Ansoff Matrix To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below: Ansoff Matrix Existing Products New Products Market Product Existing Markets Penetration Development Market New Markets Diversification Development Ansoff's matrix provides four different growth strategies: • Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. • Market Development - the firm seeks growth by targeting its existing products to new market segments. • Product Development - the firms develops new products targeted to its existing market segments. • Diversification - the firm grows by diversifying into new businesses by developing new products for new markets. Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. However. This means increasing our revenue by. for example. the product is not altered and we do not seek any new customers. and so on.Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. repositioning the brand. promoting the product. However. -----------------------------xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx--------------------------------- Ansoff's Product/Market Matrix Ansoff Matrix and risk: The greater the degree of newness the greater the risk Hence: Market Penetration: Lesser risk involved Market Development: Moderate Risk Product Development: Moderate Risk Diversification : High risk because both product and market are new and unknown Market Penetration Here we market our existing products to our existing customers. In fact. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk. this quadrant of the matrix has been referred to by some as the "suicide cell". diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Strategies:- . Risks are low – prospects of success are also low unless there is strong growth in the market. Exporting the product.To maintain or increase share of the current market with current products. This means that the product remains the same. Competion will be intense in such markets. Selling same products to the same people If market is saturated – it is difficult to achieve growth through increased market penetration. This involves: . In stagnating market – increase in sales is only possible by grabbing market share from rivals. To secure dominance of a growth market or restructure a mature market by driving out competition. but it is marketed to a new audience. How is increase market penetration achieved? • • • • • • -Increase usage by existing customers -Attract customers away from rivals -Gain market share at the expense of the rivals -Encourage increase in frequency of use -Devise and encourage new applications -Encourage non buyers to buy Use market penetration when: • • • • • The market is non saturated There is growth in the market Competitors share in market is falling Increased volumes leads to economies of scale There is scope for selling more to existing customers Market Development Here we market our existing product range in a new market. are examples of market development. or marketing it in a new region. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers. 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 product to complement existing products Product at a different quality level to existing products . new markets -Entering overseas market Market development requires changes in marketing stretegy: • • • -New distribution channels -Different pricing policy -New promotional strategy to attract new customers Use market development 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 lack of familiarity with customers but at least the product is familiar Product Development This is a new product to be marketed to our existing customers.• • • • -Selling same product to different people -Entering new markets or segments with existing products -Gaining new customers. Here we develop and innovate new product offerings to replace existing ones. e. the food industry). Related diversification means that we remain in a market or industry with which we are familiar. Unrelated diversification is where we have no previous industry nor market experience. namely related and unrelated diversification. -New product sold to new market -New product for new customer It is a risky strategy because it involves two unknowns New product and new markets should be selected which offer the prospect for growth which the existing product market mix does not One problem is to identify real life examples of firms developing new products for genuinely new group of customers Diversification is further subdivided in to Related and Unrelated diversification: Related Diversification: Market and product share some commonality with existing products It builds on assets or activities which the firm has developed It involves harnessing existing product market knowledge Examples: Banks developing insurance products Horizontal Diversification: When products are introduced in current markets . Ansoff's matrix is one of the most well know frameworks for deciding upon strategies for growth. a soup manufacturer diversifies into cake manufacture (i. For example a soup manufacturer invests in the rail business. There are two types of diversification. For example.It is used when: • • • • • The Firm has strong R&D capabilities The market is growing There is a rapid change The firm can build on existing brands Competitors have better products New product development is costly and there are moderate risks associated with this strategy. Diversification This is where we market completely new products to new customers. net/business/presentations/strategy/ansoff/default.Vertical Diversification: When an organization decides to move into its suppliers or customers 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 in new markets Unrelated Diversification: Also known as Conglomerate Diversification: When completely new technology unrelated products are introduced into new market -Growth in products and markets that are completely new -Development beyond the present history in to products and markets which bear little relation to the present product market mix -No commonality with existing products and markets It represents a departure from existing products and markets it does represent considerable risk Uses of the Ansoff Matrix: Framework to explore directions for strategic growth Most commonly used model for analyzing the possible strategic direction that a business should take It not only identifies and analyses the different growth opportunities but also encourages planners to consider both expected returns and risks http://tutor2u.html .