Ansoff's matrix

Question 1

What is the purpose of Ansoff’s matrix?

Answer 1

The matrix looks at growth by considering opportunities to sell more existing products/develop new products and building market share in existing/new markets.

Question 2

What are the axes of the matrix?

Answer 2

Existing and new:

• Markets
• Products

Question 3

What is the method of growth using an existing product in an existing market?

Answer 3

Market penetration
 More sales of existing products to existing markets
 e.g. Sofa companies’ ‘Bank holiday’ sales

Question 4

What is the method of growth using a new product in an existing market?

Answer 4

Product development
 Developing new products for existing markets
 e.g. Gillette launched a range of shaving products
to compliment razor sales

Question 5

What is the method of growth using a new product in a new market?

Answer 5

Diversification
 Developing new products for new markets
 e.g. BT Sport

Question 6

What is the method of growth using an existing product in a new market?

Answer 6

Market development
 Finding new markets for existing products
 e.g. Trivial Pursuit junior edition, Tesco stores in
Europe

Question 7

How do you achieve market penetration?

Answer 7

 Competitive pricing, advertising or sales promotion.

 Improving competitive advantage through adjustments in the value chain.

Question 8

What are the potential challenges of market penetration?

Answer 8

 Greater market strength and economies of scale.

 Lack of diversification.

Question 9

How do you achieve product development?

Answer 9

 Invest in research and development.

 Existing distribution channels may be used.

Question 10

What are the potential implication of product development?

Answer 10

 The business should already have good knowledge of their customers.
 Product failure may damage the brand.

Question 11

How do you achieve market development?

Answer 11

 New geographical markets or market segments.

 Using new distribution channels (e.g. selling direct to consumers).

Question 12

What are the potential implication of market development?

Answer 12

 Market research may be needed to overcome lack of market knowledge.
 Customers’ awareness may need to be generated in the new market.

Question 13

What are the 2 forms of diversification?

Answer 13

 Related diversification (concentric diversification)

 Unrelated diversification (conglomerate diversification).

Question 14

What is related diversification (vertical / horizontal integration)?

Answer 14

Involves integrating activities in the supply chain (vertical integration) or leveraging technologies or existing competences (horizontal integration).

Question 15

What are the benefits of vertical integration?

Answer 15

 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.

Question 16

What is vertical integration?

Answer 16

Where a company becomes its own supplier (backward) or distributor (forward).

Question 17

What are the disadvantages of vertical integration?

Answer 17

(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.

Question 18

What is horizontal integration in relation to related diversification?

Answer 18

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.

Question 19

What is unrelated diversification?

Answer 19

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.

Question 20

What are the advantages of unrelated diversification?

Answer 20

 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.

Question 21

What are the disadvantages of unrelated diversification?

Answer 21

 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.