Igor Ansoff Product matrix

Session 6

Prof: Yasmin

Background

• Long-term business strategy is dependant on planning for their introduction

• Ansoff Matrix represents the different options open to a marketing manager when considering new opportunities for sales growth

Variables in the matrix

Two variables in Strategic marketingDecisions:

– The market in which the firm was going to operate– The product intended for sale

In terms of the market, managers had two options:

– Remain in the existing market– Enter new ones

In terms of the product, the two options are:

– selling existing products– developing new ones

Existing PRODUCTS New

INCREASING RISK

INC

RE

AS

ING

RIS

K

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

DIVERSIFICATION

Sell new products in new markets

IGOR ANSOFF MATRIX

MARKETPRODUCT

EXISTING NEW

EXIST MARKET PENETRATION

•Little riskMARKET DEVELOPMENT

•Moderate Risk

NEW NEW PRODUCT DEVELOPMENT

•Moderate Risk

DIVERSIFICATION•High Risk

Existing PRODUCTS New

INCREASING RISKIN

CR

EA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET PENETRATION

• This is the objective of higher market share in existing markets

– E.g. in 2000, Mitsubishi announced a 10% reduction in prices in the UK in order to encourage purchases

MARKET PENETRATION

• Maintain increase market share in current market with current products

• Selling more of the same to the same people

• In saturated market - Difficult

• In stagnant market – grab market share from others – intense competition

MARKET PENETRATION

• Increase usage by existing customers

• Encourage increase in frequency of use

• Attract customers away from rivals / Gain market share at expense of rivals

• Devise and encourage new applications

• Encourage non-users to buy

MARKET PENETRATION

Use Market Penetration when -

• When the market is not saturated

• When there is potential of growth

• When competitors share is falling

• When increase in volume leads to economies of scale

• When there is scope to sell more to existing users

MARKET-PENETRATION STRATEGY

Why ? To dominate market

How ? To increase usage or get new customers; reduce price; expand distribution or increase promotional activities

When ? When market is growing

What to look out for ? Competitive reaction; cost of conversion

Example: Airlines used reduced fares & promotion various family travel packages to

penetrate market

Existing PRODUCTS New

INCREASING RISKIN

CR

EA

SIN

G R

ISK

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

MARKET EXTENSION/ DEVELOPMENT

• This is the strategy of selling an existing product to new markets. This could involve selling to an overseas market, or a new market segment

– Nintendo are making hand held games consoles (e.g. DS) appeal to the adult/grey market by introducing games such as Brain Train

MARKET DEVELOPMENT STRATEGY

• Selling the same product to different market• Entering new markets, segments with

existing products• Gaining new customers, new segments,

new markets• Requires changes in marketing strategy,

distribution, pricing policy, promotional strategy

Use market development when

• Untapped market is beckoning

• The firm has excess capacity

• Attractive channels to access new markets

MARKET DEVELOPMENT STRATEGY

This strategy involves:

Adjusting the marketing mix, such as:

Analyzing competitors’ strengths, weaknesses, and potential for retaliation.

• Modifying the basic product offering

• Using different distribution outlets

• Changing the sales effort or advertising

MARKET DEVELOPMENT STRATEGY

This strategy involves (continued): Identifying the number, motivation, and

buying patterns of new buyers.

Determining the organization’s ability to adapt to new markets to evaluate success.

Internationally, this strategy has four forms:

LicensingLicensing

Joint Venture/Strategic Alliance

Joint Venture/Strategic Alliance

ExportingExporting

DirectInvestment

DirectInvestment

MARKET-DEVELOPMENT STRATEGY

LicensingLicensing

ExportingExporting

DirectInvestment

DirectInvestment

Involves marketing the same offering in another country through sales offices or intermediaries.

Is a contract where one firm (licensee) is given the rights to patents, trademarks, etc. by the owner (licensor) in turn for a royalty or fee.

Involves investment by both a foreign firm and a local company to create a new entity in the host country. The two forms share ownership, control, and profits of the entity.

Involves investing in a manufacturing and/or assembly facility in a foreign market. Is the most risky and requires the most commitment.

Joint Venture/Strategic Alliance

Joint Venture/Strategic Alliance

MARKET-DEVELOPMENT STRATEGY

MARKET-DEVELOPMENT STRATEGY

Why ? To venture into new markets

How ? Sell existing products in new markets; modify product; use different distribution; use different advertising/sales strategy

When ? Present market is saturated

What to look out for ? Competitive reaction; understand new buyers; adaptability

Existing PRODUCTS New

INCREASING RISK

INC

RE

AS

ING

RIS

K

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

PRODUCT DEVELOPMENT

• Least risky of all four strategies• This involves taking an existing product

and developing it in existing markets– E.g. Coca-Cola. This has been developed to

have vanilla, lime, cherry and diet varieties (amongst others) in the SOFT DRINKS market

PRODUCT-DEVELOPMENT STRATEGY

• This strategy involves:

ProductAugmentation

ProductAugmentation

ProductInnovationProduct

Innovation

ProductLine Extension

ProductLine Extension

Developing totally new offerings.

Adding different features, sizes, etc. to broaden the existing line.

Enhancing the value to customersof existing offerings.

Product Development Strategy

• New product to replace old product

• New innovative products

• Product improvements

• Product line-extensions

• New products to complement existing

• Products at a different quality level from existing product

PRODUCT-DEVELOPMENT STRATEGY

• Factors to consider when adopting this strategy:

The market size and volume needed for profitability.

The magnitude and timing of competitors’ responses.

The impact of the new product on the sales of existing offerings (cannibalization).

The capacity of the organization to deliver the offerings to the market(s).

Product-Development Strategy

Why ? To satisfy buyer’s need How ? New or improved product; innovate

or augment product When ? Customer has a need or a problem What to look out for ?

– Market size/volume– competitor reaction– effect on existing products– resources to deliver new products

Existing PRODUCTS New

INCREASING RISK

INC

RE

AS

ING

RIS

K

Existing

MARKETS

New

MARKET PENETRATION

Sell more in existing Markets

MARKET EXTENSION

Achieve higher sales/market share of existing products in new markets

PRODUCT DEVELOPMENT

Sell new products in existing markets

DIVERSIFICATION

Sell new products in new markets

DIVERSIFICATION

• This is the process of selling different, unrelated goods or services in unrelated markets

• This is the most risky of all four strategies

– E.g. the Virgin group

Diversification

• New products sold to new markets

• New products sold to new customers

• Select based on growth prospects which the two new variables offer that the present product-market does not

Diversification Types

• Related• Beyond present

product –market, but within present industry

• Synergistic diversification

• Lesser risk

• Unrelated• Entirely new product

and market• Conglomerate

diversification

Related Diversification

• Horizontal – new products introduced to current markets (new product development)

• Vertical – when an organization moves into its supplier’s or customer’s business

• Concentric – when new products closely related to existing products are introduced in new markets

Summary

• Risks involved differ substantially• The matrix identifies different strategic

areas in which a business COULD expand• Managers need to then asses the costs,

potential gains and risks associated with the other options