Ansoff Matrix
What is it?
It is a marketing planning tool that helps a business determine its product and market growth
strategy
Market Penetration
Market Penetration - a growth strategy where the business focuses on selling existing products
into existing markets
-Focuses on markets and products it knows well
-Likely to have good information on competitors and on customers needs
-Doesn’t require much investment in new market research
-Focuses on markets and products it knows well
-Likely to have good information on competitors and on customers needs
-Doesn’t require much investment in new market research
Market penetration seeks to achieve these main objectives:
· Maintain/Increase the market share of current products
è Competitive pricing strategies, advertising, sales promotion
· Secure dominance of growth markets
· Restructure a mature market by driving out competitors
è Aggressive promotional campaign
è Pricing strategy designed to make the market unattractive for competitors
· Increase usage by existing customers
è Introducing loyalty schemes
Market Development
Market Development - a growth strategy where the business seeks to sell its existing products
into new markets
-It is a more risky strategy than market penetration because of the targeting of new markets
Ways to approach market development:
· New geographical markets
è Exporting the product to a new country
· New product dimensions/packaging
· New distribution channels
è Moving from selling via retail to selling using e-commerce
· Different pricing policies
è To attract different customers
è Create new market segments
Product Development
Product Development - a growth strategy where a business aims to introduce new products into
existing markets
-Requires the business to develop modified products which can appeal to existing markets
-It is suitable for a business where the product needs to be differentiated in order to remain
competitive
Product development places the marketing emphasis on:
· Research and development and innovation
· Detailed insights into customers needs
· Being first to market
Diversification
Diversification – a growth strategy where a business markets new products in new markets
-More risky strategy because the business is moving into markets in which it has little/no
experience
-Must have a clear idea about what it expects to gain from the strategy and the risks it involves
Balance Sheet
What is the Balance Sheet?
Balance Sheet – a summary at point in time of business assets, liabilities and capital
What is included in the Balance Sheet?
· Fixed Assets
è Assets with a lifespan of more than one year (eg. investments)
· Current Assets
è Assets likely to be changed into cash within a year (eg. stock, debtors)
· Current Liabilities
è Debts that have to be repaid within a year
· Net Current Assets (Working Capital)
è Current Assets – Current Liabilities
· Long Term Liabilities
è Debts that are payable after a year
· Net Assets
è Total Assets – Current Liabilities – Long Term Liabilities
· Current Ratio
è Assesses the firm’s liquidity
· Acid Test Ratio
è Assesses the firm’s liquidity but excludes stocks from current assets
· Gearing Ratio
è Explores the capital structure of a business
Liquidity Ratios
Liquidity Ratio – illustrates the solvency of a business (the ability to pay back short term debts)
There are 2 types of liquidity ratios:
1) The Current Ratio
è Current Assets : Current Liabilities
IDEAL: 1.5 – 2 : 1 (sufficient resources)
If it LESS THAN 1.5 : 1
è Low liquidity
è Not enough working capital
è Overborrowing
è Overtrading
If it is ABOVE 2 : 1
è High liquidity
è Too much money is tied unproductively
è Can easily pay off short term debts
Superdry 2010: 2.79 : 1
Superdry 2011: 2.81 : 1
Interpretation:
· Ratio increased
è Unproductivity levels increased
è Insignificant change of 0.02
Response:
· Increase liabilities
è Increasing long term creditors
è Invest more / borrow more
· Decrease assets
è Allow longer credit periods
è Buy with cash
2) The Acid Test Ratio
è Current Assets – Stocks : Current Liabilities
IDEAL: 1 : 1
If it LESS THAN 1 : 1
è Low liquidity
è Not enough working capital
è Overborrowing
è Overtrading
If it is ABOVE 1 : 1
è High liquidity
è Too much money is tied unproductively
è Can easily pay off short term debts
Superdry 2010: 1.91 : 1
Superdry 2011: 1.59 : 1
Interpretation:
· Ratio falls by 0.32
è Liquidity falls
è More productive
è Less capital tied up as stock
Response:
· Increase stocks
· Increase liabilities
è Increase long term creditors
è Invest more / borrow more
· Decrease assets
è Allow longer credit periods
è May lead to higher stocks as customers are attracted to longer credit periods
è Buy with cash
Gearing Ratios
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Limitations of Ratio Analysis
Needs to be compared with other data:
· Results for the same business over previous years
è Analyse the trend of data
· Results from firms in other industries
è Allow comparisons between 2 firms experiencing similar growth rates
It only considers the financial aspects of a business’ performance, although other elements of a
business should be taken into consideration:
· The market in which the business is trading
è A firm operating in a highly competitive market is likely to experience low profits and
depressing ratios
· The position of the firm within the market
è A market leader is likely to provide better returns than a small firm struggling to establish itself
è The small struggling firm may be investing heavily in developing new products and establishing
a brand identity which could lead to large profits in the future
· The quality of the workforce and management team
è But the quality of the workforce would be high due to heavy investment
è Resulting in good performances
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