ANSOFF MATRIX- PRODUCT/MARKET GRID.
Igor Ansoff (Dec 12, 1918 -July 14, 2002) who was a Russian American, Applied Mathematician and Business manager created the Product / Market Grid in 1957 as a method to classify options for business expansion. It is a tool that helps businesses decide their product and market growth strategy. This product/market matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. There are four possible product/market combinations: •
Market Penetration (Existing Markets/ Existing Products)
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Product Development (Existing Markets/ New Products)
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Market Development (New Markets/ Existing Products)
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Diversification (New Markets/ New Products)
The matrix illustrates, in particular, particular, that the element of risk increases the further the strategy moves away from known quantities - the existing product and the existing market. Thus, product development (requiring, in effect, a new product) and market development (a new market) typically involve a greater risk than `penetration' (existing product and existing market); and diversification (new product and new market) generally carries the greatest risk of all. In his original work, which did not use the matrix form, Igor Ansoff stressed that the diversification diversification strategy stood apart from the other three. The simplicity of this model is that the four strategic options defined can be generically applied to any industry. This well known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’ Diversification’. It was consequently published in Ansoff’s
book on “Corporate Strategy” in 1965.
HOW TO USE THE TOOL Market Development
Diversification
Here, you’re targeting new markets, or This strategy is risky: There’s often new areas of the market. You’re trying to little scope for using existing expertise sell more of the same things to different or for achieving economies of scale, people. Here you might: because you are trying to sell completely different products or services to different customers Target different geographical •
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markets at home or abroad Use different sales channels, such as online or direct sales if you are currently selling through the trade
The main advantage of diversification is that, should one business suffer from adverse circumstances, the other may not be affected.
Target different groups of people, perhaps with different age, gender or demographic profiles from your normal customers.
Market Penetration
Product Development
With this approach, you’re trying to sell more of the same things to the same people. Here you might:
Here, you’re selling more things to the same people. Here you might: •
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• •
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Advertise, to encourage more people within your existing market to choose your product, or to use more of it Introduce a loyalty scheme Launch price or other special offer promotions Increase your sales force activities, or
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Buy a competitor company (particularly in mature markets) •
Extend your product by producing different variants, or packaging existing products it in new ways Develop related products or services (for example, a domestic plumbing company might add a tiling service – after all, if customers who want a new kitchen plumbed in are quite likely to need tiling as well!) In a service industry, shorten your time to market, or improve customer service or
quality.
Real Business Examples:
MARKET PENETRATION: Walmart attracts more and more customers by providing lowest prices through leveraging economies of scale by improving operational efficiencies. The chain store also understands the value proposition of its customers namely correct labeling, quick checkout and car parking facilities. Walmart was able to identify the value drivers for the market segment and serve the value right and at the same time keep the costs low. Other examples are Dell which assembled a services portfolio that now includes e-mail disaster recovery, spam/virus filtering and archiving via its MessageOne acquisition. Dell recognized that software as a service can be a potent market penetration tool; Southwest airline in the current market by offering flights for the small distance cities; Pakistan State Oil penetrate in Pakistan market from 40% to 65% in the duration of 4 years by developing new retail outlets; HD televisions which were present only in about 17 % of U.S households in 2006 but grew to about 55% in 2009.
PRODUCT DEVELOPMENT: An increased spate of new product
development was seen in banks in India, where they offered credit cards facility to their existing customers. This caused an increase in the banks’ revenue. A Product development strategy is a means of moving away from
competition and creating uncontested market space. Investments in Research and Development, advertisement and focus on time to market are of prime importance in Product Development. Other examples of Product Development are Google developing a new browser Chrome for the existing Internet user and McDonalds frequently re-inventing and marketing
new burgers within the fast-food industry.
MARKET DEVELOPMENT : Auto giants, Honda, Toyota and Ford making
entrants into the African Auto market is an example of Market Development. They tried to cash in on their reputation in well established western markets to gain an early footage in the new and rapidly developing markets. New markets do not necessarily mean new geographical markets, they can also mean moving over to a new segment of customers or industries. For example, corrosion resistant steel generally used in high strength construction which is now been used in marine applications is a case of market development. So the challenge for a company is to identify new geographical markets or new applications of the existing products so that new segment of customers can be targeted. Other examples of market development are Pakistan State Oil (PSO) developing new market by exporting oil to Afghanistan and Chinese products been marketed worldwide.
DIVERSIFICATION: A clear example is Sony, which is traditionally known
for consumer electronics deciding to enter the entertainment content business. This can also be seen as unrelated diversification because both businesses are not within the same market. An example of related diversification is Honda, who leveraged upon its core competency of engines
to enter the business of generators and lawn-mowers. This is related diversification because both businesses are complimentary. Other examples of diversification are Virgin Media which moved from music producing to travels and mobile phones; Walt Disney moved from producing animated movies to theme parks and vacation properties; Canon diversified from a camera-making company into producing whole new range of office equipment.
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