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Buy it Direct has set the objective of increasing its sales revenue - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Buy it Direct has set the objective of increasing its sales revenue. It is considering two options, either to adopt a strategy of market penetration in the UK Electr... show full transcript
Worked Solution & Example Answer:Buy it Direct has set the objective of increasing its sales revenue - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Step 1
Option 1 – market penetration
Answer
Market penetration involves selling existing products within an existing market, making it the least risky strategy according to Ansoff's matrix.
Buy it Direct, being one of the largest online retailers in the UK, can leverage its existing infrastructure to extend the sales of its range of household electrical goods, which includes products from established brands like Bosch and Zanussi. By targeting a broader audience among its existing customer base, Buy it Direct can likely increase sales volume without the need for significant investments into new product development or additional market research.
Moreover, by maintaining its current product line and focusing on customer loyalty, Buy it Direct can achieve economies of scale, leading to lower marginal costs per unit sold. This increased efficiency may result in higher profit margins and greater sales revenue.
Step 2
Option 2 – diversification
Answer
Diversification, on the other hand, entails introducing new products to new markets, which presents a higher level of risk. Although this approach can potentially allow Buy it Direct to tap into new customer segments, it drives up costs associated with product development and market entry.
Establishing a bathroom products division is an example of diversification into a new segment; however, it could also distract from the core business. The UK Electrical Household Appliance market has shown only modest growth, exacerbated by fluctuating consumer confidence. Investing in diversification may not yield the expected return if the conditions are unfavorable or if the company fails to capture market share.
Furthermore, competition from established players could hinder Buy it Direct's ability to achieve significant sales growth in the new market.
Step 3
Recommendation
Answer
Based on the evaluation, market penetration is the more advisable strategy for Buy it Direct in achieving its objective of increasing sales revenue. The lower risk, potential for immediate sales growth through existing customer bases, and operational efficiencies render this option more viable. In contrast, diversification introduces higher uncertainties and costs without a guaranteed return, especially given the current climate of modest market growth in household appliances.