Ansoffs Matrix

Igor Ansoffs Theory is a very insightful way to look at marketing strategy. is Igor Ansoff in his 1965 book "corporate strategy" described strategy as a decision of medium to long-term significance that is made in the `condition of partial ignorance `. This ignorance stems partly from the timescales involved. If you look three years ahead there are huge risks that marketplace changes will make your plans and forecast look foolish. Such decisions are usually discussed and decided at board level. Ansoffs Matrix is used to illustrate the risk involved in strategic decisions. These risks relate to the firms level of knowledge and certainty about the market, the competition and customer behaviour both now and in the future. The key issue is that the risks become greater the further firm strays from its core of existing products/ existing customers (that is, the top left hand corner of the matrix) Ansoff identified four types of strategy within his matrix these are described below. 

Market penetration This is about increasing market share by concentrating on existing products within the existing markets. It is the most common and safest strategy because it does not strayed from what the company knows best. If Tesco head opened 500 stores in towns all over Britain and all are profitable it is a simple matter of market penetration to open store 501 in a good size town that has not yet got its first Tesco. 

Market penetration opportunities arise by finding new customers perhaps by widening the products appeal to attract additional buyers.Taking customers from competitors. Persuading existing customers to increase usage many food companies give recipes with their products to suggest additional ways of using the product shampoo manufacturers introduced a frequent-wash shampoo to boost product usage.

Market Development this is about finding new markets for existing products. it is more risky because the company must step into the unknown. For example Cadbury to start selling chocolate in China requires a huge effort to learn to understand the Chinese consumer. Yet this is exactly what Cadbury started to do in 2010. Market development can be carried out by the following means . repositioning the product: this will target a different market segment. This could be done by broadening the product to appeal to a new customer base. Land Rovers traditional market was farming and military use it has now repositioned the product to appeal to town dwellers.  Moving into new markets: many British retailers have opened up outlets abroad. Some such as Tesco and Burberry have opened up their own outlets. Others have entered into joint ventures or have taken over a similar operation in another country. Moving Tesco into China was a major market development decision taken in 2004. So far it has proved very successful. Yet the hugely successful sandwich chain Pret A Manger Manger hit problems when opening up in New York and Japan. Even the mighty Gordon Ramsay had an embarrassment when he took a London restaurant to Glasgow and it went bust. Why the difficulty? Surely market research can reveal whether customers in Glasgow want the same things as those in London? The answer to the question may be up to a point perhaps. But the skill with market research is knowing exactly what questions to ask them how to interpret the answers.This Requires a degree of market knowledge that cannot always cross country boundaries let alone national ones. This was why over 80 years the Ford company chose to set up a factory and offices in Britain instead of relying on exporting from America. The rush of US firms that followed four example Heinz, Gillette ,General Motors /Vauxhall) was followed much later by Japanese companies such as Sony, Hitachi and Honda. All took huge risk at the start but believed they would only succeed in the long term by getting a deep understanding of local habits and needs. Famously Sony budgeted for a 15 year payback period when it started up in Britain. 

Product development means launching new products into your existing market for example L`Oreal launching a new hair care product) hard though market development can be, it could be argued the product development is even harder.

The most riskiest strategy is diversification because it involves introducing a new product into a new market. However if things work our it is the most rewarding.