)

Diversification(introducing new products to new markets)

This answer focuses onMarket Penetration, Product Development, and Market Development, discussingtheir advantages and constraints.

1. Market Penetration????(Increasing sales of existing products in existing markets)

Explanation

Market penetration involves increasing market share by:✅Encouraging existing customers to buy more.✅Attracting competitors’customers.✅Increasing promotional efforts.✅Improving pricing strategies.

????Example:Coca-Cola usesaggressive marketing, promotions, and pricing strategiesto increase sales in existing markets.

Advantages of Market Penetration

✔Low Risk– No need for new product development.✔Cost-Effective– Uses existing infrastructure and supply chain.✔Builds Market Leadership– Strengthens brand loyalty and customer retention.✔Quick Revenue Growth– Increased sales generate higher profits.

Constraints of Market Penetration

❌Market Saturation– Limited growth potential if the market is already saturated.❌Intense Competition– Competitors may retaliate with price cuts and promotions.❌Diminishing Returns– Lowering prices to attract customers can reduce profitability.

????Strategic Consideration:Businesses should assesscustomer demand and competitive intensitybefore implementing a market penetration strategy.

2. Product Development????(Introducing new products to existing markets)

Explanation

Product development involves launchingnew or improved productsto meet evolving customer needs. This can include:✅Innovation– Developing new features or technology.✅Product Line Extensions– Introducing variations (e.g., new flavors, models, packaging).✅Customization– Tailoring products to specific customer preferences.

????Example:Apple frequently launchesnew iPhone modelsto attract existing customers.

Advantages of Product Development

✔Higher Customer Retention– Keeps existing customers engaged with new offerings.✔Brand Differentiation– Strengthens competitive advantage through innovation.✔Increases Revenue Streams– Expands product portfolio and market opportunities.

Constraints of Product Development

❌High R&D Costs– Requires investment in innovation and testing.❌Market Uncertainty– New products may fail if not aligned with customer needs.❌Risk of Cannibalization– New products may reduce sales of existing products.

????Strategic Consideration:Businesses should conductmarket research, prototyping, and feasibility analysisbefore launching new products.

3. Market Development????(Expanding into new markets with existing products)

Explanation

Market development involvesselling existing products in new geographical areas or customer segments. Strategies include:✅Expanding into international markets.✅Targeting new demographics (e.g., different age groups or industries).✅Entering new distribution channels (e.g., e-commerce, retail stores).

????Example:McDonald’s expands intonew countries, adapting its menu to local preferences.

Advantages of Market Development

✔Access to New Revenue Streams– Increases customer base and sales.✔Diversifies Market Risk– Reduces dependency on a single region.✔Leverages Existing Products– No need for costly product innovation.

Constraints of Market Development

❌Cultural and Regulatory Barriers– Differences in consumer behavior, legal requirements, and competition.❌High Entry Costs– Requires investment inmarketing, distribution, and local partnerships.❌Operational Challenges– Managing supply chains and logistics in new markets.

????Strategic Consideration:Businesses should conductmarket analysis and risk assessmentsbefore expanding internationally.

Conclusion

Each strategic decision hasunique benefits and challenges:

✅Market Penetrationislow-riskbutlimited by market saturation.✅Product Developmentdrivesinnovationbut requireshigh investment.✅Market Developmentexpands revenue streamsbut involvescultural and regulatory challenges.

The best approach depends on a company’scompetitive position, financial resources, and long-term growth objectives.

Environmental Analysis Tools for XYZ Construction Firm

To make strategic decisions, XYZ Construction needs to assess boththe remote environment(external macro factors) andthe operating environment(industry-specific and competitive factors). Two widely used tools for these assessments are:

PESTLE Analysis– for analyzing theremote environment

Porter’s Five Forces– for evaluating theoperating environment

1. Assessing the Remote Environment: PESTLE Analysis

Tool:PESTLE Analysishelps organizations evaluatemacro-environmentalfactors that impact long-term business strategy.

????Why use PESTLE?It identifiesexternal influences(political, economic, social, technological, legal, and environmental) that XYZcannot controlbut must respond to.

PESTLE Analysis for XYZ Construction:

A screenshot of a web page Description automatically generated

Example:If the UK government introducesnew housing grants, XYZ mayexpand operationsto capitalize on increased demand.

2. Evaluating the Operating Environment: Porter’s Five Forces

Tool:Porter’s Five Forceshelps XYZ analyzeindustry-specificcompetition and market dynamics.

????Why use Porter’s Five Forces?It helps assesscompetitive pressuresthat impact XYZ’s profitability and positioning.

Porter’s Five Forces Analysis for XYZ Construction:

A screenshot of a web page Description automatically generated

Example:Ifsupplier power is highdue to rising material costs, XYZ mustnegotiate better contractsor explore alternative suppliers.

Conclusion

✅PESTLE Analysishelps XYZ understand theexternal environmentaffecting the construction industry.✅Porter’s Five Forcesenables XYZ toevaluate industry competitionand make informed strategic choices.