Important for competition....
Ansoff's Matrix is a key part of most courses where competition is discussed and on the face of it is an easy model for students to understand.
The model was created by Igor Ansoff and was first published in 'Strategies for diversification' in 1957.
The basic premise of the matrix is that there are 4 different strategies that a business can adopt with each one carrying a different degree of risk. At first glance this is simple to apply. For example, a business launching new products into new markets is a high risk strategy because it consists of both product and market development and the business may be operating outside of its comfort zone.
Where Ansoff can become tricky is correctly classifying which strategy the firm is adopting.
For example, when Cobra launched a draft version of its bottled beer. Is this actually a new product? The beer is the same the only difference being its available on draft. Is it a new market? Could the market for bottled beer be classed as different to the marker for draft beer?
However, the most common area I find with students is that they miss perhaps the most important aspect of Ansoff which is the degree of risk. Most students can argue that diversification is a high risk strategy however, not many students go on to classify the degree of risk attached to diversification.
For example, take a hypothetical situation whereby a large supermarket aims to launch a chain of DIY stores. This would be classed as diversification as the move is a new product in a new market. Lets look at an actual example to compare and contrast. In the 1990's Nokia moved from being a producer of car tyres to become a major player in the mobile phone market. Again, this is diversification. However, which one has the greater degree of risk? One could argue that the supermarket moving into the DIY sector is less risky. The supermarket already operates in the retail sector and can transfer many of the skills and systems to its new strategy. Therefore this strategy would be perhaps at the top left hand corner of the diversifciation 'box' whereas in the case of Nokia, this might be placed in the bottom right hand corner of the diversification 'box'.
Here's a revision presentation
The Ansoff Growth matrix is another marketing planning tool that helps a business determine its product and market growth strategy.
The Ansoff Growth matrix is another marketing planning tool that helps a business determine its product and market growth strategy.
Ansoff’s product/market growth matrix suggests that a
business’ attempts to grow depend on whether it markets new or existing
products in new or existing markets. The output from the Ansoff
product/market matrix is a series of suggested growth strategies which
set the direction for the business strategy. These are described below:
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
Market development
Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
Product development
Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
A strategy of product development is particularly suitable for a business where the product needs to be differentiated in order to remain competitive. A successful product development strategy places the marketing emphasis on:
Diversification is the name given to the growth strategy where a business markets new products in new markets.
This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.
Market penetration
Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.
Market penetration seeks to achieve four main objectives:
- Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
- Increase usage by existing customers – for example by introducing loyalty schemes
Market development
Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.
There are many possible ways of approaching this strategy, including:
- New geographical markets; for example exporting the product to a new country
- New product dimensions or packaging: for example
- New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)
- Different pricing policies to attract different customers or create new market segments
Product development
Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.
A strategy of product development is particularly suitable for a business where the product needs to be differentiated in order to remain competitive. A successful product development strategy places the marketing emphasis on:
- Research & development and innovation
- Detailed insights into customer needs (and how they change)
- Being first to market
Diversification is the name given to the growth strategy where a business markets new products in new markets.
This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.
For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.
