CRITICALLY EVALUATE THE ANSOFF MATRIX AND ITS CONTRIBUTION TO STRATEGIC MARKETING MANAGEMENT
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Ansoff Matrix and its Contribution to Strategic Marketing Management
Marketing is an important aspect in any business. A good marketing strategy will yield more consumers. There are different forms of marketing a product or service in the public; there is marketing through advertisement in television, movies and print ads. According to the American Marketing Association, marketing is the process wherein the people involved with the products and services plans and executes the concepts, prices, promotion, and distribution of the products and services in order to develop exchanges that will satisfy both the consumers and the organisation (, 2006). This paper discusses the contributions of the Ansoff Matrix in strategic marketing management.
There are different types of strategies used by business in identifying their market. There is the SWOT Analysis, in which it identifies the strengths, Weaknesses, Opportunities and Threats of the target market. Another is the BCG Product Portfolio Matrix which is used by businesses with multiple portfolios or product lines in examining the products through relative market shares and rates of growth. STP, which stands for segmenting, targeting and positioning, is a strategy wherein it helps an organisation targets it goods to the consumers, prioritizing the target and developing a marketing mix. And lastly is the Ansoff Matrix, which is according to (1999) is a method of arranging the four fundamental product strategies of marketing which are the market penetration, market extension, product development and diversification.
According to , the Ansoff Product-Market Growth Matrix is an instrument in marketing that was developed by Igor Ansoff. In the Ansoff matrix, it allows the marketers to look at different ways to grow the business through existing products and markets and new products and markets. Moreover, the matrix is composed of four various strategies:
Market Penetration- market penetration is composed of existing products and markets, it occurs when an organisation enters an existing market with current products and services.
Product Development- product development is composed of existing markets and new products, it occurs when an organisation with a current or existing market undertakes a strategy of creating a new product which provides to the same market.
Market Development- market development constitutes new markets and existing products, it occurs when the organisation with an existing product targets a new market through tweaking the product and marketing to new consumers.
Diversification- diversification is composed of new products and new markets, it occurs when an organisation or a company embarks on an area of business in which it had no presence before, from the four strategies of the matrix diversification has the highest risk, however the gains that the business owners will be more abundant than the rest.
Ansoff matrix is one of the most widely used tools in marketing of products and businesses. It is a simple yet powerful tool in identifying the market and the products. Ansoff Matrix has contributed to a number of decisions by multinational companies worldwide.
For a number of businesses, market penetration is usually the choice of a number of small firms and some large firms because of its low risk, at the same time it increases the product sales and growth rate of the company. According to (2006) in market penetration the organisation’s purpose is to sell the existing products in the market wherein it already sells the products and services so that it could attain higher sales of the product, aside from selling the existing product organisations can also increase the sales of existing products through improving the quality.
The market penetration strategy of the Ansoff Matrix has a great contribution in the strategic marketing management because a number of big companies are using this strategy, just like Proctor and Gamble wherein the company already have same products and same markets but still increases the sales of the products through good advertisements, improvement of the quality of products which includes the packaging and the effectiveness of the product. The market penetration strategy is a not so risky because it already has an established market and a number of loyal consumers. Almost all of the established companies from computers, entertainment and food already have existing products and markets, therefore the strategy have really contributed to strategic marketing management.
For an existing company product development is the strategy that most companies employ as no company will last long if their products are not constantly developed. The product development strategy has a huge contribution most especially in the fashion market, because fashion changes form season to season, product development of these companies is continuous and constant and must always be updated. According to Strategic Assets retail companies usually takes this route because the product lines are constantly changed to keep up with the changing tastes of the consumers.
Like in the case of the retailers like Louis Vuitton wherein the bags being sold every season changes the style in order to keep up with the new trends of the season, and also the retail giant of the United States which is the Wal-Mart in which it develops new products in groceries and clothing in order to keep up with the demands of the general consumers.
However, not all companies that employed product development have been successful like in the case of Marks and Spencer, in which according to Strategic Assets, has filled their shops with new products that did not appeal to their consumer base in which have lead to decrease in sales, the case shows the important idea in product development in which do not lose the loyal consumers.
Clearly, the Ansoff Matrix has contributed a lot especially in the sector of retail because of product development, without the product development strategy the products that are going to be sold will have no variations and changes. Product development opened the creative juices of individuals because every month, season or year, different organisations provides the consumers various range of products to choose from.
