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Strategy – Ansoff’s Matrix

Ansoff’s Matrix

• This matrix was developed by Igor Ansoff


• It is a framework for identifying corporate growth
opportunities
• Two dimensions determine the scope of
options,namely products and markets
• Four generic growth strategies are identified:
– Market penetration: more of the same to the same
customers
– Market development: new customers for existing
products
– Product development: new products for existing
customers
– Diversification: new products and new customers

Strategy – Ansoff’s Matrix


Ansoff’s Matrix

Existing product New product

Existing Market penetration Product development


market Increase sales to the New product developed for
existing market existing markets
Penetrate more deeply
into the existing market
New market Market development Diversification
Existing products sold to New products sold in new
new markets markets

Strategy – Ansoff’s Matrix


Ansoff’s matrix and risk

• The greater the degree of newness the


greater the risk
• Hence:
• Market penetration - little risk involved
• Market development - moderate risk
• Product development - moderate risk
• Diversification - high risk because both
product and market are new and unknown

Strategy – Ansoff’s Matrix


Example 1 - Growth of Tesco

• Market penetration
– Increase in its share of the grocery business at the expense of
Sainsbury’s and Asda
• Market development
– Movement into the convenience store market
– Expansion abroad
• Product development
– Expansion into petrol sales
– Development of financial services
• Diversification
– Today Tesco is so all embracing that diversification would have to
involve something entirely outside Tesco’s current range of
activities and sold in foreign markets or to business customers

Strategy – Ansoff’s Matrix


Example 2: Growth of Scottish Banks

• In recent years both Royal Bank of Scotland and Bank of


Scotland have grown rapidly through:
• Market penetration
– Increased sales of banking financial services in Scotland
• Market development
– Growing presence south of the border following acquisitions.
– Bank of Scotland and the Halifax Bank merge to create HBOS
– RBS took over Williams and Glyn in 1970 and also runs Tesco’s
banking operation
• Product development
– Growing involvement in insurance
– RBS subsidiary Direct line revolutionised motor insurance
• Diversification
– Selling insurance in England might be seen as new markets and
new products

Strategy – Ansoff’s Matrix


Market Penetration

• Aim of the strategy:


– To maintain or increase share of the current market with current
products
– To secure dominance of a growth market or restructure a mature
market by driving out competition
• Market penetration involves an increase in sales of existing
products to existing markets - selling more of the same to
the same people
• But it is difficult to achieve growth through increased
market penetration if the market is saturated
• In a stagnating market increase in sales is only possible by
grabbing market share from rivals. Hence competition will
be intense in such markets
• Risks are low but the prospects of success are low unless
there is strong growth in the market

Strategy – Ansoff’s Matrix


Market penetration strategies

• How is increased market penetration


achieved?
– Increase usage by existing customers
– Attract customers away from rivals
– Gain market. share at the expense of rivals
– Encourage increase in frequency of use
– Devise and encourage new applications
– Encourage non buyers to buy
• Market penetration requires realignment of
the marketing mix
Strategy – Ansoff’s Matrix
Use market penetration when...

• The market is not saturated


• There is growth in the market
• Competitors’ share of the market is falling
• Increased volumes lead to economies of
scale
• There is scope for selling more to existing
customers

Strategy – Ansoff’s Matrix


Market development

• This involves
– Selling the same product to different people
– Entering new markets or segments with existing
products
– Gaining new customers,new segments,new markets
– Entering overseas markets
• Market development will require changes to
marketing strategy e.g. new distribution channels,
different pricing policy, now promotional strategy
to attract different types of customers

Strategy – Ansoff’s Matrix


Market development

• Market development is used when…


– Untapped markets are beckoning
– The firm has excess capacity
– There are attractive channels to access new
market
• Market development involves moderate risk
- there is a lack of familiarity with customers
but at least the product is familiar

Strategy – Ansoff’s Matrix


Product development

• This is the development of new products for


the existing market
• New products come in the form of:
– New products to replace current products
– New innovative products
– Product improvements
– Product line extensions
– New products to complement existing products
– Products at a different quality level to existing
products
Strategy – Ansoff’s Matrix
Product development

• Product development is used when:


– The Firm has strong R&D capabilities
– The market is growing
– There is rapid change
– The firm can build on existing brands
– Competitors have better products
• But new product development is costly and
there are moderate risks associated with this
strategy
Strategy – Ansoff’s Matrix
Diversification

• Diversification in the Ansoff Matrix means:


– New products sold to new markets
– New products for new customers
• It is a risky strategy because it involves two unknowns
• Therefore new products and new markets should be
selected which offer the prospect for growth which the
exiting product market mix does not
• One problem is to identify real life examples of firms
developing new products for genuinely new groups of
customers
• Diversification can be sub-divided into related and
unrelated

Strategy – Ansoff’s Matrix


Related diversification

• This is development beyond present product market but


still within the broad confines of the industry
• Markets and products share some commonality with
existing products
• Therefore it builds on assets or activities which the firm has
developed
• Related diversification can also be seen as synergistic
diversification since it involves harnessing exiting product
market knowledge
• This closeness can reduce the risks associated with
diversification
• Example: banks developing insurance products

Strategy – Ansoff’s Matrix


Example: Product mix at PC World

• PC World (part of the Dixons/ Curry’s group) has grown


through market penetration (new stores), product
development (new products) and related diversification
• In the early days, the stock consisted of PCs and
accessories
• Then space was devoted to digital photographic products.
• After that, iPods and similar products became major an
important part of the product range
• Now with flat screen and high definition TV they are
expanding into this market
• All these products are linked in that they involve digital
technology. These developments could be classed as
product development or, especially if they bring new people
into the store, it could be seen as related diversification

Strategy – Ansoff’s Matrix


Related diversification

• Horizontal diversification: when new products


are introduced to current markets
• Vertical diversification: when an organisation
decides to move into its suppliers or customer’s
business to secure supply or to firm up the use of
products in end products
• Concentric diversification: when new products
closely related to current products are introduced
into new markets
• The product might be new but is it genuinely
diversification into new markets?

