1.7 (?)Ansoff matrix
Describe Ansoff matrix
• Igor Ansoff (1957) developed a strategic
decision-making tool (Ansoff matrix) to
analyze the different options for expansion
available to a business.
• His approach is represented in the form of a
matrix with 4 possible growth strategies in
terms of products and markets.
• These options can be illustrated as follows:
Illustration
What is Market Penetration?
• Market penetration is a low-risk growth
strategy that is simply selling more of existing
products to existing customers.
• It can be achieved by reducing price, more
advertising, better advertising, improving
sales techniques, more and/or better
distribution methods, new packaging, etc.
• The aim is to increase market share of existing
market.
Features of market penetration
• It is the safest of the four product-market
strategies and requires minimum marketing or
product research expenditure compared to
other growth strategies
• One limitation is that competitors will respond
quickly leading to price wars. Also existing
markets can become saturated quickly and an
alternative strategy has to be found
What is Product Development?
• Product development is a medium-risk growth
strategy that involves introducing new
products in existing market.
• In industries where there is a short product
life cycle (I-phones, computers, cars), product
development is a central strategy to retain
existing customers. E.g. Apple, Toyota,
McDonald, etc
Features
• It is suitable way of retaining existing
customers when existing products have
reached the saturation stage of their life cycle
and new products can be launched under the
same brand name.
• However, it requires some investments in
product research and development and all
new products may not be successful.
What is market development?
• Market development is a medium risk growth
strategy that involves selling existing products in
new markets.
• To attract different market segments, prices can
be changed or new promotion techniques can be
used
• New markets can be another geographical area,
another demographic group (a new social class)
or another audience (new channel users :ecustomers).
Features
• One key advantage of this growth is that the
business is familiar the product and can move
from a saturated segment into a new one.
• However, success is not guaranteed in another
market segment and some marketing
expenditure is necessary.
Diversification?
• Diversification is a high risk strategy that
involves introducing new products in new
markets. Its main objective is spreading of
risks.
• A common way to diversify is to become a
holding (parent) company with several
subsidiaries and this is why it is sometimes
known as conglomerate diversification.
Two types of diversification
• Related diversification occurs when a business
caters different but within the same range of
products for a new market. E.g. Toyota
offering Lexus, Pepsi offering bottled water.
• Unrelated diversification occurs when a
business caters for completely new products
in new markets. E.g. Samsung operates in
electronic, shipbuilding, insurance, etc.
Features
• Diversification allows spreading of risks to a
great extent and to become a powerful
market player
• However, the dangers of diversification are
that too much time and resources can be
devoted to non-core activities or there can be
no managerial skills in the alternative
industries.