Page 2: Ansoff's matrix
According to the Chartered Institute of Marketing, ‘Marketing is the management process responsible for identifying, anticipating and satisfying consumer requirements profitably’. To do this, organisations require a marketing strategy.
A marketing strategy is something that affects every part of an organisation. It is about using everything that a business does to create value for others. This includes customers but it also benefits employees and shareholders. The main purpose of a marketing strategy is to set out the means by which agreed marketing objectives are to be achieved.
There are many types of marketing objectives. For example, these might include:
- increasing market share
- growing sales/turnover
- enhancing the strength of the brand
- creating loyal customers
- managing costs effectively, thus increasing profitability.
A common marketing objective is to achieve growth. There are a number of ways in which organisations can grow. For example, they might expand internally. This is known as organic growth. A quicker but higher risk option is external or inorganic growth. This involves acquiring or merging with another business.
One positive benefit of growth is that it helps a business to reduce costs through economies of scale. These include:
- efficiencies arising from use of new technologies
- improved buying power as it can bulk buy at lower costs
- the ability to recruit more specialists to improve decision making.
By lowering costs, an organisation increases its profitability and becomes more competitive.
One way of analysing the various strategies that an organisation may use to grow the business is with Igor Ansoff’s (1965) matrix. This considers the opportunities of offering existing and new products within existing and/or new markets and the levels of risk associated with each.
This matrix suggests four alternative marketing strategies:
- Market penetration - involves selling more established products into existing markets, often by increased promotion or price reductions or better routes to market, for example online.
- Product development - involves developing new products or services and placing them into existing markets.
- Market development - entails taking existing products or services and selling them in new markets.
- Diversification - involves developing new products and putting them into new markets at the same time. Diversification is considered the most risky strategy. This is because the business is expanding into areas outside its core activities and experience as well as targeting a new audience. It also has to bear the costs of new product development.
Enterprise has focused most of its growth strategies on market development, product development and diversification. These are highlighted in the following sections.