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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
Question 1
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... show full transcript
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
Step 1
Option 1
Answer
Spotify has opportunities to enhance its service through the development of new video experiences. These innovations can attract more customers as the market for pure streaming matures. Since early adopters, particularly for Virtual Reality experiences, often have greater disposable incomes and lower price sensitivity, they are likely to embrace higher pricing structures for these advanced experiences.
Moreover, users in established regions like the US and Europe are more likely to have access to the necessary technology. This positions Spotify advantageously to link its audio services with video content, thereby enriching user engagement.
As a well-established brand since 2008, Spotify can leverage its reputation to cultivate user confidence and loyalty, even as competitors like Apple seek to develop new content. This strategic focus allows Spotify to optimize costs, thereby potentially increasing its profit margins.
Step 2
Option 2
Answer
Expanding into new markets offers Spotify a substantial growth opportunity, potentially exceeding what could be obtained in established markets characterized by strong competition from giants like Amazon and Google. Given that only 14% of global digital music revenue is sourced from Asia, significant untapped potential exists.
This scenario is further bolstered by mobile network providers integrating music streaming services into their plans, presenting an opportunity for Spotify to gain exposure to a multitude of new consumers.
However, it is crucial to acknowledge potential challenges, including copyright concerns and the price sensitivity of consumers in Asian markets who may not be able to afford higher subscription fees. Engaging these markets could also be more complex than anticipated.
In summary, while the existing markets pose a lower risk due to Spotify's established brand, the fast-growing opportunities in Asia could represent a more significant upside. This consideration aligns with Ansoff’s matrix, suggesting that despite the heightened risks, expanding into these new markets could yield substantial rewards.