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BUSINESS ADMINISTRATION AND ENTREPRENEURSHIP

MODULE 8 PACKET
EC 212: BUSINESS PLAN PREPARATION

MODULE 8 OVERVIEW:

Welcome to Module 8 - Key Business Strategies

Product Development Strategies

Successful companies are adept at creating products that exactly fit what their
target customer groups need. They continually identify what customers’ most
urgent needs are as well as the problems they are looking to solve immediately.
The company then develops products and services that deliver more benefits to
customers than what competitors are capable of delivering. The company
adapts its products and services as customer needs change.

Here are five examples of a product development strategy:

1. Price driven strategy: adopting a premium or value strategy

2. Innovation strategy: offering the best and charging for it (or not – fast
follower)
3. Time to market strategy: being first to market with a better product
4. Market/Customer oriented strategy use customer insights and competitive
position
5. Platform driven strategy: optimize flexibility, cost, and scale with a more
internal strategy

Marketing Strategies

Companies must devise cost-effective means of reaching increasing numbers of

customers. No company has unlimited financial and personnel resources to
devote to marketing. Strategic planning helps the management team determine
where they should concentrate their resources in order to reach the largest
number of customers. Companies also must craft the marketing message that
they will deliver to these potential customers in such a way that the benefits of
the company’s products and services are clearly articulated. When customers
understand the product's benefits, especially relative to those of competitive
products, they are more likely to be motivated to make a purchase.
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Distribution Strategies

Distribution strategies have the objective of creating as many opportunities as

possible for the customers to purchase from the company. A gourmet food
manufacturer that distributes in one region might decide to develop a national
mail order business as a new distribution channel. Seeking out new channels of
distribution is a key business development strategy for any company.

 Direct distribution - In the direct distribution strategy, manufacturers sell and

send their products directly to consumers. They may accept consumer orders
through an e-commerce website, catalog or over the phone. Once the
manufacturer receives an order, they ship the product directly to the consumer's
preferred address. Using the direct distribution strategy can benefit you by
providing you with access to more data about your consumers and target
audience. It can also give you more control over the entire consumer experience.

 Indirect distribution - An indirect distribution strategy involves an intermediary

that assists with the logistics and placement of products to ensure they reach
customers in a timely manner and at an optimal location based on the
consumer's habits or preferences. The actual manufacturer of the product may
not have any direct interactions with the end-user or consumer. For example, a
consumer might purchase a product from a large, third-party retailer where the
manufacturer sends their produts. Using the indirect distribution strategy can
benefit you by improving the overall consumer experience, granting you access to
more locations and increasing brand awareness.

Examples of intermediaries that companies may choose to work with through an

indirect distribution strategy include:

 Wholesaler: A wholesaler purchases products from a manufacturer in bulk and

then sells them to retailers. They may receive a discount for purchasing a large
quantity of products at once, which allows them to make a profit off of the
products when they resell them.
 Retailer: Retailers may purchase products directly from a manufacturer or from
a wholesaler. They may resell the products directly to consumers through their
physical storefronts, e-commerce websites, social media platforms, catalogs or
over the phone.
 Franchisor: Instead of building their own physical storefronts, manufacturers
may sell the rights to their product or service and their brand name to an
individual so they can open a franchise location. While the individual owns the
franchise, the manufacturer still maintains a significant level of control through
contractual agreements.
 Distributor: A distributor partners with a manufacturer to help them transport
their products to retailers or other endpoint locations. Manufacturers may choose
to work with a designated distributor to save on logistics and transportation.
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 Intensive distribution - In the intensive distribution strategy, companies place
their products in as many retail locations as possible. Products that require
minimal effort to sell typically perform the best with this type of distribution
strategy. If your company produces an inexpensive product that customers
purchase routinely, this distribution strategy may make sense for you. For
example, a company that produces breath mints may distribute to grocery stores,
gas stations, vending machines and other popular retail locations. Using the
intensive distribution strategy can help you improve brand awareness, expand
into new markets and acquire new customers.
 Exclusive distribution - Through the exclusive distribution strategy,
manufacturers make a deal to sell their product only to one specific retailer. They
may also choose to sell their products only through their own brand via their
website or physical storefronts. For example, if you sell luxury cars, your
customers may only be able to purchase them directly from one of your
company's stores. This strategy works well for expensive, highly sought-after
items. Using the exclusive distribution strategy can help you increase revenue
margins, enhance product value and improve brand loyalty.
 Selective distribution

The selective distribution strategy is a hybrid of intensive and exclusive distribution.

Companies who use this strategy distribute their products to more than one location,
but they are more selective about which retailers they work with than companies who
use the intensive distribution strategy.

For example, a high-end clothing company may choose to sell its products in its own
stores and through a handful of carefully selected boutique shops instead of distributing
its products to large chain retailers. Using the selective distribution strategy can provide
you with more control over the customer experience and brand messaging. It can also
help you enhance your product's value and increase opportunities for consumers to
purchase your product.


