Strategic Choice and Evaluation Essay

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Business Studies

Recommendation of a Growth Strategy for MGM Resorts International

MGM Resorts International is a major leisure and gaming organization. The company is undertaking a great strategy as seen with the organic growth which is taking place through the development of new resorts, including the current development of MGM Coati, which is scheduled to open in 2016, as well as the proposed development in Ontario, to be undertaken in partnership with Fairview Cadillac (MGM, 2013). Other plans for further development are also being considered. However, if an organization wishes to undertake an aggressive growth strategy, it is necessary to consider the different potential strategies which may be utilized. The aim of this paper is to consider the way in which MGM results International may undertake a growth strategy, considering the different options which are available.

Ansoff defined four potential methods of growth based on two dimensions; products and markets, and whether the company which to focus on the existing dimension or expand them (Kotler and Keller, 2011). This created a 2 x 2 matrix in which the four potential growth strategies were presented; these are market penetration, product development, market development, and diversification (12manage.com, 2013; Kotler and Keller, 2011). Ansoff matrix is shown in figure 1 below.

Figure 1; Ansoff's Matrix

(12manage.com, 2013).

To consider different growth strategies and their potential for use by MGM each different strategy in the various quadrants will be examined individually. The first strategy is market penetration (12manage.com, 2013). This is a strategy in which the organization is utilizing the existing product/services and existing markets, and seeks to simply sell more of the same products or services in the same markets, effectively increasing its market share and revenue by leveraging its existing position (12manage.com, 2013; Kotler and Keller, 2011). This is a potentially beneficial strategy, as it may help an organization to increase efficiency by realizing the economies of scope and scale as well as reducing overheads per customer (12manage.com, 2013). However, it can be a difficult strategy to implement, especially in a mature and competitive marketplace (Kotler and Keller, 2011). As the game in the leisure industry is a ready highly competitive, with MGM competing against a number of other organizations, the cost of increasing market share may be prohibitive, especially given the current operating losses of MGM (MGM, 2013), and the stronger financial position of competitors, who may compete fiercely protect their own market share (Kotler and Keller, 2011). If one considers market penetration strategy, one may also wish to consider the application of game theory, and the danger that in a strong competitive environment there may be the development of a price war which will be detrimental to all competitors (Davis, 1997).

The second strategy is that of market development. Market development is a process in which the organization will seek to increase sales by developing new markets, but choosing the existing products or services (12manage.com, 2013). Market development may be considered in terms of market segments or geographic boundaries. Market development is a ready been undertaken by MGM, as seen with the expansion into new geographic areas, including the planned expansion into Ontario and the current development in Coati (MGM, 2012). MGM currently have only a limited range of operations in North America, mainly Nevada, as well as Michigan and Mississippi, and the majority interest in the resort and Casino at MGM Macau (MGM, 2013). Therefore, Mark expansion free geographic expansion may be a viable strategy, especially given higher level of recognition of the brand name. The potential to locate new resorts and casinos in other areas may be very attractive, especially in Asia where the industry appears to be in a rapid growth phase. However, it should also be remembered that the market expansion strategy will require capital, especially where there is the building of wholly owned facilities, a strategy which may be problematic given the current financial status of MGM.

The third strategy is that of product development. This is when organization seeks to continue selling new products and services to their existing client base (12manage.com, 2013). When examining MGM Resorts International, many of the customers or clients visit the resorts for only short periods each year, so a new product or service which can contact with them while they are not in the resorts may be beneficial. A particular area which may be of use is that of gaming on the Internet, which is gradually gaining a higher level of acceptability and legality in different U.S. states (Seeking Alpha, 2013).

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Therefore, a new product or service that may be offered could incorporate online gaming. However, the MGM brand could also be leveraged in order to create, promote will support other products, for example the movement into retail gaming items, such as playing cards, mobile casino sets etc., all of which may be seen as related diversification. In a product expansion strategy it is also possible for the organization to undertake related diversification; entering into completely new areas which are unrelated to existing operations. This may have some potential benefit, and will provide benefits associated with diversification of risk, especially the gaming and resort industry suffers due to external factors, such as the economy (Pearce & Robinson, 2013).

The final potential growth strategy outlined by Ansoff is that of diversification, where there is an attempt to sell new products in new markets (12manage.com, 2013). Again, this may be undertaken in the context of related or unrelated diversification (Pearce & Robinson, 2013). This strategy has also been referred to as the "suicide" strategy, as it has a high level of risk, with a very steep learning curve (Kotler and Keller, 2011). The strategy is risky as the organization will be developing new products, which it has limited knowledge, in order to sell in new markets, again whether company has only limited knowledge; it is a strategy which is most likely to fail (Kotler and Keller, 2012).

From an examination advance of strategies, it would appear that the most viable strategies are those of market development and product development. The organization is a ready undertaking market development, and may have the potential to undertake further development in order to make the brand available in more cities across the world. However, the way in which this is undertaken in the current situation may be constrained due to the capital limitations. Therefore, in order to undertake market expansion/development, it maybe argued that the utilization of strategic alliances would be beneficial, as seen with Fairview Cadillac in Ontario. However, if the company wishes to undertake a more aggressive strategy, the utilization of franchise agreements may be beneficial. Franchise agreements will allow the brand to expand, and MGM Resorts International may benefit from the generation of additional revenue the initial and ongoing franchisees that are received. The strategy may be advantageous for MGM resource International, as other companies will carry the risk associated with each market, as well as provide the capital for the investments. The franchisees will benefit from use of the MGM Resorts International name, and contracts may be utilized effectively in order to ensure that the franchisees are bound by terms dictating specific high standards (Mintzberg et al., 2011). The franchise model has been utilized extensively by a large number of organizations, including those in the leisure industry, to achieve international growth at a rapid rate. Examples include, but are not limited to, IHG Inc. has used it extensively with their Holiday Inn and Holiday Inn Express brands, and companies such as Starbucks and McDonald's regularly use this approach.

The product development strategy may also have a great deal of potential, especially given the changes which are taking place in the legislative environment in the U.S. regarding online gaming. The development of a new service to facilitate online gaming may attract many MGM existing clients, and may be tied in with the existing MGM customer programs. This is a new product targeting existing market, and as it becomes established an existing product, it may also facilitate further expansion into new markets were online gaming has a ready been more established.

The grand strategy recommended in the adoption of an aggressive growth strategy, leveraging the existing brand image differentiation associated with MGM as a high-quality supplier of leisure and gaming services. The strategies will be implemented in a manner that will help to reduce overall costs and improve profitability for the organization. It is recommended that the organization continue growth through a combination of market development and product development. Market development may be most effectively achieved through the utilization of a franchise model, generating additional revenues without increasing liabilities or costs other than as set up a franchise office. Product development into online gaming may be seen as a natural progression, provide for related diversification. The two expansion strategies which facilitate growth may also be seen as highly aligned with the existing strategies, fitting in well with the existing brand......

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