ANSOFF GROWTH MATRIX

Market
NEW Diversification
Development

MARKET

Market Product
EXISTING Penetration Development

EXISTING PRODUCT NEW

 ANSOFF GROWTH MATRIX

MARKET PENETRATION STRATEGY

An entity seeks to sell more of its current products in its existing markets.

This strategy is a sensible choice in a market that is growing fast

It is more difficult to implement when market has reached maturity, or is growing

slowly

A market penetration strategy require least amount of new investment.

Kotler suggested that market penetration calls for aggressive marketing in 3 ways:

Persuading existing customers to use more of product or service (secure dominance)

Persuading potential customers (who have not bought product in past) to start
buying (tactics might include advertising or special promotional offers)

Persuade individuals to switch from buying the products of competitors.

 ANSOFF GROWTH MATRIX

MARKET PENETRATION STRATEGY

Some risks with this strategy can be:

If company fails to increase sales, its business will have no strategic direction

Competitors may be much more innovative and competitive.

The strategies selected by major competitors might be a threat

ANSOFF GROWTH MATRIX

Market
NEW Diversification
Development

MARKET

Market Product
EXISTING Penetration Development

EXISTING PRODUCT NEW

 ANSOFF GROWTH MATRIX

MARKET DEVELOPMENT STRATEGY

Involves opening up new markets for existing products.

It also requires less investment

Kotler suggested that there are some ways of pursuing this strategy:

Entering new geographical markets (regional, national or international expansion)

Offering slightly differentiated versions of its existing products

Making products available through different distribution channels.

ANSOFF GROWTH MATRIX

Market
NEW Diversification
Development

MARKET

Market Product
EXISTING Penetration Development

EXISTING PRODUCT NEW

 ANSOFF GROWTH MATRIX

PRODUCT DEVELOPMENT STRATEGY

There are several reasons for choosing this strategy.

Strong brand name for its products can extend the goodwill to new products.

Entity might have a strong R&D department or a strong product design team.

Entity has to react to new technological developments by producing new range of

products

Competitor might also have developed a new product.

Changing taste and needs of the customers

Disadvantages of a product development strategy are that:

Developing new products can be expensive

A large proportion of new products are unsuccessful.

ANSOFF GROWTH MATRIX

Market
NEW Diversification
Development

MARKET

Market Product
EXISTING Penetration Development

EXISTING PRODUCT NEW

 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

Advantages of Disadvantages of
diversification: diversification:

Higher profits Lack of experience

Risk spreading High risk

Economies of Scale Management problems (time,

resources, lack of concentration)
Synergies with sister companies

This concept is rejected by some business

analysts, who argue that shareholders can
themselves reduce risk if they want to by
spreading investments in different companies in
different industries
 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

Ways of
Diversification

Related Diversification Unrelated Diversification

 
 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

RELATED DIVERSIFICATION

New product-market area is related in some way to entity's existing products and
markets

Product is new but still within broad confines of industry. For exmples::

PEPSI started selling Lays

Manufacturer of vacuum cleaners might diversify into washing machines

An airline company might acquire an international chain of hotels.

Horizontal Integration Vertical Integration

 
 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

RELATED DIVERSIFICATION

a Horizontal Integration


Burger Pepsi Lays

 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets
Bottles

RELATED DIVERSIFICATION

b Vertical Integration


Pepsi

Distribution
 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

RELATED DIVERSIFICATION
Bottles

a Horizontal Integration

b Vertical Integration


Burger Pepsi Lays

Distribution
 ANSOFF GROWTH MATRIX

Diversification means going for new products

and markets

UNRELATED DIVERSIFICATION

New product-market area is not related in any way to entity's existing products & markets.
(e.g. Gormet Bakers started Business of furniture or Kawasaki selling musical instruments)

Aim is to build a portfolio of different businesses.

Riskier than concentric diversification, because in concentric diversification, entity is

moving into related product-market areas, where it might be able to use its experience etc

The reasoning behind this strategy might be as follows.

Some businesses might perform badly, but others will perform well (it reduces risk).

Diversification will save costs and generate 'synergy' (e.g. by economies of scale)

Can exploit different business opportunities whenever and wherever they arise.

This concept is rejected by some business analysts, who argue that

shareholders can themselves reduce risk if they want to by spreading
investments in different companies in different industries