Page 2: Ansoff’s Matrix
Igor Ansoff was a Russian/American mathematician who applied his work to the world of business. His most famous work is the Ansoff Matrix. The purpose of this matrix is to help managers consider how to grow their business through existing or new products or in existing or new markets. In this way he was helping managers to assess the differing degrees of risk associated with moving their organisation forward.
Ansoff’s matrix suggests four alternative marketing strategies which hinge on whether products are new or existing. They also focus on whether a market is new or existing. Within each strategy there is a differing level of risk. The four strategies are:
- Market penetration – This involves increasing market share within existing market segments. This can be achieved by selling more products/services to established customers or by finding new customers within existing markets.
- Product development – This involves developing new products for existing markets. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors.
- Market development – This strategy entails finding new markets for existing products. Market research and further segmentation of markets helps to identify new groups of customers.
- Diversification – This involves moving new products into new markets at the same time. It is the most risky strategy. The more an organisation moves away from what it has done in the past the more uncertainties are created. However, if existing activities are threatened, diversification helps to spread risk.
Selecting a strategy
Portakabin focuses on its core activities. These are the activities that it has the most experience of and has a reputation for producing. For Portakabin this is factory manufactured buildings as this is what its reputation has been built around. To increase sales Portakabin decided that product development was the best marketing strategy to use. This strategy would allow Portakabin to provide more choices for its customers in order to meet their needs more closely. This strategy allowed Portakabin to improve its products with a medium level of risk.