Business Strategy: Ansoff Matrix

hi there in this business topic video we're going to introduce and explain and briefly illustrate a really important model for marketing and business strategy the model is called the ansoff matrix the answer of matrix is incredibly popular and well covered on business courses because it's a theoretical model but really easy to understand and apply to such a variety of business situations well it's essentially about is helping a business determine the right growth strategy strategy in terms of the products it chooses to sell and the markets in which it chooses to compete so as you draw your grid and look at the four options which we're going to go through briefly it's important to remember that this is all about choice business strategy is all about choice so the two dimensions I mentioned products and markets but look at the yellow lines or the yellow arrows there because what's often forgotten about the ansoff matrix is that as you move from the top left-hand corner the choices a business makes in terms of its growth strategy involve or usually involve increasing degrees of risk so that if you move towards the bottom right-hand corner of the grid in theory the choices you make involve the greatest risk so we'll come back to that as we look at the four elements of the ansoff matrix the first of them is called market penetration this is where the business sells existing products to existing markets the second is called product development this is where the business increases the risks are not by introducing new products but trying to sell them to existing markets and customers the third part of the answer of matrix is called market development this is where the business decides to use its existing products but tries to find new customers for them in new markets and lastly the famous fourth part of the grid the bottom rights which in theory is the riskiest of the four options is called diversification where business tries to sell new products into new markets and that's why looking at the yellow areas of risk diversification is usually identified as the riskiest of the four options in the ansoff matrix before we look at each of those four things just briefly it's also worth remembering that this model of market choice market growth strategy is not an either-or model a business doesn't just decide to adopt a strategy of market development and therefore it's not able to adopt a product development strategy a business can do all four of these things if it wishes this is about assessing the relative risk of those choices so let's look very briefly at market penetration explain what it is and look at a couple of examples so we've mentioned this is top left of the matrix selling existing products into existing markets and really this should be the the safety first core strategy hidden it for most businesses can we sell as many products as possible from our existing product range to both our existing customers and also customers who share the same needs and wants as our existing customers we're selling to a well-defined and well understood customer base and strategically the aim of a market penetration strategy is usually to maximize and ideally increase the market share of the business lots of different ways of doing that for example by opening new locations by adding two widening the range of the product services that form the existing portfolio also can you find ways of getting existing customers to simply buy more because it's often said that the best customers of a business are your loyal existing customers you just need to ask them to buy more and they often will so we can see I'm sure you've come across lots of examples of market penetration strategies essentially any example where a business is trying to build its existing market share in an existing market with existing products so 2 on the screen there are great examples and often market penetration strategies are associated with this concept called organic growth Aldi trying to build its market share of the UK discount grocery market by opening as many similar stores in suitable locations around the UK and of course Domino's Pizza the classic organic growth strategy the classic market penetration strategy aiming to have over 2,000 outlets in the UK and a wonderful example to of how to use technological change such as e-commerce to support a market penetration strategy now is market penetration the right strategy for business well of course you can see why it's the lowest risk because in theory the business is selling to markets and customers that it knows really well it should have some really good insights into what customers need and want it should understand what competitors are doing it's unlikely to have to spend a huge amount on new product development and market research it should really know exactly what it's doing in that market but the question is always we're marking the penetration is is that market growing fast enough in order for the business to achieve its growth objectives it's something different required in order to achieve the objectives so could it be product development product development is the strategy where we are selling into our existing markets target customers but we're trying to introduce something new for them I'd rather broaden our product range by researching developing and introducing and launching new products to our core target audience lots and lots of examples of how businesses tries to grow using new product development and for example we've seen Dyson Dyson have moved very quickly and invested very heavily moving away from their traditional vacuum cleaner to robotic vacuum cleaners essentially targeting the same consumer but after having invested massively in product development and brand extensions product extensions are a great example of the ansoff matrix the product developed strategy in action is this the right strategy for a business well again it's often said that product develop is the natural ally of market penetration if you can sell existing products to existing customers and also keep those customers happy by offering new variations and new experiences new services then it can add significantly to your revenues and to your profit of course the key is market research it's understanding what those new products need to be responding to changing customer needs and tastes and wants and ideally a lying innovation investment in innovation and product development with your existing customer base who