A-Level Edexcel Business Business Growth: An extension strategy is aimed a

Question

An extension strategy is aimed at preventing the decline stage of a product/service's sales in the medium-to-long term.

Option 1:

- Spotify’s development of new video experiences may add further customers to their service, as sales of pure streaming reaches the maturity phase.
- Early adopters for Virtual Reality experiences may have different consumer characteristics, such as higher disposable income and lower price elasticities therefore they are prepared to pay the higher price.
- Users in the US and Europe are likely to have better access to technology which may give Spotify more opportunity to add value by linking streaming music to video watching and other experiences.
- As an established brand (since 2008), Spotify can focus on its core market and build users, while competitors such as Apple look to create new content. This can reduce costs for Spotify and improve profit margins.

Option 2:

- New markets may provide more sales growth than could be achieved in established markets where competition from well-known brands such as Amazon and Google is significant.
- Only 14% of world digital music revenue comes from Asia, so there is a large number of potential customers that could be attracted to Spotify’s existing services.
- Mobile network providers are including streaming services with their price plans, so this provides an opportunity for Spotify to be introduced to a large number of new customers.
- However, potential copyright infringements and the price sensitivity of Asian consumers, who have lower disposable incomes, may make increasing subscription more difficult for Spotify to achieve.

Potential judgement:

- Focusing on existing markets is the least-risky strategy because the Spotify brand is well-known and trusted for new products that might be developed in the future, such as immersive video content.
- The rapid growth of new markets such as in Asia provides a bigger opportunity; this is an example of well-researched Ansoff’s matrix and suggests despite the higher risk, side-stepping competitors such as Apple and Google who may not be targeting these markets at this time.

An extension strategy is aimed at preventing the decline stage of a product/service's sales in the medium-to-long term - Edexcel - A-Level Business - Question 1 - 2019 - Paper 1

Worked Solution & Example Answer:An extension strategy is aimed at preventing the decline stage of a product/service's sales in the medium-to-long term - Edexcel - A-Level Business - Question 1 - 2019 - Paper 1

Option 1: Spotify’s development of new video experiences

Option 2: New markets may provide more sales growth

Potential judgement

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