Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has helped many marketers and executives better understand the risks inherent in growing their business.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: This focuses on increasing sales of existing products to an existing market.
2. Product Development: Focuses on introducing new products to an existing market.
3. Market Development: This strategy focuses on entering a new market using existing products.
4. Diversification: Focuses on entering a new market with the introduction of new products.

Of the four strategies, market penetration is the least risky, while diversification is the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing market. In other words, a firm is aiming to increase its market share with a market penetration strategy.

The market penetration strategy can be executed in a number of ways:

1. Decreasing prices to attract new customers
2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a market penetration strategy by offering introductory prices and increasing their promotion and distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the existing market. The move typically involves extensive research and development and expansion of the company’s product range. The product development strategy is employed when firms have a strong understanding of their current market and are able to provide innovative solutions to meet the needs of the existing market.

This strategy, too, may be implemented in a number of ways:

1. Investing in R&D to develop new products to cater to the existing market
2. Acquiring a competitor’s product and merging resources to create a new product that better meets the need of the existing market
3. Forming strategic partnerships with other firms to gain access to each partner’s distribution channels or brand

For example, automotive companies are creating electric cars to meet the changing needs of their existing market. Current market consumers in the automobile market are becoming more environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with its existing product(s). In this context, expanding into new markets may mean expanding into new geographic regions, customer segments, etc. The market development strategy is most successful if (1) the firm owns proprietary technology that it can leverage into new markets, (2) potential consumers in the new market are profitable (i.e., they possess disposable income), and (3) consumer behavior in the new markets does not deviate too far from that of consumers in the existing markets.

The market development strategy may involve one of the following approaches:

1. Catering to a different customer segment
2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)

For example, sporting goods companies such as Nike and Adidas recently entered the Chinese market for expansion. The two firms are offering roughly the same products to a new demographic.

Learn more about strategy in CFI’s Business Strategy Course.

The Ansoff Matrix: Diversification

In a diversification strategy, the firm enters a new market with a new product. Although such a strategy is the riskiest, as both market and product development are required, the risk can be mitigated somewhat through related diversification. Also, the diversification strategy may offer the greatest potential for increased revenues, as it opens up an entirely new revenue stream for the company – accesses consumer spending dollars in a market that the company did not previously have any access to.

There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy.

2. Unrelated diversification: There are no potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated diversification strategy.

BALANCED SCORECARD

What is a Balanced Scorecard?

The Balanced Scorecard (or balance score card) is a strategic performance measurement model which is developed by Robert Kaplan and David Norton. Its objective is to translate an organization’s mission and vision into actual (operational) actions (strategic planning).

In addition, it can help provide information on the chosen strategy more, manage feedback and learning processes and determine the target figures. The (operational) actions are set up with measurable indicators that provide support for understanding and adjusting the chosen strategy. The starting points of the balanced scorecard are the vision and the strategy that are viewed from four perspectives: the financial perspective, the customer perspective, the internal business processes and learning & growth.

Financial perspective

The financial perspective is important for all shareholders and other financial backers of an organization. It answers the question: “How attractive must we appear to our shareholders and financial backers?”. This is mainly a quantitative benchmark based on figures from the past.

In addition, it provides a reliable insight into the operational management and the sustainability of the chosen strategy. The delivered added value from the other three perspectives will be translated into a financial success. This is therefore a quantification of the added value that is delivered in the organization. After all in the balanced scorecard, when there is a higher added value, the profits will also be higher.

Customer perspective

Each organization serves a specific need in the market. This is done with a target group in mind, namely its customers. Customers determine for example the quality, price, service and the acceptable margins on these products and/or services.

Organizations always try to meet customer expectations that may change at any time. The existence of alternatives (those of the competitor) has a large influence on customer expectation. This perspective answers the question: “How attractive should we appear to our customers?”

Internal Business Processes

From the perspective of internal processes the question should be asked what internal processes have actually added value within the organizations and what activities need to be carried out within these processes.

Added value is mainly expressed as the performance geared towards the customer resulting from an optimal alignment between processes, activities and decisions. This perspective answers the question: “What must we excel at to satisfy our customers and shareholders/ financial backers?”

Learning and growth

An organization’s learning ability and innovation indicate whether an organization is capable of continuous improvement and/or growth in a dynamic environment. This dynamic environment is subject to change on a daily basis due to new legislation and regulations, economic changes or even increasing competition. This perspective answers the question: “How can we sustain our ability to achieve our chosen strategy?”.

The balance within

As the name suggests, the equilibrium or balance is an important principle in the balanced scorecard model.

There must be a balance between the short-term and the long-term objectives, financial and non-financial criteria, leading and lagging indicators and external and internal perspectives. It is about cohesion in which an improvement in one perspective must not be an obstacle in another perspective.
This cohesion is reflected in the model through the mutually connected arrows between the four perspectives.

Balanced Scorecard implementation

The implementation of the Balanced Scorecard consists of a number of steps. The first step in this is that senior management sets up a mission, vision and strategy. This strategy is linked to a number of objectives which are referred to as strategic objectives.

