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The Ansoff matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future business growth. [1] It is named after Russian American Igor Ansoff, an applied mathematician and business manager, who created the concept.
Ansoff, in his 1957 paper, Strategies for Diversification, [2] provided a definition for product-market strategy as "a joint statement of a product line and the corresponding set of missions which the products are designed to fulfill". [2] : 114 He describes four growth alternatives for growing an organization in existing or new markets, with existing or new products. Each alternative poses differing levels of risk for an organization.
Using a market penetration strategy, the organization tries to grow using its existing offerings (products and services) in existing markets. In other words, it tries to increase its market share in current market scenario. This involves increasing market share within existing market segments. This can be achieved by selling more products or services to established customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.[ citation needed ]
This can be accomplished by:
This is the least risky growth option.
In a market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its existing offerings and also, with minimal product/services development.
This can be accomplished by:
This strategy is more likely to be successful where:
This additional quadrant move increases uncertainty and thus increases the risk further.
In a product development strategy, a company tries to create new products and services targeted at its existing markets to achieve growth. This involves extending the product range available to the firm's existing markets. These products may be obtained by:
This also consists of one quadrant move so is riskier than market penetration and a similar risk as market development.
In diversification an organization tries to grow its market share by introducing new offerings in new markets. It is the most risky strategy because both product and market development is required.
Related diversification: there is a relationship and, therefore, potential synergy, between the firms in existing business and the new product/market space.Concentric diversification, and (b) Vertical integration.[ clarification needed ]
Unrelated diversification, otherwise termed "conglomerate growth" because the resulting corporation is a conglomerate, i.e. a collection of businesses without any relationship to one another. A strategy for company growth by starting up or acquiring businesses outside the company's current products and markets.
Diversification consists of two quadrant moves so is deemed the riskiest growth option.
The Ansoff matrix is a useful tool for organizations wanting to identify and explore their growth options. Although the risk varies between quadrants, with diversification being the riskiest, [3] it can be argued that if an organization diversifies its offering successfully into multiple unrelated markets then, in fact, its overall portfolio risk is lowered.
An approach to personal career development has also been developed using the matrix, with expert development (same industry, same skills) corresponding to market penetration, industry transfer to market development, functional skill development matching to product development and retraining matching to diversification. [4]
Used by itself, the Ansoff matrix could be misleading. It does not take into account the activities of competitors and the ability for competitors to counter moves into other industries. It also fails to consider the challenges and risks of changes to business-as-usual activities. An organization hoping to move into new markets or create new products (or both) must consider whether they possess transferable skills, flexible structures, and agreeable stakeholders.[ citation needed ]
The logic of the Ansoff matrix has been questioned. The logical issues pertain to interpretations about newness. If one assumes a new product really is new to the firm, in many cases a new product will simultaneously take the firm into a new, unfamiliar market. In that case, one of the Ansoff quadrants, diversification, is redundant. Alternatively, if a new product does not necessarily take the firm into a new market, then the combination of new products into new markets does not always equate to diversification, in the sense of venturing into a completely unknown business. [5]
Horizontal integration is the process of a company increasing production of goods or services at the same level of the value chain, in the same industry. A company may do this via internal expansion, acquisition or merger.
Economies of scope are "efficiencies formed by variety, not volume". In economics, "economies" is synonymous with cost savings and "scope" is synonymous with broadening production/services through diversified products. Economies of scope is an economic theory stating that average total cost of production decrease as a result of increasing the number of different goods produced. For example, a gas station that sells gasoline can sell soda, milk, baked goods, etc. through their customer service representatives and thus gasoline companies achieve economies of scope.
In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates. Strategic management provides overall direction to an enterprise and involves specifying the organization's objectives, developing policies and plans to achieve those objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision-making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models can include a feedback loop to monitor execution and to inform the next round of planning.
In business, a competitive advantage is an attribute that allows an organization to outperform its competitors.
Competitive analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. Profiling combines all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.
Porter's Five Forces Framework is a method of analysing the operating environment of a competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability. The most unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal profit levels. The five-forces perspective is associated with its originator, Michael E. Porter of Harvard University. This framework was first published in Harvard Business Review in 1979.
Marketing strategy is an organization's promotional efforts to allocate its resources across a wide range of platforms, channels to increase its sales and achieve sustainable competitive advantage within its corresponding market.
Business strategies can be categorized in many ways. One popular method uses the typology put forward by American academics Raymond E. Miles and Charles C. Snow in their 1978 book on Organization Strategy.
Market penetration refers to the successful selling of a good or service in a specific market. It is measured by the amount of sales volume of an existing good or service compared to the total target market for that product or service. Market penetration is the key for a business growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C.. H. Igor Ansoff first devised and published the Ansoff Matrix in the Harvard Business Review in 1957, within an article titled "Strategies for Diversification". The grid/matrix is utilized across businesses to help evaluate and determine the next stages the company must take in order to grow and the risks associated with the chosen strategy. With numerous options available, this matrix helps narrow down the best fit for an organization.
The growth–share matrix is a chart created in a collaborative effort by BCG employees: Alan Zakon first sketched it and then, together with his colleagues, refined it. BCG's founder Bruce D. Henderson popularized the concept in an essay titled "The Product Portfolio" in BCG's publication Perspectives in 1970. The purpose of this matrix is to help corporations to analyze their business units, that is, their product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis.
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A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, and to a lesser extent, derivatives. Structured products are not homogeneous — there are numerous varieties of derivatives and underlying assets — but they can be classified under the aside categories. Typically, a desk will employ a specialized "structurer" to design and manage its structured-product offering.
Organic business growth is related to the growth of natural systems and organisms, societies and economies, as a dynamic organizational process, that for business expansion is marked by increased output, customer base expansion, or new product development, as opposed to mergers and acquisitions, which is inorganic growth.
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.
Diversification is a corporate strategy to enter into a new products or product lines, new services or new markets, involving substantially different skills, technology and knowledge.
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The following outline is provided as an overview of and topical guide to marketing:
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