Strategy Management - Diversification Strategies/ Ansoff's Matrix (Video #63)

Summary

This video explores Ansoff's Matrix, a strategic framework that helps businesses decide how to grow. It outlines four growth strategies: Market Penetration (increasing sales in existing markets), Market Development (entering new markets), Product Development (creating new products for existing markets), and Diversification (entering new markets with new products). The video highlights real-world examples of each strategy, such as McDonald's promotions and Apple's market expansion. While powerful, the matrix has limitations and should be used alongside other planning tools. Success requires thoughtful execution and market adaptation.

Takeaways

• 😀 Ansoff's Matrix is a strategic tool to help businesses choose the best growth strategy based on products and markets.
• 😀 The Matrix consists of four strategies: Market Penetration, Market Development, Product Development, and Diversification.
• 😀 Market Penetration focuses on selling existing products to existing markets, aiming to increase market share.
• 😀 Market Development involves introducing existing products to new markets or customer segments to drive growth.
• 😀 Product Development is about creating new products for existing markets, offering innovation to loyal customers.
• 😀 Diversification is a high-risk strategy involving entering new markets with new products to spread risk and increase growth opportunities.
• 😀 Tactics for Market Penetration include price reductions, promotions, and loyalty programs to boost sales in existing markets.
• 😀 Market Development can involve geographical expansion or targeting new demographic segments within existing markets.
• 😀 Product Development often requires significant investment in R&D and innovation to meet changing customer needs.
• 😀 Diversification strategies can include mergers, acquisitions, joint ventures, or strategic alliances with companies in different industries.
• 😀 Ansoff's Matrix is a useful tool, but it has limitations, such as not accounting for external market conditions or competition.

Q & A

What is the purpose of Ansoff's Matrix in strategy selection?

Ansoff's Matrix helps businesses decide on growth strategies by analyzing existing products and markets, and suggesting four primary strategies: Market Penetration, Market Development, Product Development, and Diversification.

What are the four strategies within Ansoff's Matrix?

The four strategies within Ansoff's Matrix are Market Penetration, Market Development, Product Development, and Diversification.

What is Market Penetration and when should it be used?

Market Penetration involves selling existing products in existing markets. It should be used when businesses want to increase market share in their current market, often through tactics like price reductions or loyalty programs.

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

McDonald's is an example of a company using Market Penetration by offering limited-time offers to attract more customers to their existing fast food menu.

What is Market Development and when is it a good strategy?

Market Development focuses on introducing existing products into new markets. This strategy is ideal when a company's current market is saturated, and it seeks growth in new geographical areas or customer segments.

How did Apple use Market Development in its strategy?

Apple used Market Development by expanding into China, tapping into a large customer base that was previously untapped.

What is Product Development and what are its common tactics?

Product Development involves creating new products or enhancing existing products for current markets. Common tactics include investing in R&D to innovate and diversifying the product range to offer more choices to customers.

How does Microsoft apply Product Development strategies?

Microsoft applies Product Development by regularly releasing new versions of its Windows operating system, ensuring it remains relevant to its existing customer base while keeping up with technological advancements.

What is Diversification in strategy, and when should it be considered?

Diversification involves entering new markets with new products or services. It's a high-risk, high-reward strategy best suited for companies looking to reduce risks by branching into entirely different industries.

What are some tactics commonly used in Diversification strategies?

Common tactics for Diversification include acquisitions and mergers, which allow companies to quickly enter new markets, and forming joint ventures or alliances with businesses in different industries to share resources and risks.

What is a real-life example of a company using a Diversification strategy?

The Virgin Group is a prime example of diversification. They expanded from the music industry into airlines, mobile phones, and even space travel, significantly reducing their risk by diversifying into various markets.

What are the limitations of Ansoff's Matrix?

Ansoff's Matrix, while a useful tool for strategy selection, does not account for external factors like market conditions and competition. It should be used alongside other strategic planning tools for more comprehensive analysis.