Then middle management is informed about the mission, vision and the strategic objectives. In an open discussion, managers can express their opinions, indicate the critical success factors per perspective and they can point out or set up indicators themselves so that these can be monitored in the future.

For the financial and customer perspectives within the Balanced Scorecard it is possible to carry out a survey or conduct interviews among the (potential) shareholders or customers to assess what their expectations are. This could provide an insight into the direction of the objectives the necessary objectives.

In consultation with middle management and senior management several objectives are formulated in which the different critical success factors are indicated per objective, the indicators are used to measure this, specific values such as targets and initiatives are meant to achieve these objectives.

It is possible to go one step further by linking personal objectives to the objectives of middle management. As a result, all personal initiatives will contribute to the chosen strategy of the organization. The implementation of the Balanced Scorecard can be carried out in different manners.

Broadly, this could include the following steps:

1. Set up a vision, mission and strategic objectives.
2. Perform a stakeholder analysis to gauge the expectations of customers and shareholders.
3. Make an inventory of the critical success factors
4. Translate strategic objectives into (personal) goals
5. Set up key performance indicators to measure the objectives
6. Determine the values for the objectives that are to be achieve
7. Translate the objectives into operational activities.

It is important to mention that achieving strategic objectives is a continuous process: plan-do-check-act (see PDCA- or Deming circle). Setting up and implementing the Balanced Scorecard model is therefore not a one-off action!

Balanced Scorecard template

Start translating an organization’s mission and vision into actual action with this ready to use Balanced Scorecard template.

 

THE 7 P’S OF THE MARKETING MIX

MARKETING THEORIES – THE COMMUNICATIONS MIX

Visit our Marketing Theories Page to see more of our marketing buzzword busting blogs. 

The communications mix involves all the tools you use to communicate with your customers or potential customers. This could be through advertising, social media, product packaging, direct marketing, websites, events, exhibitions – the list goes on!

Successful campaigns consider all elements of the communications mix. To see even better results, you must effectively use all areas to create an integrated multi-channel or omni-channel campaign.

What’s the difference between the marketing communications mix and the marketing mix?

They may both include mix in their names, and they do link together – but they are actually very different tools.

On one hand, the Marketing Mix is used to shape brand strategies through factors unique to each business (the 7 Ps – product, price, promotion, place, physical evidence, people and process).

On the other hand, the Communications Mix defines the ways you communicate with your customers, i.e. the tools you use.

Marketing communications tools

The promotional mix is made up of five elements, shown below:

1. Advertising (TV, radio, press, PPC)

Advertising covers all avenues where a business pays for their message to be broadcast.

In 1922, the first radio advertisement was aired in New York, promoting apartments in Jackson Heights. Video came next, but luckily, it didn’t quite kill the radio star. Instead, it became its own highly effective advertising tool, working harmoniously alongside radio.

Television has mostly been confined to brands with deep pockets. However, with the digital age came more affordable online tools such as PPC and social media advertising.

Successful advertising campaigns can be emotive, creative, eye-catching, catchy, musical, or even intentionally annoying (anything to grab attention!)

2. Direct marketing & digital marketing (email, social media, gamification, etc)

The emergence of digital didn’t just bring social media and online shopping. It also gave us a whole new way to do marketing. This way is significantly cheaper; and if done correctly can be even more effective than broadcasting to the masses through TV or radio.

One of the major benefits of direct marketing is its targeted approach. So, if you’ve done the best and most accurate market research on your customers, you’ll know exactly who to target. It’s also attractive to marketers because its results can be directly measured.

3. Public relations (PR)

Public relations turns brand messages into stories that appeal to the media and its target audiences. It amplifies news, strategies and campaigns to create a positive view of a company through partnerships with newspapers, journalists and other relevant organisations.

But not everything can be shared via PR. The idea is to separate the stories they think could be developed into an effective PR strategy. So, usually anything considered too ‘salesy’ is a no no. A great PR campaign revolves around a public interest, current event or trend that can be connected to a product, service or brand.

4. Personal selling

Personal selling is, you guessed it, selling through a person (usually in a face-to-face setting). This includes salespeople, representatives, brand ambassadors or even influencers.

Using their experience, specialist knowledge and communication skills, their aim is to inform and encourage customers to buy or try a product or service.

5. Sales promotion

Sale! 50% off selected lines!

Using various online and offline outlets, sales promotion creates limited time deals or promotions on products or services in order to increase short-term sales. It can include sales, coupons, contests, freebies, prizes and product samples.

When conducting a sales promotion, it’s important to consider:

• how much it costs and whether the volume of sales will make up for the lost revenue
• whether it will build loyalty or just attract one-off purchasers
• if the promotion fits with the brand’s image

Loyalty cards are a more recent addition to the sales promotion sphere, adding important elements such as customer retention and brand loyalty. Discounts or special offers reward loyal and repeat purchasers. It’s also a great way to gather valuable customer data on purchasing habits and behaviour.

 

SWOT ANALYSIS

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths and weaknesses are internal to your company—things that you have some control over and can change. Examples include who is on your team, your patents and intellectual property, and your location.

Opportunities and threats are external—things that are going on outside your company, in the larger market. You can take advantage of opportunities and protect against threats, but you can’t change them. Examples include competitors, prices of raw materials, and customer shopping trends.