With the recent trend of globalization, a number of companies have taken a big step into entering new markets with their successful existing products in their current market. It is one of the riskiest strategies in the Ansoff Matrix because the organisation is not sure whether the new market will be receptive with their products or services.
One of the examples in market development is in the car business. Like in the case of Toyota which is a Japanese brand of car, it has a successful market in Japan in the 1930s to about 1950s, and in the mid-1950s the company ventured into a new market which is the United States and other countries in Asia. And nowadays Toyota is one of the most well-known car manufacturers in the world having markets around the world.
However, not all companies that ventured into a new market is as successful as Toyota, just like Wal-Mart, it has a successful market in the United States but when the company entered Germany it did not yield a favourable outcome and finally closed down in July 2006.
The market development strategy of Ansoff Matrix has a huge contribution especially for companies willing to take medium risks. And because of globalization and opening of markets of various countries worldwide, the market development strategy in Ansoff Matrix is very evident for a lot of businesses nowadays.
For organisations willing to take higher risks in business, the Diversification strategy. According to diversification has two main categories, the related diversification and unrelated diversification.
Related Diversification- in the related diversification the organisation develops new products and services in new markets but in the same industry. An example is Toyota wherein it developed a luxury brand of cars which is the Lexus for the upscale market. The company created a new product to a new market but in the same industry which is cars. The related diversification is not as risky compare to unrelated diversification because the products are of the same industry, which means less expenses, time and effort.
Unrelated Diversification- in the unrelated diversification an organisation penetrates a new area for business and at the same time developing new products. Compare to the related diversification, unrelated diversification has a higher risk because the company has to create a new form of product to a new market; it involves a huge amount of time, effort and money. However, when the new products became a hit with the consumers the gains that the organisation will obtain are really huge. An example is the Virgin Group of UK; the organisation is mainly associated with music and recording, but the company ventured into new products and new markets such as the Virgin Cola, Virgin Megastores, Virgin Airlines and Virgin Telecommunications. In the case of Virgin Group the company’s huge risk of entering these different products and markets have resulted to higher gains.
Diversification is another huge contribution of the Ansoff Matrix in the business world, huge companies are able to identify that by entering new products and markets the risk that the organisation undertakes is really huge and that it may generate great loss or huge profits.
The Ansoff Matrix has a huge contribution in the strategic marketing management, from small to large scale companies; the Ansoff Matrix provides organisations different strategies to market their products. And because of the Ansoff Matrix business owners have already a choice of strategy in marketing their products.
The Ansoff Matrix provides the companies a scale in which strategy is less risky and more risky, and because of the matrix the companies are now able to identify which of the four strategies will have huge risk and less risk.
The contribution of the Ansoff Matrix in the marketing strategy of businesses all over the world is very evident. Almost all of the companies around the world use either one of the four strategies when marketing their products and services. Just like in market penetration wherein established companies such as Microsoft and Apple is using, these companies have already existing products and markets but at the same time these companies also use product development in which the goods that are being sold is constantly upgraded in order to address the changing needs of the consumers especially those who loves gadgets. Many companies even combined three to four strategies in the Ansoff Matrix. Just like in the case of McDonald’s wherein the company employs market penetration, product development and market development. Market penetration because the company already has a loyal consumer base and existing products, product development because Mc Donald’s is constantly offering new foods and new burgers in their menu and market development because the company have established fast food chains not just in the United States but around the world. Virgin Group of UK is the perfect example of a company who employs the four strategies in the Ansoff Matrix; the company is diversified because it involved different ventures, with various markets and products such as virgin cola, Virgin Atlantic Airways, Virgin Mega stores and many more, and each of those ventures uses product development, market penetration and market development.
The Ansoff Matrix have partaken a huge contribution to the world of business, the contributions of the Matrix is very evident in almost the entire companies world wide. From home-based businesses to international organisations one of the four strategies in the Ansoff Matrix is being employed in their strategic marketing management. This only shows the big contribution of Ansoff Matrix in the marketing strategy of organisations.
Marketing is a significant element in businesses; a good strategy in marketing will return more favourable outcomes, the Ansoff Matrix provides different marketing strategies which can be useful and helpful in businesses.