THE MARKETING AGENDA
COCA-COLA: ANSOFF
MATRIX
by Tom Oakley
https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/
The objective of every business is to grow, be it a start-up that’s just closed its
first deal or an established market leader seeking to further increase profitability.
But how does a business decide upon the best strategy for growth? The Ansoff
Matrix management tool offers a solution to this question by assessing the level
of risk – considering whether to seek growth through existing or new products in
existing or new markets.
To demonstrate the robustness and legitimacy of Ansoff’s Matrix, it has been
applied to Coca-Cola, the most well-known trade name in the world and a
company today operating in over 200 countries; and a brand that has undertaken
countless growth strategies in its 100+ year history.
Market Penetration: (EXISTING Market, EXISTING Product)
This strategy involves an attempt to increase market share within existing
industries, either by selling more product to established customers or by finding
new customers within these markets – typically by adapting the ‘Promotion’
element of the Marketing Mix. Due to the incredible strength of Coca-Cola’s
brand, the company has been able to utilise market penetration on an annual
basis by creating an association between Coca-Cola and Christmas, such as
through the infamous Coca-Cola Christmas advert, which has helped boost sales
during the festive period.
Product Development: (EXISTING Market, NEW Product)
This involves developing new products for existing markets by thinking about
how new products can meet customer needs more closely and outperform
competitors. A prime example of this was the launch of Cherry Coke in 1985 –
Coca-Cola’s first extension beyond its original recipe – and a strategy prompted
by small-scale competitors who had identified a profitable opportunity to add
cherry-flavoured syrup to Coca-Cola and resell it. The company has since gone on
to successfully launch other flavoured variants including lime, lemon and vanilla.
Market Development: (NEW Market, EXISTING Product)
Thirdly, the market development
strategy entails finding a new group of
buyers for an existing product. The
launch of Coke Zero in 2005 was a
classic example of this – its concept
being identical to Diet Coke; the great
taste of Coca-Cola but with zero sugar
and low calories. Diet Coke was
launched more than 30 years ago, and
whilst more females drink it every day
than any other soft drink brand, it
came to light that young men shied away from it due to its consequential
perception of being a woman’s drink. With its shiny black can and polar opposite
advertising campaigns, Coke Zero has successfully generated a more ‘masculine’
appeal.
Related Diversification: (NEW Market, NEW Product)
This involves the production of a new category of goods that complements the
existing portfolio, in order to penetrate a new but related market. In 2007, CocaCola spent $4.1 billion to acquire Glaceau, including its health drink brand
Vitaminwater. With a year-on-year decline in sales of carbonated soft drinks like
Coca-Cola, the brand anticipates the drinks market may be heading less-sugary
future – so has jumped on board the growing health drink sector.
Unrelated Diversification: (NEW Market, NEW Product)
Finally, unrelated diversification entails entry into a new industry that lacks
important similarities with the company’s existing markets. Coca-Cola generally
avoids risky adventures into unknown territories and can instead utilise its brand
strength to continue growing within the drinks industry. That said, Coca-Cola
offers official merchandise from pens and glasses to fridges, therefore exploiting
its strong brand advocacy through this strategy.
Conclusion:
What is clear with Ansoff’s Matrix is the incremental increase in risk offered by
the five strategies, due to the growing cost with each step beyond market
penetration and uncertainty of operating in new markets and industries:
Going back to the example of Coca-Cola, the firm’s emphasis on market
penetration and other non-diversification strategies therefore suggests it is a
relatively risk-averse company, when compared with a firm like the Virgin Group.
That said, there is no one best strategy to select, with each offering different
benefits to companies in various circumstances. For example, Coca-Cola has had
little need to diversify relative to the Virgin brand which traditionally operates in
uncertain markets such as the volatile airline industry, meaning diversification
actually spreads risk.
Even so, Coca-Cola would not be the power house it is today without knowing
when to step out of its comfort zone – the Glaceau acquisition being a clear case
in point. Even though there was minor potential that it could dilute Coca-Cola’s
reputation for carbonated soft-drinks in the short term, it has been deemed a
suitable strategy given the brand’s long-term view for growth in the face of a
changing market.