B2 Ansoff Matrix
Unit 7: Business Decision Making
Ansoff matrix is a tool that can be used by key business decision makers when making decisions on strategies of growth. Recommended strategies depend on whether the business is looking at launching new products or selling existing products and whether they are selling to existing markets or entering new markets.
Market penetration: Existing products in existing markets
Product development: New products in existing markets
Market development: Existing products in new markets
Diversification: New products in new markets
Market Penetration Strategy
Market penetration is the growth strategy where a business is selling existing products to existing markets. This is a low risk strategy because the business is already familiar with the products and the customers. Techniques may include making changes to the marketing mix to increase sales and drive out competitors. This may include product repositioning, lowering prices, increasing promotion and broadening channels of distribution. Relationship marketing techniques, such as loyalty schemes, can encourage customer loyalty and repeat purchases.
Drawbacks of market penetration include limited potential growth, existing competition and complacency.
Market Penetration Example
The Tiffany engagement ring was launched in 1886 and is still sold today. It is priced between $13,000 - $40,000. It is aimed at high income people who are at the stage in their lives where they are settling down
Existing product: Tiffany engagement ring launched in 1886. Priced between $13,000 - $40,000 USD.
Existing market: high-income couples.
Product Development Strategy
Product development is the growth strategy where a business launches new products into existing markets. This strategy may be used in a very competitive market where current products are not standing out from competitors. Businesses using this strategy will already have some understanding of their customers and existing relationships with suppliers. However, the risk is in their knowledge of the new products. Techniques may include heavy investment in R&D, extension strategies, market research, creating a strong USP, limited editions and gaining first mover advantage.
Product Development Example
Tiffany homeware includes a range of products such as tableware and stationery. The quality is luxurious and it is sold at very high prices. One red wine glass can cost up to $600. This range is aimed at high income people at the stage in their lives when they are settling down.
New product: Tiffany homeware. $600 for an etched red wine glass.
Existing market: high-income people/couples.
Market Development Strategy
Market development is the growth strategy where a business launches existing products into new markets. This may be markets in a different geographical area such as another country or a different segment of the market. Techniques may include undertaking market research into customer needs, using a distributor or agent in overseas markets, having a price range to suit different income groups or changing some of the product size or functions to meet different customer needs.
Market Development Example
The Diamond Source Initiative is a range of diamond rings that come with information about how the diamond was sourced. This was launched in 2019. This line is aimed at millennials as it was found that they were more reluctant to buying diamonds due to unethical practices in their mining.
Existing product: Engagement rings through 'Diamond Source Initiative'. Tiffany provides provenance information about its diamonds.
New market: Millennials who are buying less engagement rings for multiple reasons including ethical concerned about how they are sourced.
Diversification Strategy
Diversification is the growth strategy where a business launches new products into new markets. This is the most high risk strategy as the business is unfamiliar with both the products and the customers. Firms undertaking diversification strategy should invest heavily in market research and R&D to understand the needs of the new customers and production techniques. It is advisable to have a comprehensive risk assessment and back up plan.
Diversification Strategy Example
The Blue Box Cafe opened in 2017. Customers can come for a ‘Breakfast at Tiffany’s’ for $29. This gives them the luxury experience of Tiffany’s without the high price tag. The main markets for the cafe have been Instagrammers and tourists.
New products: The Blue Box Cafe opened in 2017. $29 for breakfast.
New markets: tourists and Instagrammers.
