The Ansoff Matrix: Evaluation of Risks of the Marketing Strategies
The Ansoff matrix is an important market tool that presents the market choice and products available to a business organization. As such, Ansoff matrix is a vital framework for analyzing the possible strategies aimed at minimizing the gap between markets that the organization intends to operate without changing its marketing strategy, and where the company aspired to adopt new marketing strategies. Ansoff matrix offers the platform over which an organization can develop its objectives and set the basis of its future directional policies. Further, the marketing tool is also utilized to undertake marketing audits. Ansoff matrix, which can be used to analyze the risks posed by marketing strategies, comprises of product development, diversification, market penetration, and market development.
This strategy occurs when an organization enters a new market with its existing products. It is imperative to note that market penetration begins with the organizations existing customers. This strategy is employed by an organization to enhance and increase its sales without changing from the original product market strategy. Organizations usually enter a new market through improving the quality of product or service level, attracting non users of the products or services or gaining the customers of the competitors. This strategy is vital for business organizations because it is relatively cheap to retain the existing customers than attracting new ones (Hill & Jones, 2007).
Marketing strategy is not that risky compared to others as it takes advantage of the existing capabilities and resources of the company. In a market that is growing, a market share would lead to growth and there may be chances for an organization to increase its share of the market if the competitors reach the limits of their capacity. However, there are drawbacks of the market penetration strategy when the market reaches the saturation point, which may prompt the organization to develop another strategy in order to continue growing (McDonald & Meldrum, 2013).
This strategy entails developing new products that cater the same market niche. It involves a substantial development of a new product and not minor alterations to those that exist in the market. The factors that justify the adoption of this strategy are to retain the reputation of the company as an innovator, protect the organization’s general market share, counter the entry of competitor in the market, and exploit new technology (Floyd & Woolbridge, 2000). A product development strategy may be necessary when the strength of the organization are related to specific customers that the product itself. The development of new products carries more risk than just attempting to increase the share of the market (Hill & Jones, 2007).
This strategy entails developing new market by moving beyond the existing customer base and attracting new customer to its products that are in existence. In most cases, this marketing strategy entails selling of the organization’s existing products in international arena. Marketing development entails investigation of market in new geographical areas and exploring new market segments (McDonald & Meldrum, 2013).
New markets development for existing products may be an excellent strategy of the core competencies of the organization is associated more with the specific product rather than the experience with a given segment of the market. Since the organization is expanding into a new market, this strategy carries more risk compared to strategy that entails the penetration of a new market (Floyd & Woolbridge, 2000).
In this strategy, the company moves out from its existing market and products, and ventures into a new area. Diversification is classified into two, related and unrelated areas. Related diversification may occur in form of horizontal, forward and backward integration. On the other hand, unrelated diversification usually carries some synergy of the company’s original business (Hill &Jones, 2007).
One that is considered very risky in the four marketing and growth strategies is diversification. This is because it needs both the market and product development and often happens beyond the core area of the organization. The only situation the diversification is important is when the high risk associate with it is compensated with possibility of higher rate of returns. Other advantages of this strategy include high potential to gain a large market share in an attractive business and reduction in the portfolio risk of the entire business. It should be noted that diversification risk can be reduced if the business enters related markets. However, many scholars state that diversification is a suicidal marketing strategy due to its high risk may cause a total collapse of a given business (McDonald & Meldrum, 2013).
Ansoff matrix presents four marketing strategies and these are diversification strategy, market development strategy, market penetration strategy and product development strategies. All strategies have their risk with diversification strategy being the most risky while market penetration strategy being the least risky. Understanding Ansoff matrix is vital in evaluating risks and assists in making appropriate marketing decisions.
Floyd, S. W., & Wooldridge, B. (2000). Building strategy from the middle: Reconceptualizing strategy process. Thousand Oaks, Calif: Sage.
Hill, W. L. C. & Jones, R. G. (2007). Strategic Management: An Integrated Approach, 7th ed. Houghton Mifflin Company. New York: Boston
McDonald, M., & Meldrum, M. (2013). The complete marketer: 60 essential concepts for marketing excellence. New York: Amacom