Generation of Strategic Options - Sample Essay
According to Arnsoff’s matrix, companies can expand their market share through market penetration or product development. In the former, the objective is to attain increased growth using the available products so that the market share can be enhanced. In the latter, the aim is to target the available products at new market segments. Companies can also attain growth by creating new products which are aimed at existing segments. Finally, increased growth can be attained through diversification A cursory look at the chocolate industry in the United States reveals several facts.
One, switching costs are quite high. To take advantage of this observation, the Real Chocolate Company could strive to build customer loyalty through several methods. An important strategy which can help the company attain this goal would be through production of differentiated chocolate products. In the Arnsoff matrix, this compares to producing new products at existing market segments. If well implemented, this can help the company introduce differentiated and highly visible brands and enhance market penetration by locking in loyal customers (Porter, 1998).
Secondly, the company needs to diversify its product mix so that it can serve the mass market and other bigger chocolate market segments other than the gourmet segment. This will help increase the company’s revenue base, increase its market share, and reduce the uncertainty associated with over-dependence on a small segment. Additionally, this move will enable the company to weather the current economic crisis better since it will have recourse to an expanded market. Besides, it will reduce the covert threat posed by chocolate substitutes. To capture the mass market, the company needs to have products that can compete on the basis of price.
As such, it could adopt the cost leadership strategy. To take advantage of the opportunities proffered by the emergent organic chocolate, ethnic and exotic flavour and health conscious segments of the market, the Real Chocolate Company would do well to invest in procurement, R&D and technology processes that would help it obtain the required input and innovate new products for these segments. Technology would improve the physical appearance, flavour and shelf life of its products, a factor that would help raise its profile among connoisseurs of chocolate.
The company would need to raise additional cash to fund these strategic initiatives. With the current credit crunch and high interest rates, funding from the banks may not be immediately forthcoming or would be a tad too expensive. To overcome this problem, the company can raise an initial public offering (IPO) and sell a stake to the public. Alternatively, the company can enter into strategic alliances or make targeted acquisitions of smaller entities which are focussed on specific niche markets. Moreover, the company can turn to the Caribbean countries for the principal supply of cocoa beans.
This would be a clever move in several respects. First, it will enable the company to obtain the highest quality cocoa beans in the world and thus ensure that its products are unquestionably of the best quality. Secondly, it would ensure a steady supply for the company in the foreseeable future and do away with the often erratic supply occasioned by political instability in major producers such as Cote de Ivoire. Third, almost all organic cocoa comes from this region and this would help the firm satisfy the emergent organic segment. Finally, cocoa beans from the Caribbean are not associated with child labour and exploitative practices.
This would do away with the ethical problems facing the company (Suma, n. d). In addition, the company could open a manufacturing plant in Canada, more so for its products which are marketed there. This will help lower the price of its products especially since it would be able to import sugar from the international market which is cheaper as the Canadian government imposes no tariffs on sugar. Since sugar forms close to 20 percent of the chocolate production costs, this would indubitably help the company compete on the basis of price. Finally, the company can solve the problem of poor retail sales through a number of initiatives.
To do this, the Real Chocolate Company can resort to improve the sales by utilizing non-traditional retailers such as cash registers at national stores. Besides fully exploiting the Halloween, Easter, Christmas and winter holidays, the company can also concentrate on conventionally non-candy holidays such as July 4th. Another strategy which the company can make use of is to cross sell its products with other related items such as wine and greeting cards. The company can also use other mass distribution channels to sell its gourmet products.