Ansoff's matrix Flashcards
What is the purpose of Ansoff’s matrix?
The matrix looks at growth by considering opportunities to sell more existing products/develop new products and building market share in existing/new markets.
What are the axes of the matrix?
Existing and new:
- Markets
- Products
What is the method of growth using an existing product in an existing market?
Market penetration
More sales of existing products to existing markets
e.g. Sofa companies’ ‘Bank holiday’ sales
What is the method of growth using a new product in an existing market?
Product development
Developing new products for existing markets
e.g. Gillette launched a range of shaving products
to compliment razor sales
What is the method of growth using a new product in a new market?
Diversification
Developing new products for new markets
e.g. BT Sport
What is the method of growth using an existing product in a new market?
Market development
Finding new markets for existing products
e.g. Trivial Pursuit junior edition, Tesco stores in
Europe
How do you achieve market penetration?
Competitive pricing, advertising or sales promotion.
Improving competitive advantage through adjustments in the value chain.
What are the potential challenges of market penetration?
Greater market strength and economies of scale.
Lack of diversification.
How do you achieve product development?
Invest in research and development.
Existing distribution channels may be used.
What are the potential implication of product development?
The business should already have good knowledge of their customers.
Product failure may damage the brand.
How do you achieve market development?
New geographical markets or market segments.
Using new distribution channels (e.g. selling direct to consumers).
What are the potential implication of market development?
Market research may be needed to overcome lack of market knowledge.
Customers’ awareness may need to be generated in the new market.
What are the 2 forms of diversification?
Related diversification (concentric diversification)
Unrelated diversification (conglomerate diversification).
What is related diversification (vertical / horizontal integration)?
Involves integrating activities in the supply chain (vertical integration) or leveraging technologies or existing competences (horizontal integration).
What are the benefits of vertical integration?
Economies of combined operations, e.g. proximity, reduced handling.
Economies of internal control and co-ordination, e.g. scheduling and coordinating operations should be better. Information about the market can be fed back to the production companies.
Economies of avoiding the market – negotiation, packaging, advertising costs are avoided.
Tap into technology – close knowledge of the upstream or downstream operations can give a company valuable strategic advantages. For example, pharmaceutical companies have undergone backwards integration into research to discover multiple possible uses for chemicals/compounds.
Guaranteed demand/supply.
What is vertical integration?
Where a company becomes its own supplier (backward) or distributor (forward).
What are the disadvantages of vertical integration?
(a) Increases the proportion of the firms operating costs that are fixed (increased operating gearing) - if a firm purchases components externally all the costs will be variable. If the components are purchased internally part of the costs will be variable and part will be fixed.
(b) Reduced flexibility to change partners
(c) Capital – vertical integration will consume capital resources and must yield a return greater than the cost of capital, adjusting for strategic considerations, for integration to be a good choice.
(d) Differing managerial requirements – skills transfer from one type of business to another is not automatic.
What is horizontal integration in relation to related diversification?
Involves a company utilising existing competences by entering into:
Complementary markets – e.g. Google’s acquisition of YouTube.
Competing markets – e.g. Honda motorcycles and cars.
What is unrelated diversification?
The characteristic of conglomerate diversification is that there is no common thread.
However, it is still possible to achieve synergies through:
Management skills – e.g. Virgin Group.
Brand name – e.g. Yamaha motorbikes and keyboards.
What are the advantages of unrelated diversification?
Risk spreading: Diversified products and markets reduces variability of group profits.
Can enter more attractive (more profitable) markets.
Can use surplus cash.
Utilise brand image in new markets.
Improve utilisation of central resources e.g. HR dept.
What are the disadvantages of unrelated diversification?
Lack of management experience in new products/markets.
Failure in one market could damage brand.
Often bad for shareholders as there is a lack of synergies available.
