Ansoff Matrix Introduction

Ansoff matrix Introduction The Ansoff matrix presents the product and market choices available to an organisation. Herein markets may be defined as customers, and products as items sold to customers. The Ansoff matrix is also referred to as the market/product matrix. Some texts refer to the market options matrix, which involves examining the options available to the organisation 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 exploration of possibilities of withdrawing from certain markets and moving into unrelated markets. 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. For any decision to be taken at corporate level, you need the right strategic tools. Ansoff matrix is one of them. Ansoff matrix helps a firm decide their market growth as well as product growth strategies. The 2 questions which the Ansoff Matrix can answer is “How can we grow in the existing markets” and “What amends can be made in the product portfolio to have better growth”. From the above two questions, it is clear that Ansoff matrix deals with the companies external market scenario as well as the product portfolio which the firm has. The matrix is divided in two quadrants – The product quadrant and the market quadrant. The Product quadrant on the X axis is further divided into Existing products and New products. The market scenario on the Y axis is divided into existing markets and new markets. Thus the Ansoff matrix divides a firm on the basis of the products it has – existing products or new products, as well as the markets it is in – existing markets or new markets. Depending on the characteristic of each, the marketing strategy is decided. These marketing strategy are as follows. Main aspects of Ansoff Analysis The well-known tool of Ansoff matrix was published first in the Harvard Business Review. It was consequently published in Ansoff's book on „Corporate Strategy' in 1965. Organisations have to choose between the options that are available to them, and in the simplest form, organisations make the choice between for example, taking an option and not taking it. Choice is at the heart of the strategy formulation process for if there were no choices, there will be little need to think aboutstrategy. According to Macmillan et al (2000), “choice 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. The Ansoff matrix provides the basis for an organisation'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. 1) Market Penetration – In the Ansoff matrix, market penetration is adopted as a strategy when the firm has an existing product and needs a growth strategy for an existing market. The best example of such a scenario is the telecom industry. Most telecom products are existing in the market and they have the same market to cater to. Thus in such cases the competition is higher and you might have to go out of the way to cater to your market or to increase your firms market share. Several things have to be considered when adopting the Market penetration strategy. By using market penetration, you are ensuring that only the existing resources of the firm are used and no extra costs need to be incurred in setting up a new unit for . At the same time, your current group of employees are the best people to notice any growth opportunities in the existing market. Thus they need to be used optimally by providing them the right information at the right time. There needs to be a combination of marketing and sales promotions if you have to grow in an existing market with an existing product. On the other hand, market penetration might not be the strategy you are looking for. What if the market becomes too saturated? Fighting for a higher market share in a saturated market accounts for higher expenses and lower profitability. Thus the market analysis needs to be spot on and the market penetration strategy should be adopted only if there is scope for increasing market share in an existing market. For example, Cadbury india is pushing for chocolate to be used as small gifts instead of more traditional sweets during Diwali and other festivals. HUL try to capture more market share of already existing market with already existing products such as in India. It includes aggressive advertisements, offers etc to penetrate more into existing market. 2) Market Development – Market development is the second market growth strategy which can be adopted as per the Ansoff matrix. The market development strategy is used when the firm targets a new market with existing products. There are several examples of the market development strategy including leading footwear firms like Adidas, Nike and Reebok which have started entering international markets for market expansion. Every other day we hear of one or the other companies thinking of lunching their products in a new country. That‟s the perfect example of market development. Similarly, on a micro level, expanding from a current market to another market where your product does not exist is also an example of market development. For market development, you have to treat your product as a new entrant in the market. Thus there are several factors which influence the market development strategy of a firm. If the product already has a high brand equity, it possibly just needs distribution points in the new market (Example – Walmart). The same goes if the product is a needs product and known to be of high quality. On the other hand, if the product is not established in your current market, it is not recommended to start a market development strategy. You need to first cater your existing markets. The risk factor of a market development strategy is higher. This is because lots of investment needs to be done when entering new markets. You need to advertise and market your product for the customers to adopt it. For the same you need to invest in admin expenses, advertising expenses, possibly new production facilities, so on and so forth. Thus you might have to develop new strategic business units itself to have a strong market development. This is exactly what is done in international firms, wherein the unit in another country is treated as a separate business unit or a profit center. 3) Product development – Product development in the Ansoff matrix refers to firms which have a good market share in an existing market and therefore might need to introduce new products for expansion. Product development mainly happens when you have a good customer base and you know that the market for your existing product has reached saturation. Thus you cannot apply the market penetration strategy. You can therefore opt for a new product development strategy which caters to your existing market. Let‟s take an example – Why do firms like P&G and HUL keep on introducing new products in different categories? This is because both of these top FMCG firms are already present in the market. They are only leveraging their strength in the existing market by introducing new products. Imagine if HUL today introduces a soap. It is already selling its shampoos and soaps in all grocery stores across a city. Thus it will start selling this new product in the same distribution channel and achieve new product launch as well as an improvement in profitability just by using its current market. The product development strategy, like the market development strategy is risky. This is because product development involves investing in developing a completely new product. The product will also need further investments for distribution, marketing and manpower. Furthermore, by introducing a wrong product which does not gain acceptance in the market, you might be affecting your brand equity. Thus plotting your firm in the right quadrant on the Ansoff matrix becomes critical. For example, McDonald‟s introduces salads in their outlets in order to retain its existing customers, many of whom were becoming more health conscious. Salads are exactly opposite of what McDonald‟s is known for! NIVEA Visage soft facial cleansing WIPES show Product Development. Women are looking for new ways to clean and care for skin. Colgate Pamolive introduced „colgate active salt‟ as their new product in highly competitive market of tooth paste. By introducing new product, colgate want to get more market share. Colgate Active Salt Healthy White is an innovation from Colgate and has been developed on a core consumer insight of using a combination of salt and lemon to remove yellowness. Integrating the benefits of salt and lemon, this new toothpaste offers an innovative every day solution to yellowness removal. Developed after extensive consumer research in India, it is positioned as an everyday family toothpaste that combines a minty taste with a dash of salt for a unique brushing experience.

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