Marketing Strategy- Asnoff Matrix

Introduction

The Ansoff matrix presents the product and market choices available to  an organization. Herein markets may be defined as customers, and  products as items sold  to customers (Lynch, 2003). The Ansoff matrix is also referred  to  as the  market/product  matrix  in some texts. Some texts refer  to  the  market  options  matrix,  which  involves  examining  the  options  available  to the organization from a broader perspective. The market options matrix is different  from Ansoff matrix in the sense that it not only presents the options of launching new products and moving into  new  markets,  but  also  involves  the exploration  of  possibilities  of  withdrawing  from  certain markets and  moving into  unrelated markets (Lynch, 2003). Ansoff matrix is a useful framework for looking at possible strategies to reduce the gap between where the company may be without a change in strategy and where the company aspires to be (Proctor, 1997).

Main aspects of Ansoff Analysis

The  well  known  tool  of  Ansoff  matrix  was  published  first  in  the  Harvard  Business  Review (Ansoff, 1957). It was consequently published  in Ansoff’s book on corporate Strategy’ in 1965 (Kippenberger, 1988). Organisations have to  choose  between the options  that are available to them, and  in the simplest  form, organizations make  the choice between for example, taking  an option and  not  taking  it. The choice is at the heart of the strategy formulation process for if there were no choices, there will be little need to think about strategy. According to Macmillan et  al (2000),  ³choice  and   strategic  choice  refer  to   the  process  of  selecting   one  option  for Implementation.´  Organisations  in  their  usual  course  exercise  the  option  relating  to  which products or services they may offer in which markets (Macmillan et al, 2000).The Ansoff matrix provides the basis for  an organization’s objective setting process and sets the foundation of directional policy for  its future (Bennett, 1994). The Ansoff  matrix is used  as a model for setting objectives along with other  models like Porter  matrix, BCG, DPM matrix and gap analysis etc. The Ansoff matrix is also used in marketing audits (Li et al, 1999). The Ansoff matrix   entails   four   possible   product/market   combinations:   Market   penetration,   product development,  market  development and  diversification (Ansoff 1957, 1989). The four  strategies entailed in the matrix are elaborated below.

Market penetration

Market penetration occurs when a company penetrates a market with its  current products. It  is important  to  note  that  the  market  penetration  strategy  begins  with  the  existing customers  of the organization. This strategy is used  by companies in order to  increase  sales without  drifting from the original product-market strategy (Ansoff, 1957). Companies often penetrate markets in one of three ways: by gaining competitors’ customers, improving  the product  quality or level of service, attracting non-users of the products or convincing current customers to  use more of the company’s product, with the use of marketing communications tools like advertising etc. (Ansoff, 1989,  Lynch,  2003).  This  strategy  is  important  for  businesses  because  retaining  existing customers    are    cheaper    than    attracting    new    ones,    which is why    companies like BMW and Toyota (Lynch,    2003),    and     banks     like HSBC engage     in relationship marketing activities to retain their high lifetime value customers.

Product development

Another   strategic   option   for   an   organization   is   to   develop   new   products. Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm. The reasons that justify the use of this strategy include one or more  of  the  following:  to  utilize  of  excess  production  capacity,  counter  competitive  entry, maintain the company’s reputation as a product innovator, exploit new technology, and to protect overall market  share  (Lynch, 2003). Often one such strategy moves  the company into markets and towards customers that are currently not being catered for.

Market development

When  a  company  follows  the  market  development strategy,  it  moves  beyond  its  immediate customer  base  towards  attracting  new  customers  for  its  existing  products.  This strategy  often involves the sale of existing products in new international markets. This may entail exploration of  new  segments  of  a  market,  new  uses  for  the  company’s  products  and  services,  or  new geographical  areas  in  order  to  entice  new  customers  (Lynch,  2003). For  example,  Arm  & Hammer was able to attract new customers when existing consumers identified new uses of their baking soda (Christensen et al, 2005).

Diversification

Diversification strategy is distinct  in the sense that  when a company diversifies, it  essentially moves  out  of  its  current  products  and  markets  into  new  areas.  It  is  important  to  note  that diversification  may  be  into  related  and  unrelated  areas.  Related  diversification  may be  in the form of backward, forward, and  horizontal integration. Backward  integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same  business.  Forward  integration  differs  from  backward  integration,  in  that  the  company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company  moves  into  businesses  that are related  to its existing activities (Lynch, 2003; Macmillan et al, 2000).It  is  important  to  note  that  even  unrelated  diversification  often  has  some  synergy  with  the original business of the company. The risk of one such maneuver is that detailed knowledge of the  key  success  factors  may  be  limited  to  the  company  (Lynch,  2003).  While  diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to  note that the track record of diversification remains poor as in many cases diversifications have been divested  (Porter,  1987).  Scholars  have  argued  that  related  diversification  is  generally  more profitable  (Macmillan  et  al,  2000;  Pearson,  1999).  Therefore,  diversification  is  a  high-risk strategy as it  involves taking  a step  into  a territory where  the parameters  are unknown to  the company. The risks of diversification can be minimized by moving into related markets (Ansoff,1989).

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