Ansoff Matrix for competitive strategy

Time has come when the environment changes faster than a running train. So, for a business it is important to move along with the environment. Thus, the process which includes analyzing and making changes in the business is known as Business Strategy.

Strategy is an action that managers take to attain one or more of the organization’s goals. Strategy can also be defined as “A general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process”.

It is not important where you work, whether it is a large-scale organization or small-scale organization, your expertise knowledge will always help you to contribute to the strategic decision making.

Let us highlight an organization’s strategic decision-making process

organization’s strategic decision-making process

Analyzing of the external environment is done by PESTLE, Porter’s 5 forces model, Organizational capability is assessed by Boston Box method and strategies are defined by SWOT Analysis and Ansoff Matrix.

what is Ansoff Matrix?

It is a business analysis technique which provides framework for the organization to identify the growth opportunity in the organization. Business growth is an important part. Without growth, company will find difficulty in meeting to their resources. Company enters into new market or develops new product or sometimes make modifications in existing product. It is done by the company to make growth in the market.

Before using Ansoff Matrix, a company is recommended to use S.W.O.T analysis. SWOT analysis helps in identifying the strength, weakness and opportunity of the company as well as the external threats. Once this is completed, an organization can use Ansoff Matrix to investigate the organization’s current strategy.

This is totally based on the quality and accuracy of the market data presented by the executive. Company should prefer taking data from working managers who remains in touch with customers and all other external parties.

The Ansoff Matrix is developed by the American planning expert Igor Ansoff. It is a tool which links the business marketing strategy with general strategic direction. Four alternatives growth strategies are presented in the matrix of 2X2.

Four alternatives growth strategies

It is a structured way to assess the strategies for growth. Organization also needs to consider various technological factors which are responsible and could affect the current and future products.

  • Market Penetration: Achieving growth through selling existing product to existing market.
  • Market Development: Achieving growth through creating new market for existing products.
  • Product Development: Achieving growth through developing product for existing market.
  • Diversification: Achieving growth through developing new products for new markets.

This matrix doesn’t assure that you’ll get a solution of the question- whether to develop a new product or get into new markets or not?

But it will assure you alternatives which would help you in making your decision.

All the four options carry some certain amount of risk.

Market Penetration Low Risk
Market Extension Moderate Risk
Product Development Medium Risk
Diversification High Risk

Market Penetration Strategy

Market penetration strategy is a strategy which focuses on selling organization’s existing product to existing market to gain market share. It is mostly considered by the organization due to its low risk factor.

It involves selling organization product to current customer market and new customers who comes under same market.

Company makes sure that it doesn’t do anything which comprises with the success of the organization because company has put so many resources as well as time to make product, a brand. And anything which will destroy it would not be wanted by the company.

For example- an organization may indulge in wrong practices to sell aggressively to the customer. Once it is getting caught, brand image of the organization as well as product will get so down.

There are four approaches of this strategy-

a) Maintain or increase market share of existing products- Increasing or maintaining market share of a product is not simple. But company can achieve this by employing competitive pricing strategies and advertising and promotion of the product. It would involve focusing on sales and marketing of the product.

b) Dominance- Another approach of this strategy is to dominate another segment of your product. Organization can identify a new segment and aggressively promote the product in the segment. For example- Earlier, mobiles used to come for the higher age group but now age group of 15-30 is generally targeted by the mobile company.

c) Restructuring- Organizations many a time find themselves in saturated market. And achieving share requires a different approach. This approach is backed up by aggressive selling technique like promotions, advertising to make the market unattractive for small companies.

For example- Marts and Super markets, who snatched away the market from the street vendors and local small street grocery shops.

d) Increase Usage- Persuading of the customer to use your product frequently falls under this approach. Aim of this approach is to keep your customer with the product by making difficult for them to move to another supplier. Changing technology could enhance the usage of the customer and make them upgrade to the new products.

Product Development Strategy

In this growth strategy, new product is introduced for the existing market. Department of Research and Development does a detailed study of the product and make changes according to the requirement in the product.

Organization need to emphasis on the data collected from the marketing. This will allow you to assess the implication of change in the following areas:

a) Research and Development- Research and development department of the organization is basically concerned with the research of the product ideas, development and assist management in making decisions regarding the product specification. So, R&D team requires data regarding the product and the market. On the basis of the data, they review the product and its implication and demand in the market.

b) Assessing customer needs- Whatever a company does, is done for customers only. So, the data collected by the marketing department in the form of customer questionnaires are used in this strategy. Understanding a customer’s real needs and how these can be interpreted in product development is essential to success when using this strategy.

c) Brand Extension- Brand extension refers to using the existing brand name for the new products. But in this strategy, it can harm the already existing product also. It becomes difficult sometimes to judge what will work and what will not.

