Question

Write the following information in easily way and in simple words as your understanding without missing the keywords. ( the Question will be 25 on this information in final )

Market Scope Strategies
Scope is a choice by the entrepreneur about which customer groups to serve and how to serve them.The choice of market scope ranges from a narrow- to a broad-scope strategy
and depends on the type of risk the entrepreneur believes is more important to reduce.Narrow-Scope Strategy A narrow-scope strategy offers a small product range to a
small number of customer groups to satisfy a particular need. The narrow scope can reduce the risk that the firm will face competition with larger, more established firms in a number
of ways.

Narrow-Scope Strategy
• A narrow-scope strategy focuses the firm on producing customized products, localized business operations, and high levels of product quality. Such outcomes provide the basis for differentiating the firm from larger competitors who are oriented more toward mass production and the advantages that are derived from that volume. A narrow-scope strategy of product differentiation reduces competition with the larger established firms and allows the entrepreneur to charge premium prices.
• By focusing on a specific group of customers, the entrepreneur can build up specialized expertise and knowledge that provide an advantage over companies that are competing more broadly. For instance, the entrepreneur pursuing a narrow-scope strategy is in the best position to offer superior product quality, given his or her intimate knowledge of the product attributes customers desire most.
• The high end of the market typically represents a highly profitable niche that is well suited to those firms that can produce customized products, localized business operations, and high levels of product quality. From the first point listed, we know that firms pursuing a narrow-scope strategy are more likely to offer products and services with these attributes than are larger firms that are more interested in volume. However, a narrow-scope strategy does not always provide protection against competition. For example, the firm may offer a product that the entrepreneur believes is of superior quality, yet customers may not value the so-called product improvements or, if they do perceive those improvements, they may be unwilling to pay a premium price for them, preferring to stick with the products currently being offered by the larger firms. That is, the boundary between the market segment being targeted by the entrepreneur and that of the mass market is not sufficiently clear and thus provides little protection against competition. Furthermore, if the market niche is attractive, there is an incentive for the larger and more established firms (and all firms) to develop products and operations targeted at this niche. For example, a larger, more mass market–oriented firm might create a subsidiary to compete in this attractive market segment. Although a narrow-scope strategy can sometimes reduce the risks associated with competition, this scope strategy is vulnerable to another type of risk: the risk that market demand does not materialize as expected and/or changes over time. For example, a narrow-scope strategy focuses on a single customer group (or a small number of customer groups), but if the market changes and decreases substantially the size and attractiveness of that market segment,
then the firm runs a considerable risk of downside loss. Having a narrow-scope strategy is like putting all your eggs in one basket. If that basket is fundamentally flawed, then all the eggs will be dropped and broken. A broad-scope strategy, on the other hand, provides a way of managing demand uncertainty and thereby reducing an aspect of the entrepreneur’s risk.
Broad-Scope Strategy

A broad-scope strategy can be thought of as taking a “portfolio” approach to dealing with uncertainties about the attractiveness of different market segments. By offering a range of products across many different market segments, the entrepreneur can gain an understanding of the whole market by determining which products are the most profitable. Unsuccessful products (and market segments) can then be dropped and resources concentrated on those product markets that show the greatest promise. In essence, the entrepreneur can cope with market uncertainty by using a broad-scope strategy to learn about the market through a process of trial and error. The entrepreneur’s ultimate strategy will emerge as a result of the information provided by this learning process. In contrast, a narrow-scope strategy requires the entrepreneur to have sufficient certainty about the market that he or she is willing to focus his or her resources on a small piece of the market, with few options to fall back on if the initial assessment about the product proves incorrect. Offering a range of products across a range of market segments means that a broad-scope strategy is opening the firm up to many different “fronts” of competition. The entrepreneur may need to compete with the more specialized firms within narrow market niches and simultaneously with volume producers in the mass market. Therefore, a narrow-scope strategy offers a way of reducing some competition-related risks but increases the risks associated with market uncertainties. In contrast, a broadscope strategy offers a way of reducing risks associated with market uncertainties but faces increased exposure to competition. The entrepreneur needs to choose the scope strategy that reduces the risk of greatest concern. For example, if the new entry is into an established market, then competitors are well entrenched and ready to defend their market shares. Also the market demand is more stable and market research can inform the entrepreneur
on the attractiveness of the new product with a particular group of customers. In this situation, where the risk of competition is great and market uncertainties are minimal, a narrow-scope strategy is more effective at risk reduction.However, if new entry involves the creation of a new market or entry into an emerging market, then competitors are more concerned with satisfying new customers entering the market than on stealing market share from others or retaliating against new entrants. Also there is typically considerable market uncertainty about which products are going to be winners and which are going to be losers. In this situation, a broad-scope strategy reduces the major risk, namely, risks associated with uncertainties over customer preferences.

