Introduction:
The Ansoff matrix is a tool to analyze the different options available to an organization for given product and market choices. The Ansoff matrix is also referred to as the market/product matrix. 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 in future. Ansoff matrix was published first in the Harvard Business Review (Ansoff, 1957) and was consequently published in Ansoff's book on ‘Corporate Strategy' in 1965 (Kippenberger, 1988).
What is Ansoff’s Matrix?
The Ansoff matrix provides the basis for an organization’s objective setting process and sets the foundation of directional policy for its future. The Ansoff matrix entails four possible product/market combinations: Market penetration, product development, market development and diversification. The four strategies entailed in the matrix are elaborated below.
Figure: Ansoff’s Matrix
Market Penetration - The firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. 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 - The firm seeks growth by targeting its existing products to new market segments. 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.
Product Development - The firms develops new products targeted to its existing market segments. 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.
Diversification - The firm grows by diversifying into new businesses by developing new products for new markets. 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. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.
How to apply Ansoff’s Matrix?
The business environment, including competitive activity, also plays a key role in determining which strategic choice is most appropriate for a company, hence none of strategic option for growth is appropriate for all types of companies at all times. It is not possible to write a good Ansoff analysis without looking at the various factors in the business environment, which impact the choice of a firm's strategic options. For example, Market Penetration may prove to be a wise strategy only when the overall market is growing because in that scenario companies are often able to increase sales to existing and some new customers without increasing their relative market share.
Example: Market Penetration
The companies with low market share in a growing market can make gains by attacking a competitor head on. Burger King (relatively low market share) to an extent has been successful at attacking McDonald's sales (relatively high market share). However, it is more difficult to reap benefits of market penetration strategy in a declining market. Each strategic option brings with it some inherent risks, which can be reduced through careful planning and implementing control mechanisms. Overall, market penetration strategy is a low risk strategy as the business parameters of product and market more or less remain the same.
Example: Product Development
The product development strategy, it is important to mention that it is often a part of the natural growth of organizations and part of long term strategy. Product development strategy can in some cases be risky, as was the case of the New Coke. While customers liked the taste of the New Coke in the taste tests conducted by Coca Cola, customers of the brand favored Classic Coke over the new product.
Example: Market Development
Glaxo has been able to develop new markets for its anti-ulcer drugs by developing and marketing a lower-strength version of the drug in many countries that can be sold without prescription as a stomach remedy. Market development strategy should be applied with caution and local sentiments and customs should be taken care off. McDonald's entered a number of new markets in the wake of globalization with its existing products but they make changes in the ingredients of its burgers in order to cater to the market. For example they launched “McDonald Aaloo Tickki” and “Vegetarian Burgar” for Indian Market.
Example: Diversification Strategy
The front runner in e-retailing Amazon focuses on market diversification strategy. They started from an online book shop and diversified in other product categories as well. It can diversify easily because it operates in wider retail setup and have technical capabilities to do so. But all companies can’t emulate Amazon and it is not wise to do so. Internet incumbents of Amazon and E*Trade are both operating in a fast evolving, uncertain business environment and have pursued multiple and high-risk growth strategies, which include market development, product development and diversification strategies. Amazon focused more on the diversification strategy while E*Trade focused on market development. The differences in strategic choices in this case were due to the differences in the type of markets in which both companies operate.
References:
1.Ansoff, I. H. (1957), Strategies for diversification, Harvard Business Review
2.Hill, W. L. C. & Jones, R. G. (2007), Strategic Management: An Integrated Approach, 7th Ed.
3.Lynch, R. (2003), Corporate Strategy, 3rd ed., Prentice Hall Financial Times
4.Pearson, G. (1999), Strategy in Action, Prentice Hall Financial Times
5.Porter, M. E. (1987), From competitive strategy to corporate strategy, Harvard Business Review
6.Proctor, T. (1997), Establishing a strategic direction: a review, Management
7.Product Market Growth Strategies Retrieved July 11, 2010 :
Web site: http://en.wikipedia.org/wiki/Product-Market_Growth_Matrix
No comments:
Post a Comment