Long Range Strategies

Because of the long lead times involved in developing and marketing new
products, companies must attempt to spot emerging trends well enough in
advance that they can take advantage of them before significant competition
develops. Long-range strategic planning also involves viewing the company’s
market opportunity in a broad context. A company that has been successful
marketing designer dog collars, for example, could expand into other premium
dog care items such as beds, clothing or travel harnesses. There’s no reason that
the company should view itself narrowly as a “dog collar” enterprise.
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 Increase brand awareness.
 Lower the cost of production by 5%
 Host four promotional events a year.
 Open two more locations within three years.
 Increase the total income of the company by 15%

Exit Strategy

The ultimate goal for many entrepreneurs is to build the business and sell it for
enough money so they can retire and live comfortably or start their next
venture. This requires building the company right from the beginning with the
goal of making it an attractive acquisition candidate someday. Strategies to
accomplish this include having a defensible competitive advantage, such as
patent protection for the company’s products, not being too dependent on one
product or one customer, and grooming other members of the management
team to take over when the entrepreneur exits.

Examples of Exit Plans

Examples of some of the most common exit strategies for investors or owners of various
types of investments include:

1. In the years before exiting your company, increase your personal salary and pay
bonuses to yourself. However, make sure you are able to meet obligations. It is
the easiest business exit plan to execute.
2. Upon retiring, sell all your shares to existing partners. You will get money from
the sale of shares and be able to leave the company.
3. Liquidate all your assets at market value. Use the revenue to pay off obligations
and keep the rest.
4. Go through an initial public offering (IPO).
5. Merge with another business or be acquired.
6. Sell the company outright.
7. Pass on the business to a family member.

Examples of Risk Management Strategies

Managing business risks requires the adoption of different responses to deal with
different types of risks. Not all risks warrant similar actions or responses. Below are
examples of risk management strategies that businesses can employ:

1. Risk Avoidance

Risk avoidance typically involves removing the possibility of the risk becoming a threat
or a reality. The main goal of risk avoidance is eliminating the possibility that the risk
may materialize or constitute a hazard from the start. This might mean changing your
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manufacturing practices or avoiding some activities, such as entering a new but
possibly threatening contract.

The viability of risk avoidance depends on your specific business circumstances.

Remember that avoiding various activities because of the potential risks also means
forfeiting the returns and opportunities associated with these activities. Over time,
businesses should re-evaluate their risk avoidance strategies and find alternative ways
of addressing the underlying issues.

2. Risk Acceptance or Retention

Risk acceptance means the business won’t take actions to prevent or mitigate risk
probability and impact. Also known as the “do nothing” approach, the business
acknowledges the impending risks at the beginning. It is the best strategy if the
business can absorb or deal with the consequences of the risks.

Businesses should also be wary that if the risks occur regularly, it can lead to business
disruption and high remediation costs. Therefore, assessing this risk management
strategy alongside other approaches is very important. It should be used if the
consequences are not severe or low.

3. Risk Transfer

Transferring risks enables businesses to redistribute the consequences of adverse

events to multiple parties. Businesses can share risks with company members,
outsourced entities, partners, or insurance companies. Risk transfer is best for
business risks that are less likely to occur but have a significant financial impact if they
occur.

Signing contracts with suppliers and contractors is an excellent way of transferring

risks. However, this may not always apply. For instance, if your products or services
are subpar due to supplier or manufacturer error, customers will still associate your
business with poor quality goods, even if the supplier compensates for the damages.

4. Risk Reduction

Risk reduction or mitigation involves measures taken to minimize the impact or

probability of risk occurrence. The focus of risk reduction is to reduce the severity of
consequences to acceptable levels, otherwise known as the residual risk level. Most
businesses strive to reduce risks where possible for economic benefits. For instance,
you can introduce strict safety measures, diversify business operations, or strengthen
internal controls to reduce risk severity.

5. Risk-retention
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Risk-retention is a contentious risk management strategy that should be selectively
applied. Here, the business acknowledges or accepts the risk as is. In most cases, the
risk accepted is a trade-off to offset major risks in the future. For instance, businesses
can choose a low premium health insurance policy with a high deductible rate. The
initial risk is high medical expenses if an employee sustains injuries while at work.

Risk Management Strategies in Cybersecurity

The risk management strategies above generally apply to all business organizations. In
cybersecurity, these strategies would depend on an organization’s chosen cyber risk
management framework.

A cyber risk management framework serves as an organization’s guide in detecting,

assessing, monitoring, and mitigating risks. It contains specific guidelines, industry-
standard methods, and best practices that businesses can adopt.

Some examples of cyber risk management frameworks are:

 National Institute of Standards and Technology (NIST)

Cybersecurity Framework (CSF): NIST CSF is a framework published by
the U.S. NIST, which contains guidelines based on industry standards that can
help organizations mitigate cybersecurity risks.

 Department of Defense (DoD) Risk Management Framework

(RMF): This strategy is used by DoD agencies to manage cybersecurity risks.
The U.S. federal information systems adopted it in 2010.

 Factor Analysis of Information Risk (FAIR) Framework: FAIR enables

organizations to understand risk factors and how probable they are to result in a
loss of assets better.