Strategy Choice: Ansof

Igor Ansoff in 1957, developed a matrix based upon markets and products to show the
possible options that organisation have to fill the planning gap. (Later added geography
as a third dimension). We can also relate these to the company/strategists attitude to
RISK with diversification 16 times more risky than penetration. ABE Manual pages 116121 are excellent.
The Ansoff Matrix identifies four possible combinations:
1.
2.
3.
4.
Using

existing products which they can sell to existing markets

existing products which they can sell to new markets
new products which they can sell to existing markets
new products which they can sell to new markets.
these combinations gives a choice of four possible basic strategies:

Market Penetration Strategies

Increase existing market share - appropriate when a market is growing and is not yet
saturated.
Market Development Strategies
Same product/new market such as a regional supermarket going national or if new
markets are emerging because of changes in consumer habits. It can also occur when a
new use has been discovered for an existing product. PV and Gillette. Razors for ladies!!
Implementation of this strategy involves appealing to new market sectors, geographical
regions and new countries not currently catered for and may mean a repositioning of
products as well as considering new distribution methods such as franchising
or channels.
Product Development Strategies
Develops new products to appeal to existing markets. This may simply be a product
"refinement" for example, a change of packaging or taste or a completely new
product which aims to satisfy the same consumers. Product development is most
prevalent when strong branding exists. Promotional aspects will emphasise the
added qualities of the "new" product and link it specifically to the security of, and
confidence in, the brand. This strategy builds on customer loyalty and the
benefits to be gained by purchase. Other marketing mix elements, such as
distribution, may remain unchanged. Kodak, saw its annual sales of film decline from 15
billion dollars to 200 million dollars in the five years to 2010 and were late into the digital
camera market, but have successfully used their technology in the development of
printers.

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Diversification Strategies
New product/new market is the most risky strategy but also offers considerable gains. It
is sometimes introduced so that a company does not become too dependent on its
existing SBUs, in which case it is a form of "insurance" against potential disasters that
could occur in the event of drastic environmental changes. It can also simply be a means
of growth and expansion of power. Related/unrelated is key question here.

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Risk and the Ansoff Model

Current product to the current market is the safest position. All key factors such
as buyers, distribution, competition, are known. Once the company begins
to change some aspect, risks occur. The risk element can vary according to the
competences of the organisation. For example, if it has proven expertise in new product
development, particularly with regard to innovation, then the risk element connected
with new products will be lessened the Apple Corporation is a good example with
products such as the IPod.
Similarly if an organisation has proven international market entry capabilities, then the
new market risk element will be reduced. As has been noted earlier, there have been
convergences in many markets, so that whilst the Indian youth market, for
example, may at first seem quite different to the French youth market, it has some key
similarities. These will lead to the same, or very similar, buyer behaviours and hence the
new market element of risk will be low.
The International Dimension

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Figure 7.2: The Ansoff growth matrix using an incremental scale

page 121

The idea of this matrix is that it is possible to assess different degrees of risk in entering new international
markets by considering degrees of market newness and product newness. So, for example ,

it will be
more risky to launch a product into a new country with considerable distance,
both geographically and culturally, from the country markets that the company
is used to. For example, a UK company that has developed markets in the EU will experience higher risks
in marketing to Latin American countries or to Japan and China than it would to Turkey and Switzerland. All the
countries mentioned would be new markets, but Switzerland and Turkey are closer geographically and culturally
than the high context and geographically distant Latin America, Japan and China. Entering these markets
therefore would be a very high-risk strategy, particularly if it were combined with the need to produce entirely
new products.

(a) When a company develops beyond its present product and market whilst remaining in
the same area, this is described as related diversification. Strategy development
beyond current products and markets, but within the capabilities or value
network of the organisation
For example, a newspaper expanding by taking over a radio station remains within the
media sector. It has built on its present strengths by using its expertise to develop new
interests in the same sector. Various forms of integration shown below.

(b) The term unrelated diversification is used to describe a company moving beyond its
present interests into unrelated markets or products. Development of
products/services beyond the current capabilities or value network
For example, when it considered diversification targets, Philip Morris believed that the
core competence it had developed in marketing cigarettes could apply to other, similar
markets. Based on this belief, the company purchased Miller Brewing and then used the

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Philip Morris marketing skills to move the Miller brand from seventh place to second in its
market. Another example is that of General Electric. Jack Welch, the founder of GE
transformed the organisation from a purely manufacturing company into a more
diversified company with an increasingly important service component.

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