Answer 1

Market Scope Strategies -
'Scope' is a choice by the entrepreneur about which customer groups to serve and how to serve.

The ‘choice of market scope’ ranges from a narrow to a broad scope strategy and depends on the type of risk the entrepreneur believes is more important to reduce.

Narrow-Scope Strategy -

Suitable for firms that offer a small product range to a small number of customer groups to satisfy a particular need.

This strategy helps the firm to produce customized products, localized business operations and high levels of product quality. Such outcomes provide the basis for differentiating the firm from larger competitors who are more production oriented, reduces competition with them and allows the entrepreneur to charge premium prices.

• Focusing on a specific group of customers provides the entrepreneur a specialized expertise knowledge ; which provides the firm an advantage over othe rival companies as entrepreneur pursuing a narrow-scope strategy is in the best position to offer superior product quality.

• The high end of the market typically represents a highly profitable position that is well suited to those firms that can produce customized products, localized business operations, and high levels of product quality.

However, a narrow-scope strategy does not always provide protection against competition. For example, the firm may offer a product that the entrepreneur believes is of superior quality, yet customers may not value the so-called product improvements or, if they do perceive those improvements, they may be unwilling to pay a premium price for them, preferring to stick with the products currently being offered by the larger firms.

Further if the market position is attractive, there is an incentive for the larger and more established firms (and all firms) to develop products and operations targeted at this position. For example, a larger, more mass market–oriented firm might create a subsidiary to compete in this attractive market segment.

Although a narrow scope strategy can sometimes reduce the risks associated with competition, this scope strategy is vulnerable to another type of risk: the risk that market demand does not materialize as expected and/or changes over time. For example, a narrow-scope strategy focuses on a single customer group (or a small number of customer groups), but if the market changes and decreases substantially the size and attractiveness of that market segment,then the firm runs a considerable risk of downside loss.

Having a narrow scope strategy is like putting all your eggs in one basket. If that basket is fundamentally flawed, then all the eggs will be dropped and broken.

A broad-scope strategy, on the other hand, provides a way of managing demand uncertainty and thereby reducing an aspect of the entrepreneur’s risk.

Broad-Scope Strategy -

This strategy is like taking a “portfolio” approach to deal with uncertainties about the attractiveness of different market segments. By offering a range of products across many different market segments, the entrepreneur can gain an understanding of the whole market by determining which products are the most profitable. Then unsuccessful products and market segments can be dropped and resources can be concentrated on those promising product markets.

Analysis and Comparison of both strategies -

In essence, the entrepreneur can cope with the market uncertainty by using a broad-scope strategy to learn about the market through a process of trial and error. The entrepreneur’s ultimate strategy will emerge as a result of this learning process.

In contrast, a narrow-scope strategy requires the entrepreneur to have sufficient certainty about the market that he or she is willing to focus with his or her resources on a small piece of the market, with few options to fall back on if the initial assessment about the product proves incorrect. Offering a range of products across a range of market segments means that ;a broad-scope strategy opens the firm to face several forms of competition. The entrepreneur may need to compete with the more specialized firms within narrow market niches and simultaneously with volume producers in the mass market.

Therefore a narrow-scope strategy offers a way of reducing some competition-related risks but increases the risks associated with market uncertainties. In contrast, a broadscope strategy offers a way of reducing risks associated with market uncertainties but faces increased exposure to competition.

Selecting the suitable strategy -

The entrepreneur needs to choose that strategy which will reduce the risk of greatest concern. For example, if the new entry is into an established market, then competitors are well entrenched and ready to defend their market shares. Also the market demand is more stable and market research can inform the entrepreneur on the attractiveness of the new product with a particular group of customers. In this situation, where the risk of competition is great and market uncertainties are minimal, a narrow-scope strategy is more effective at risk reduction.However, if new entry involves the creation of a new market or entry into an emerging market, then competitors are more concerned with satisfying new customers entering the market than on stealing market share from others or retaliating against new entrants. Also there is typically considerable market uncertainty such as which products are going to be winners and which are going to be losers. In this situation, a broad-scope strategy reduces the major risk, namely, risks associated with uncertainties over customer preferences.