Ansoff's Matrix - 3.1.2

Ansoff Matrix - The Ansoff is a famous strategic maketing planning tool that helps a business determine its product and market growth strategy.

The matrix identifies four alternative growth strategies to product and market strategy based around whether a business chooses to focus on existing/new products and existing/new markets and the relationship between risk and reward.

MARKET PENETRATION 

This is a growth strategy where a business aims to sell EXISTING products to EXISTING markets.

Key Points:

• Trying to sell more of an existing product/service to the same target audience
• LIMITED RISK = limited potential reward also.
• Getting existing customers to buy more
• Widen the range of existing products
• Gain market share from competitors through competitive pricing or advertising
• Changes to the marketing mix e.g. loyalty scheme to increase repeat customers
• Extension strategies

Evaluating market penetration:

• Business focuses on markets and products it knows well
• Can exploit insights on what customers want (and competition)
• Unlikely to need significant new market research
• Relatively short term only
• Market may already be saturated
• Competitors may not like this new strategy

MARKET DEVELOPMENT  

This is a growth strategy involves a business seeking to sell its EXISTING products into NEW markets.

Key points:

• Attracting new customers to buy existing products
• Risk associated with lack of knowledge of customers
• New geographical markets e.g. exporting to emerging markets
• New distribution channels (e.g. using e-commerce or mail order)
• Different pricing policies to attract new customers in different segments

Evaluating market development:

• A logical strategy where existing markets are saturated or in decline
• Bring in greater rewards than market penetration
• Often riskier than product development - particularly expanision into international markets
• The business may not understand the market
• Alienation of current customers
• Existing products may not suit new markets: depends on customer needs

PRODUCT DEVELOPMENT 

This is a growth strategy where a business aims to introduce NEW products into EXISTING markets.

Key points:

• Selling new and better products to existing customers 
• Risk = not knowing the products, high R&D costs
• This strategy is driven by investment in new product development
• Usually requires consistent, long-term investment in R&D so that it can appeal to the existing market
• Technological innovation provides significant opportunities for product development strategies
• Brand extensions are also examples of product development

Evaluating product development:

• This is 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 who may respond positively to new products
• Can launch substantially improved versions of existing products
• Introduce complementary products
• May shorten PLC of existing products,for example as soon as Apple released the Iphone 7, sales of the Iphone 6 started to decline.
• Damage to brand if product the new and better products are not as good as the original.

DIVERSIFICATION 

This is a growth strategy where a business markets NEW products in NEW markets

Key Points:

• Innovation and R&D develop new solutions
• High risk strategy as 2 elements are unknown, the market and the product
• High risk but also greatest reward potential
• Acquire an existing business in the market
• Extend an existing brand into the new market

Evaluating diversification:

• If successful, overall risk of the business is spread and rewards are huge
• If one market is stagnant, another may well be growing, preventing a business from an overall decline in performance.
• Inherently risky strategy
• No direct experience of the product or market
• Few economies of scale (initially)
• Relies on heavy investment
• Cultural differences may apply
• Brand name may be diluted