Hey Readers !
How are you ?
Today we will learn about a powerful strategy tool - The
Ansoff Matrix.
Ansoff Matrix is a "
strategic planning tool". It helps devise strategies for future growth. It can be used to make a variety of strategic choices like products to sell or(and) which markets to compete in. Remember Strategy is all about choices. Ansoff Matrix is one such model that helps makes us choices.
It is a highly popular model and can be applied to variety of situations. It can help managers make important marketing as well as business strategies and thus choose the "right growth strategy".
Let's have a look at the Ansoff Matrix
You may notice that risk increases from Left to right and top to bottom. This means "Diversification"is theoretically the riskiest. A business may choose one or all 4 choices. This model just shows the relative risk associated with each choice.
Now let us have a look at the Strategic implications of all the 4 choices.
- Market Penetration:
This is a growth strategy where a business chooses to sell existing products in the existing market
Aim - Increase market share by selling more of the existing product to same customers and get customers to buy more
Examples: McDonald's opening new outlets in the same city
It is the least riskiest strategy since the business knows about its existing customers. The business understands their needs, liking, preference, taste etc.
However, the question remains, is the market growing fast enough to sustain this growth model of the business?
- Product Development:
This is a growth strategy where a business chooses to sell new products in the existing market
Aim - Play on the strength of established business and exploiting the existing customer base
Examples: Brand Extension by Coca Cola (Diet Coke) | Technological innovations (Phillips cordless trimmer to Phillips cordless+battery operated trimmer)
It is more riskier than market penetration. It is extremely important that the company is "first to market" so as to take maximum advantage of the growth opportunity. It is also important to do a good market research before launching new products. Market research helps to gain valuable insights into the customer's needs and preferences
- Market Development:
This is a growth strategy where a business chooses to sell existing products in the new market
Aim - To attract new customers in different segment
Examples: Exports | New distribution channels such as e-commerce etc. | Price discrimination
Companies often introduce different pricing policies to attract different segments of customers.
Companies may use these strategies to move from discount segments to premium segment customers or vice-versa.
(GAP inc. has brands such as "Banana Republic" for premium customers while for lower end or not so affluent customers it has introduced "Old Navy") | (Tesco's attempt to enter USA market was a huge disaster)
It is an ideal strategy when your traditional markets have become saturated or international markets are growing at a rapid pace. However risk remains whether existing products will suite newer markets or not.
- Diversification:
This is a growth strategy where a business chooses to sell new products in the new market
This is, theoretically, the riskiest option (remember the risk arrows)
Aim - To exploit new business opportunities
Examples: Alphabet Inc. | Tata Group | Wadia Group | Samsung
These successful examples show that Diversification may not be that risky. However there are some examples of failure also ( ITV buying 'Friends reunited' - a social networking site | HMV diversifying into entertainment business )
Hope you guys found it interesting and got to learn something new .
Do let me know in the comments if you guys have some other examples or share your opinions.
If you would like me to cover a particular topic, kindly mention that also in the comments.
Thank You !
