A level Business Revision - Ansoff's Matrix

Summary

In this video, we explore the Ansoff Matrix, a strategic tool for businesses to plan and position their market strategies. The matrix identifies four key strategies—market penetration, product development, market development, and diversification—each with varying levels of risk and reward. Through examples like promotions in the food industry and product launches in tech, the video explains how businesses can use these strategies to either maintain market share or pursue growth. The video provides valuable insights for A-level business students, helping them understand strategic decision-making in a competitive marketplace.

Takeaways

• 😀 Ansoff's Matrix is a strategic tool used by businesses to plan growth and compete effectively in the marketplace.
• 😀 The matrix is based on two key dimensions: product (existing vs. new) and market (existing vs. new).
• 😀 Igor Ansoff identified four strategies businesses can adopt to achieve success: Market Penetration, Product Development, Market Development, and Diversification.
• 😀 Market Penetration involves selling existing products to existing markets and is the least risky strategy.
• 😀 Product Development targets existing markets with new products, carrying moderate risk due to R&D costs and uncertainty of consumer acceptance.
• 😀 Market Development involves selling existing products to new markets or customer segments, requiring market research and carrying moderate risk.
• 😀 Diversification is the riskiest strategy, combining new products with new markets, but it has the highest potential for growth.
• 😀 Examples of Market Penetration include promotional campaigns by cereal brands and fast-food chains to increase sales from existing customers.
• 😀 Product Development examples include electronics and game console companies releasing updated versions to existing consumers.
• 😀 Market Development examples include Lucas-A expanding from medicinal uses to sports/energy markets and targeting new geographic areas.
• 😀 The choice of strategy depends on the firm's objectives, such as maintaining market share, seeking growth, or balancing risk and reward.
• 😀 No single strategy is universally better; the suitability depends on the company's vision, goals, and resources.

Q & A

Who developed Ansoff's Matrix and what was his background?

Ansoff's Matrix was developed by Igor Ansoff, a Russian immigrant who moved to America and conducted studies on various business organizations in the 1950s to identify successful business strategies.

What are the two main axes in Ansoff's Matrix?

The two axes in Ansoff's Matrix are Products (Existing vs. New) and Markets (Existing vs. New).

What is the Market Penetration strategy and why is it considered low risk?

Market Penetration involves selling existing products to existing markets. It is considered low risk because it does not require developing new products or targeting new customer groups, reducing both R&D and market research costs.

Can you provide an example of a company using the Market Penetration strategy?

A cereal manufacturer running promotions to encourage consumers to eat more cereal or a fast-food chain running a Monopoly promotion are examples of Market Penetration strategies.

What is the Product Development strategy and what level of risk does it carry?

Product Development involves creating new products for existing markets. It carries a moderate level of risk because although the market is familiar, developing new products requires investment in R&D, and there is no guarantee the new products will succeed.

Give an example of a Product Development strategy in practice.

Electronics or smartphone companies releasing the latest versions of their devices targeted at existing customer groups are examples of Product Development strategies.

What is the Market Development strategy and why is it moderately risky?

Market Development involves selling existing products to new markets, such as new geographical regions or customer segments. It is moderately risky because businesses must invest in market research to understand these new customers, though no new products are being developed.

Provide an example of a company using Market Development.

Lucas A expanding its customer base by marketing its existing product as a sports supplement or energy drink to new market segments is an example of Market Development.

What is Diversification in Ansoff's Matrix, and why is it the riskiest strategy?

Diversification involves developing new products for new markets. It is the riskiest strategy because it requires both product innovation and market research, combining the highest uncertainties in product acceptance and market demand.

How should businesses choose which Ansoff strategy to adopt?

Businesses should choose a strategy based on their objectives, such as maintaining market share, pursuing growth, or balancing risk and reward. No strategy is inherently better; it must align with the firm's vision and goals.

What are the potential benefits of Diversification despite its risks?

Diversification offers significant growth potential by introducing new products to untapped markets, which can expand a company's customer base and revenue far beyond what existing strategies might achieve.

Why is it important to understand the axes of Ansoff's Matrix when analyzing business strategies?

Understanding the axes helps businesses categorize their growth strategies, assess the associated risks, and make informed decisions about whether to focus on existing or new products and markets.