should be responsive to innovative products it's often said though that for new product development is the most important thing is to be first to market to gain the first mover advantages before your competition copy your idea and get to your own customers now market development is moving now's down to the bottom left-hand side of the grid this is where the business seeks to sell its existing products but not to existing customers they're looking to expand into new markets new customers as well as potentially new geographical markets so market development can be one or more of these strategies it could be for example trying to expand into international market spikes it by extending the geographical reach of the sales emerging markets being a great example of that so exporting to the faster growing economies like China and Brazil but market development can also be finding new customers and a different customer base by using new distribution channels so for example it may well be that through e-commerce you're able to access quite a different type of customer base you have different needs and wants but maybe they still want your existing product and of course it could be that you're simply trying to reach out to a different market segment from your traditional customer base perhaps moving upmarket from a discount position to try to attract or succeed in a premium market so lots of examples of ARCA develop strategies and of course as these involve more risk not all of them have been successful I'm a big fan of Starbucks as a great case study of market developments of course it's expanding globally but its success in China well well documented in many reviews and articles but not every multinational has acceded in China in fact many have failed Starbucks is a classic example of a successful market developed strategy by taking the existing Starbucks offer and tweaking it slightly it's a process called localization in order to succeed in a new market but it can go all disastrous disastrously wrong one of the best examples is Tesco's attempt to enter the US market with its grocery offer which is branded fresh and easy and as it turned out that was a disaster for Tesco shareholders because Tesco simply misunderstood the needs and wants of the grocery supermarket customer in the US market so a market development is an interesting strategy and of course the key to it is to understand the the logic the strategic logic for pursuing it for example is it simply because your existing markets are slow growth mature maybe even declining in value and you're forced into seeking new markets or is it a systematic attempt to enter much faster growing international markets which is a perfectly rational strategy for a business that has ambitions to be a multinational business the key thing to remember though is you're trying to sell existing products so the question mark for the strategy is usually around whether that product meets the needs and wants of the customers in the target market and we see lots of examples of where businesses believe they can export successfully but actually their product is not what's required by the target market which brings us on briefly and we're going to touch on this briefly because we'll do this in a separate video to the strategy called diversification which is we remember from the the grid is bottom right selling new products in new markets and if you remember the yellow arrows of risk this should be the highest risk strategy lots of examples out there of businesses though that are highly diversified and highly successful so as we'll see in a later video it's not necessarily the case that the strategy of diversification is high risk and therefore bound to be a failure alphabet is perhaps one of the best examples of a highly diversified and successful business if you've not come across it before not many have but it owns amongst other things Google who you definitely will have heard of but alphabet is involved in all kinds of different industries and sectors highly diversified as is Samsung Samsung another of the world's most diversified groups of businesses involved in everything from smart phones smart televisions to life insurance insurance and shipbuilding however there are lots of examples of course of where businesses trying to sell new products into new markets have come really badly and stuck and just a couple on the screen there just to give you a flavor for some of the things we'll look at in our video on diversification Friends Reunited the social network which was bought by ITV for 175 million a disastrous attempt by ITV to move into a new market with a new product and it cost the shareholders about 150 million when they finally sold it and similarly HMV thought it could diversify into selling into into running a bought into running Live Music Venues and it paid 40 million pounds for the rights to own a whole series of Live Music Venues and very quickly realize it knew nothing about running them and had to leave the market very soon so as we'll see in a later video the diversification strategy can be hugely successful but ansoff matrix will suggest that it is inherently risky and of course the obvious reasons for this are that you're dealing with new products and try to target them to customers who you don't know well and so therefore you've got to accept that diversification includes an element of risk the extent of the risk depends on to what extent the new markets and products are significantly different from your existing operations so there we are there's the an soft matrix it's a really useful model to get to grips with but the most important thing is to understand the four options and to also appreciate that as you start to move from the top left to the bottom right the limit of risk increases and to understand why that happens so this has been a short business topic video on the ansoff matrix

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Keywords: ansoff, ansoff matrix, ansoff's matrix, business strategy, growth strategy, business growth, marketing strategy, market penetration, market development, product development, diversification, related diversification, diversification strategy, tutor2u business, ansoff model, ansoffs matrix, ansoff tutor2u, ansoff's growth strategies, ansoff marketing mix, a level business, ansoff strategy, ansoff growth strategy, ansoff's growth model, ansoff analysis, the ansoff matrix

Id: CMFXsJxi05U

Length: 13min 50sec (830 seconds)

Published: Fri Apr 15 2016