Strategic direction involves deciding which markets to enter and what products to develop to achieve business growth and competitive advantage.
Strategic Direction in the Context of Markets and Products
Strategic direction refers to the long-term decisions a business makes about the markets it wants to operate in and the products it offers. This involves aligning product development and market expansion with overall business goals. Strategic direction shapes how a firm competes, allocates resources, and responds to both internal capabilities and external market conditions.
Key elements include:
Market choices – selecting which customer groups, regions, or segments to target
Product focus – deciding whether to innovate, improve, or diversify product offerings
Consistency with objectives – ensuring strategies support long-term mission, financial goals, and stakeholder expectations
This direction influences all aspects of business strategy, from marketing and operations to human resource planning and investment decisions.
Key Factors Influencing Market Entry and Product Development
Decisions about which markets to enter and which products to offer depend on a mixture of external market conditions and internal organisational factors. These influences help businesses evaluate attractiveness, risk, and feasibility when choosing a strategic direction.
1. Market Size and Growth
Market size refers to the total potential sales volume or value in a specific market. Market growth reflects how quickly that market is expanding over time.
These two indicators are critical when assessing whether entering a market or launching a product is likely to be profitable.
Why it's important:
Larger markets offer higher revenue potential
Growing markets suggest rising demand and customer interest
Businesses can achieve scale and reduce unit costs
Key questions businesses ask:
What is the total addressable market (TAM)?
What has been the growth rate over the past five years?
Are there any emerging demographic or technological trends driving growth?
Example:
Tesla entered the electric vehicle (EV) market due to growing environmental concerns, government incentives, and increasing oil prices. EVs were seen as a high-growth segment within the automotive industry.
Strategic impact:
High-growth markets often attract more competition
Businesses may prioritise these markets to boost revenue quickly
Slower-growing or declining markets may require different strategies such as cost leadership
2. Competitive Intensity
Competitive intensity describes the degree of rivalry between firms in a market. A highly competitive market may reduce profit margins and make it harder to gain market share.
Why it's important:
Affects pricing power, customer loyalty, and profitability
Determines barriers to entry (e.g., brand loyalty, economies of scale)
High competition may demand greater investment in marketing, innovation, or cost-cutting
Factors influencing competition:
Number of direct competitors
Market concentration (e.g., dominated by few players)
Ease of switching for customers
Speed of innovation or change
Example:
Netflix’s decision to expand into emerging markets was based in part on the competitive intensity in developed countries, where rivals like Amazon Prime Video and Disney+ were rapidly growing. Expansion allowed them to gain first-mover advantage elsewhere.
Strategic impact:
Businesses may avoid saturated markets and instead look for niche or emerging markets
Firms may choose product innovation or cost leadership to differentiate in competitive markets
3. Customer Needs and Trends
Understanding customer behaviour and emerging trends is crucial to developing successful products and choosing the right markets.
Why it's important:
Ensures the product-market fit is strong
Increases customer satisfaction and loyalty
Anticipates future demand shifts
Types of trends:
Demographic – Ageing populations, urbanisation, birth rates
Social – Health consciousness, ethical consumption
Technological – AI integration, mobile-first preference
Cultural – Local customs, language differences
Example:
Apple launched the Apple Watch to tap into rising consumer interest in fitness, wellness, and integrated smart devices. The move reflected a shift in customer expectations towards health-monitoring technology.
Strategic impact:
Trends can reveal untapped customer segments or gaps in current offerings
Failure to keep up with trends can lead to product obsolescence
Anticipating trends supports innovation and long-term relevance
4. Internal Resources and Capabilities
A firm’s internal resources (what it owns) and capabilities (what it can do) play a significant role in shaping feasible strategic options.
Why it's important:
A business must assess whether it has the means to compete successfully in a new market or with a new product
Avoids overextension of resources or unrealistic expectations
Aligns strategic ambition with operational capability
Types of internal resources:
Financial – Cash reserves, borrowing capacity
Human – Skill levels, leadership expertise
Technological – Patents, R&D systems, proprietary software
Physical – Equipment, locations, infrastructure
Example:
Dyson cancelled plans to launch an electric vehicle due to high development costs and insufficient economies of scale, despite initial investment. This showed a misalignment between ambition and practical resources.
Strategic impact:
Firms with strong resources may pursue aggressive product development or diversification
Resource-constrained businesses may stick to incremental changes or low-cost market entries
5. Risk Tolerance
Every strategic decision carries some degree of risk. A business’s risk appetite influences whether it chooses a cautious or bold strategy.
Why it's important:
High-risk decisions like entering new markets or launching new products can lead to high rewards or costly failures
Risk-averse firms may prefer stability and predictable returns
Investors and stakeholders often shape the company’s risk profile
Types of risk:
Financial risk – Will the investment generate adequate return?
Reputational risk – Could a failed launch damage the brand?
Operational risk – Can the company deliver at scale?
Strategic risk – Does the move align with long-term goals?
Example:
Virgin Galactic entered the commercial space tourism market, an untested area requiring massive investment and regulatory approvals. The high risk was matched by Richard Branson’s vision and high tolerance for uncertainty.
Strategic impact:
Risk-tolerant firms may pursue diversification or innovation-heavy strategies
Conservative firms may prefer market penetration or partnerships to reduce exposure
6. Business Objectives
A firm’s long-term mission and strategic goals will naturally guide which markets and products are most appropriate.
Why it's important:
Keeps strategy aligned with purpose and values
Ensures consistency in brand image and customer expectations
Helps set measurable performance indicators
Types of business objectives:
Growth – Increasing market share or geographic presence
Profitability – Improving margins and reducing costs
Sustainability – Achieving environmental and social goals
Turnaround – Reversing poor performance
Example:
Unilever has shifted towards developing sustainable and ethical products to meet its long-term objective of being an environmentally responsible business. This strategic direction affects market entry (emerging economies) and product development (e.g. plastic-free packaging).