Strategy – Ansoff’s Matrix


Unrelated diversification

• Features of unrelated diversification


– Growth in products and markets that are completely new
– Development beyond the present industry into products
and markets which bear little relation to the present
product market mix
– No commonality with existing products and markets
• It is also known as conglomerate diversification:
When completely new, technologically unrelated
products are introduced into new markets
• As it represents a departure from existing products
and markets it does represent considerable risk

Strategy – Ansoff’s Matrix


Examples of unrelated diversification

• In each case consider whether it is genuinely unrelated or


whether there is some link be with existing products or
markets
• Water supply companies acquiring or developing hotel
businesses
• Granada TV group developed motorway service areas
(now sold off since the merger of ITV)
• The involvement of Pearson Group (a publisher) in
television production companies and running an exam
board (Edexcel)
• British Gas offers home emergency services covering
plumbing and electrical problems
• Hollywood film studios own hotels, casinos and cruise
liners

Strategy – Ansoff’s Matrix


Uses of the Ansoff Matrix

• The matrix is a framework to explore directions for


strategic growth
• It is the most commonly used model for analysing
the possible strategic direction that a business
should take
• It not only identifies and analyses different growth
opportunities it also encourages planners to
consider both expected returns and risks
• But, as we have seen, real world examples do not
fit neatly into the four cells of the Ansoff’s Matrix

Strategy – Ansoff’s Matrix


Market Penetration
Increase a share in the current market with current products and secure
Aim dominance
In a growing market, or change an existing market by driving out competition.
There are minimal risks in market penetration. Market penetration is the strategy
Risks involving the least risk out of the four. However because risk is low, so is
success.
Penetration includes an increase of existing goods to an already existing market. You are
Contents
essentially selling more of the same thing to the same people. Difficult if market is
saturated.

Success is achieved through multiple things. Increased sales to customers, attract


How is it
Achieved
customers from rivals, gaining market share at the expense of rivals and encouraging
non buyers to buy.
There are certain times to use it. Some are, when the market is NOT saturated, when there is
When to growth in the market, competitors share in the market is falling and increased volumes lead to
use it economies of scale.

An example of market penetration is when Tesco increased its share of the


Examples grocery business during its competitors struggles.
Strategy – Ansoff’s Matrix
Market Development
The aim of market development is basically to expand the market and customer
Aim base of a firm or company.

Moderate risks come with Market Development. There is also a lack of


Risks familiarity with customers, but the product stays familiar.

Selling the same product to a newer, expanding customer base or entering new
Contents markets with the same base. Basically gaining new customers with the same
product.
This will include changes to many different aspects of a firm, such as marketing
How is it strategies, new distribution channels, a different pricing policy and many others.
Achieved

Market Development is best used when untapped markets are beckoning, the
When to firm has excess capacity and there are attractive channels to access a new
use it
market.
An example of Market Development is when Tesco expanded into the
Examples convenience store market.
Strategy – Ansoff’s Matrix
Product Development
The aim of Product Development is to create new products for an already
Aim existing market.

The creation of new products is usually quite costly and there are moderate risk
Risks levels associated. Probably the biggest risk is will this new product be
successful.
This could be new products to replace current older ones, new innovative
Contents products, product improvements or product line extensions.

What makes Product Development easiest, is a strong Research and


How is it
Achieved Development program, also known as R&D. Without this, it is very risky and has
a lower success rate.
Companies usually utilize product development when they have strong
When to use
it
Resource and Development capabilities, the market is growing and there is
rapid change.
Two examples are Tesco expanding petrol sales and the development of
Examples financial services.
Strategy – Ansoff’s Matrix
Market Diversification
The aim of this is to successfully sell new products to a new market, which
Aim means new products for new customers.

Market Diversification is the riskiest of the four strategies because you’re


Risks dealing with two unknowns here; a new market and new customers.

There are two main types of Market Diversification. Related and Unrelated. Related stays
within confines of the industry but beyond the present market. Unrelated is a growth in
Contents
products and markets that are completely new.

It is achieved by putting new products into a new market to new customers.


How is it
Achieved

Market diversification, like product development is best used when your firm
When to use
it
have good R&D capabilities for the least risk possible.

For Scottish Banks, selling insurance in England, could be seen as expanding


Examples its market with new products to new customers.
Strategy – Ansoff’s Matrix
Advantages and Disadvantages

The Ansoff matrix is the most commonly used model


for analyzing business strategies for a reason.
Because it works and has been successful.

Advantage- Disadvantage-
The main advantage is it The Ansoff Matrix is so
takes very complex simplistic that real world
business scenarios and business problems don’t fit
allows for rapid very well onto the model. It
assessment and is a good starting model but
expansion. further detail needs to be
put in afterwards.

Strategy – Ansoff’s Matrix