Ansoff's Matrix

What is the Ansoff Matrix?

A marketing planning model that helps a business determine its product and market strategy

What is Market Penetration?

A growth strategy where a business aims to sell existing products into existing markets

What are the features of Market Penetration?

• Aim: to increase market share

• By selling more existing products to the same target customers

• Get existing products to the same target customers

• Widen the range of existing products

What are examples of market penetration strategies?

• Aldi: Rapid organic growth in the UK targeting the same customer base with new stores

• Dominos: Effective use of e-commerce to encourage existing customers to buy more pizza

What is the evaluation of market penetration?

• Business focuses on markets and products it knows well

• Can exploit insights on what customers want (and competitors)

• Unlikely to need significant new market research

• But will the strategy allow the business to achieve its growth objectives

Why should a business choose market penetration?

• There is growth in the existing market.

• There is scope to encourage greater frequency of use among existing customers.

• Some consumers may be encouraged to put an existing product to different uses, thus increasing demand.

• By modifying its marketing mix, there may be potential to attract customers away from competitors, thus increasing the business's market share.

What is product development?

A growth strategy where a business aims to introduce new products into existing markets

What are examples of product development strategies?

• Brand extensions are common examples of product development strategies

• Technological innovation provides significant opportunities for product development strategies

What is the evaluation of product development strategy?

• A strategy that often plays to the strengths of an established business

• Strong emphasis on effective market research (insights into customer needs) and successful innovation

• A great way of exploiting the existing customer base

• Being first to market is usually important

Why should a business choose a product development strategy?

• The scope to adapt the quality of a product in order to appeal to

  different market segments.

• An existing product is becoming obsolete or out of date and needs to be replaced in order to avoid the loss of market share

• An existing product has created a need or desire for complementary products

• Market researchers reveal the potential for a new product that would serve previously unrecognised customer needs

What is market development?

A growth strategy where the business seeks to sell its existing products into new markets

What are approaches to market development?

• New geographical markets; e.g. exporting to emerging markets

• New distribution channels: e.g. using e-commerce and mail order

• Different pricing policies to attract new customers in different segments

What are examples of market development strategies?

• Starbuck’s expansion into China is a classic example of a successful market development strategy

• Tesco’s market development strategy to enter the US grocery supermarket sector was a disaster for shareholders

What is the evaluation of market development strategy?

• A logical strategy where existing markets are saturated or in decline

• Often more risky than product development- particularly expansion into international markets

• Existing products may not suit new markets: depends on customer needs

Why should a business choose a market development strategy?

• There are market segments that do not currently buy an existing product in significant numbers, but that the business believes has the potential to buy more of the product.

• There is scope to enter new markets, such as overseas countries.

• New markets/market segments can be reached easily using the business's existing channels.

• The business has spare capacity and high fixed costs and therefore it would be cost-effective to increase levels of production.

• The business's greatest strength is the reputation of its existing products.

What is diversification?

The growth strategy where a business markets new products in new markets

What are examples of diversification?

• Alphabet

• Samsung

What are examples of failed diversification?

• Friends Reunited social networking website closed down:

  • A great example of a failed takeover and diversification: bought by ITV for £175m; sold fold £25m and then closed

• HMV selling live music assets for £7.3m:

  • Retailer HMV diversified into the live entertainment market with £40m purchase of several live music venues. Exited the market soon after.

What are benefits of diversification?

1. Reduced Risk - By spreading operations across multiple products, markets, and industries, a company can reduce its exposure to any one specific market, reducing the overall risk of the business. This is an economy of scale.

2. Increased Revenue - Diversifying into new areas can create new revenue streams, helping to stabilize and grow the business.

3. Improved Financial Performance - Diversification can lead to improved financial performance, such as increased profits, return on investment, and cash flow.

4. Improved Market Position - Diversification can help a company improve its market position by making it less reliant on any one market or product. This can provide a competitive advantage and make the company more resilient in the face of economic or market changes.

5. New Opportunities for Growth - Diversification can lead to new opportunities for growth and expansion, helping a company to continue to grow and evolve over time.

What is the evaluation of diversification?

• Inherently risk strategy:

  • No direct experience with the product or market

  • Few economies of scale (initially)

  • However, if successful, the overall risk of the business is spread

• Approaches to diversification:

  • Innovation and Research and Development: develop new solutions

  • Acquire an existing business in the market

  • Extend an existing brand into the new market

Why should a business choose diversfication?

• Its existing products and/or markets are in decline and likely to remain so.

• Its existing markets are saturated and therefore there is no scope for expansion within them.

• Senior managers of the business want to avoid complacency and so wish to give the business a new challenge.