Strategic impact:
Strategic decisions must reinforce the company’s identity
Conflicting strategies and objectives can reduce coherence and lead to internal resistance
Real-World Strategic Decisions in Practice
These practical examples illustrate how real companies weigh the above factors when shaping their strategic direction:
Apple – Wearables and Smartwatches
Market: Global tech and health-conscious consumer segment
Product: Apple Watch
Driving factors:
Rise in interest in health, fitness, and productivity tech
Integration into Apple’s ecosystem
Leveraging R&D and marketing strength
Outcome: Became the world’s leading smartwatch, reinforcing Apple’s innovation leadership.
McDonald’s – Market Development in Asia
Market: China, India, and other emerging economies
Product: Existing menu, adapted to local tastes
Driving factors:
Urbanisation and rising income levels
Lower market saturation compared to Western countries
Brand strength and franchise model
Outcome: Strong growth in international revenues through localisation and efficient supply chains.
Google – Diversifying into Autonomous Vehicles
Market: Future transport and mobility sector
Product: Waymo’s self-driving technology
Driving factors:
Innovation-focused mission
Financial resources to support long-term R&D
Desire to move beyond reliance on ad revenue
Outcome: Still in development phase, showing commitment to long-term diversification.
Lego – Digital and Educational Transformation
Market: EdTech, online gaming
Product: Coding kits, online platforms, learning tools
Driving factors:
Digital-native younger audiences
Decline in physical toy market
Partnerships with schools and software firms
Outcome: Reinvented brand as a hybrid of education and play.
Aldi – Private Label Product Development
Market: Supermarkets and grocery retail
Product: In-house product lines
Driving factors:
Demand for affordable but quality products
Desire for cost control and margin improvement
Brand image of value-for-money
Outcome: Massive growth in UK and European markets, with loyal customer base.
These examples highlight how businesses analyse a range of strategic factors to make informed, sustainable, and competitive decisions about which markets to enter and what products to offer. Each factor plays a role in guiding strategic direction in an increasingly dynamic global economy.
FAQ
Technological change drives innovation and can create new opportunities for product development. Businesses must monitor advances in their industry to remain competitive, as failure to adapt may result in product obsolescence. For example, improvements in artificial intelligence, battery technology, or materials science can enable businesses to create smarter, more efficient products. Companies often develop new products that integrate emerging technologies to meet evolving consumer expectations and gain a first-mover advantage. Adapting to technological change also supports long-term sustainability and differentiation.
Although large, fast-growing markets offer high potential returns, they also pose significant risks and challenges. High growth often attracts many competitors, increasing competitive intensity and reducing profitability. Additionally, such markets may require heavy upfront investment in marketing, distribution, and compliance. For smaller firms, internal resource limitations may make it difficult to scale effectively. If the business lacks market knowledge or local expertise, it may also struggle with cultural, legal, or operational barriers, ultimately weakening its competitive position.
Government regulations can significantly affect the attractiveness of a market. Strict legal frameworks, such as health and safety standards, import restrictions, environmental rules, and labour laws, increase compliance costs and operational complexity. In some countries, foreign ownership rules or tariffs may limit accessibility. Businesses must weigh these regulatory risks against market potential. Firms entering highly regulated industries like pharmaceuticals or finance must often invest in legal expertise and risk management, which can deter entry or limit the scope of expansion.
Strong brand recognition allows a business to more easily enter new markets or launch new products. A well-established brand builds customer trust, reduces perceived risk, and can command premium pricing. It also makes it easier to gain distribution partnerships or media attention. When choosing a strategic direction, firms with strong brands may favour diversification or international expansion, confident in their ability to transfer brand equity. In contrast, firms with weak brand identity may focus on existing markets and incremental improvements.
Stakeholders such as investors, customers, employees, and pressure groups can shape product development priorities. For example, investors may push for high-return innovations, while customers demand ethical sourcing or sustainability. Employees may advocate for safe, high-quality products, and NGOs might pressure firms to avoid harmful materials. Businesses often balance these influences by aligning product choices with stakeholder expectations, such as introducing eco-friendly ranges or socially responsible offerings. Ignoring key stakeholders can lead to reputational damage, reduced loyalty, or even regulatory scrutiny.
Practice Questions
Analyse how a business’s internal resources and capabilities may influence its choice of which new product to develop. (10 marks)
A business’s internal resources and capabilities directly shape the feasibility of developing a new product. For example, a firm with strong R&D and technological expertise is more likely to pursue innovation-led strategies, such as creating cutting-edge tech products. Conversely, limited financial resources may restrict product development to modifications of existing lines. Capabilities in marketing, production, or distribution also influence whether a business can effectively launch and scale a new offering. Therefore, businesses often align product decisions with their core strengths to maximise success while avoiding overextension. This ensures strategic coherence and more efficient use of internal resources.
Explain how customer needs and market trends might influence a firm’s decision about which market to enter. (10 marks)
Customer needs and market trends guide firms in identifying markets with strong growth potential and alignment with their offerings. For instance, rising demand for sustainable products may encourage entry into eco-conscious regions. Understanding local preferences enables firms to tailor products, improving chances of market acceptance. Additionally, trends such as digitalisation or health awareness help firms predict where future demand will lie. Ignoring such factors may result in weak sales or product misfit. Therefore, thorough market research is essential in selecting markets where evolving customer expectations match the business’s value proposition, ultimately influencing long-term success.