Each of these approaches involves some degree of risk and investment. Product development, especially brand extension is a popular technique because it is easily accomplished in the organization rather than creating new products.

Market Development

In this strategy, an existing product is served to a new market. It includes the pursuit of additional market segments or geographical regions. It may be a good strategy if company focuses on specific product rather than experience another specific segment. Some ways through which this can be done:

a) New geographical market- Expanding out of your region, state or country comes under this way. Element of risk will be dependent on your use of your established sales channels.

b) New product dimensions- Organization can change the dimensions of the product like the packaging for a new region.

c) New distribution channels- Company may use the new distribution channels from street seller to internet retailers. This would involve the expansion of your product in another geographical area.

d) Different pricing policies- According to the requirements of the users, company can keep differential pricing policy. For example- Adobe Photoshop, it is available in two versions, one is for professionals and another one is for home users. Both the products are having different price rates.

Diversification

It is a strategy used by the organization in which new product is developed for the new market. This is a high-risk strategy because of the fact that company is unaware of the characteristic of the new market. Plus, the investment requires is generally more. An organization must have clear understanding of the growth it expects from this strategy.

There are three types of diversifications-

  1. Forward Diversification- This is the situation where your organization diversifies into the products or services that relate to a later stage that follows your current offering.
  2. Full Diversifications- This approach is the riskiest as you are offering a totally new product or service to an unknown market. It will also take considerable time to accomplish.
  3. Backward Diversification- This is where your organization decides to diversify by offering a product or service that relates to the preceding stage of your current product or service.

Advantages of Ansoff Matrix

  1. Expected Risk- Market planners can think about the risk associated with the product and new market segment.
  2. Possible strategies- There are 4 strategies which could be used by the organization to grow in the market. Organization by looking at the nature and capability of the organization can select the strategy.
  3. Set aims and objectives- This matrix helps the organization is setting up of the aims and objectives of the organization. Aims and objectives are generally an important for the organization to grow.
  4. Indicates risk- It already tells the organization about the risk associated with the strategy. And if the organization thinks that they can excel by associating with the strategy, they can go ahead.

Disadvantages of Ansoff Matrix

  1. Environment of business is dynamic. It means that business environment keeps on changing. Market development and diversification require a change with the change in environment which this theory fails to see.
  2. External Competitors- This analysis misses out on the external competitors which also affect the business to a large extent.
  3. Predictions- Predictions are generally an assumption not the accurate result. So, it always has a chance of going wrong.
  4. It is just a theoretical model not practical.

Sample Ansoff Matrix Case Study of Apple Inc.

About Apple Inc

Apple Inc. is an American multinational technology company headquartered in Cupertino, California that designs, develops, and sells consumer electronics, computer software, and online services. The company's hardware products include the iPhone smart phone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, the Apple Watch smart watch, and the Apple TV digital media player.

Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to develop and sell personal computers. It was incorporated as Apple Computer, Inc. in January 1977, and sales of its computers saw significant momentum and revenue growth for the company. Within a few years, they had hired a staff of computer designers and had a production line. Apple went public in 1980 to instant financial success.

Ansoff Matrix Strategies of Apple Inc.

1) Market Penetration- Strategy which sells the organization’s existing product to existing market. Apple in the initial stage started its operation with the product Apple I. It was not known to the people, so Apple used promotion and kept the prices of lower to gain market share in the market. Once it got a share in the market as there was not much competition at that time, it didn’t find difficulty in creating an image in the eyes of the customers. After that, prices of the products have increased and due to the brand image that it has created didn’t let the price upset the sales. Till today, Apple persuades their customers to buy by creating attractive ads and giving them benefits which are rarely given by the other companies.

2) Product Development- Product development strategy is the stage where new product is introduced for the existing market. In 1984, Apple released its first Macintosh, which was a first personal computer sold without a programming language. After that company didn’t stop bringing changes in the computers and launched iPhone. Later it developed IPod which was the first entertainment device launched by the company. Till now, Apple every year brings an iPhone in the market with latest technologies and safety features.

3) Market Development- It is the strategy where in existing product of the company is introduced in the new market. Apple started introducing the products to new geographical locations, countries after it made an image in the eyes of the customer.

4) Diversification- In this strategy, new product is introduced in the new market. Apple which started its operation with just the personal computers, started coming in to the market then it came with iPod, an entertaining device. Then slowly-slowly as the growth of company started increasing, it came up with iPhone in the year 2007. Then in the year 2010, it came up with iPad, which is a combination of Macintosh and iPhone.

This is the strategies which were used by the Apple Company to gain high market share in the organization. This has helped a lot to the company and in a research conducted in the year 2015, it has been seen that 60-70% of the urban population is aware about the company and its products.

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