A SWOT analysis organizes your top strengths, weaknesses, opportunities, and threats into an organized list and is usually presented in a simple two-by-two grid. Go ahead and download our free template if you just want to dive right in and get started.

Why do a SWOT Analysis?

When you take the time to do a SWOT analysis, you’ll be armed with a solid strategy for prioritizing the work that you need to do to grow your business.

You may think that you already know everything that you need to do to succeed, but a SWOT analysis will force you to look at your business in new ways and from new directions. You’ll look at your strengths and weaknesses, and how you can leverage those to take advantage of the opportunities and threats that exist in your market.

Who should do a SWOT Analysis?

For a SWOT analysis to be effective, company founders and leaders need to be deeply involved. This isn’t a task that can be delegated to others.

But, company leadership shouldn’t do the work on their own, either. For best results, you’ll want to gather a group of people who have different perspectives on the company. Select people who can represent different aspects of your company, from sales and customer service to marketing and product development. Everyone should have a seat at the table.

Innovative companies even look outside their own internal ranks when they perform a SWOT analysis and get input from customers to add their unique voice to the mix.

If you’re starting or running a business on your own, you can still do a SWOT analysis. Recruit additional points of view from friends who know a little about your business, your accountant, or even vendors and suppliers. The key is to have different points of view.

Existing businesses can use a SWOT analysis to assess their current situation and determine a strategy to move forward. But, remember that things are constantly changing and you’ll want to reassess your strategy, starting with a new SWOT analysis every six to 12 months.

For startups, a SWOT analysis is part of the business planning process. It’ll help codify a strategy so that you start off on the right foot and know the direction that you plan to go.

How to do a SWOT analysis the right way

As I mentioned above, you want to gather a team of people together to work on a SWOT analysis. You don’t need an all-day retreat to get it done, though. One or two hours should be more than plenty.

1. Gather the right people

Gather people from different parts of your company and make sure that you have representatives from every department and team. You’ll find that different groups within your company will have entirely different perspectives that will be critical to making your SWOT analysis successful.

2. Throw your ideas at the wall

Doing a SWOT analysis is similar to brainstorming meetings, and there are right and wrong ways to run them. I suggest giving everyone a pad of sticky-notes and have everyone quietly generate ideas on their own to start things off. This prevents groupthink and ensures that all voices are heard.

After five to 10 minutes of private brainstorming, put all the sticky-notes up on the wall and group similar ideas together. Allow anyone to add additional notes at this point if someone else’s idea sparks a new thought.

3. Rank the ideas

Once all of the ideas are organized, it’s time to rank the ideas. I like using a voting system where everyone gets five or ten “votes” that they can distribute in any way they like. Sticky dots in different colors are useful for this portion of the exercise.

Based on the voting exercise, you should have a prioritized list of ideas. Of course, the list is now up for discussion and debate, and someone in the room should be able to make the final call on the priority. This is usually the CEO, but it could be delegated to someone else in charge of business strategy.

You’ll want to follow this process of generating ideas for each of the four quadrants of your SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats.

Questions that can help inspire your analysis

Here are a few questions that you can ask your team when you’re building your SWOT analysis. These questions can help explain each section and spark creative thinking.

Strengths

Strengths are internal, positive attributes of your company. These are things that are within your control.

• What business processes are successful?
• What assets do you have in your teams? (ie. knowledge, education, network, skills, and reputation)
• What physical assets do you have, such as customers, equipment, technology, cash, and patents?
• What competitive advantages do you have over your competition?

Weaknesses

Weaknesses are negative factors that detract from your strengths. These are things that you might need to improve on to be competitive.

• Are there things that your business needs to be competitive?
• What business processes need improvement?
• Are there tangible assets that your company needs, such as money or equipment?
• Are there gaps on your team?
• Is your location ideal for your success?

Opportunities

Opportunities are external factors in your business environment that are likely to contribute to your success.

• Is your market growing and are there trends that will encourage people to buy more of what you are selling?
• Are there upcoming events that your company may be able to take advantage of to grow the business?
• Are there upcoming changes to regulations that might impact your company positively?
• If your business is up and running, do customers think highly of you?

Threats

Threats are external factors that you have no control over. You may want to consider putting in place contingency plans for dealing with them if they occur.

• Do you have potential competitors who may enter your market?
• Will suppliers always be able to supply the raw materials you need at the prices you need?
• Could future developments in technology change how you do business?
• Is consumer behavior changing in a way that could negatively impact your business?
• Are there market trends that could become a threat?

This is used when objectives are set to evaluate the Strengths, Weaknesses, Opportunities and Threats facing the organisation. Please see our Marketing Theories – SWOT Analysis post for a full explanation.

STAKEHOLDER MAP

 

THE CONSUMER DECISION MAKING PROCESS

PORTERS FIVE FORCES

 

THE GE MATRIX

THE MARKETING ENVIRONMENT

 

SEGMENTING CONSUMER MARKETS

 

MASLOW’S HIERARCHY OF NEEDS

 

 

BOSTON CONSULTING GROUP MATRIX

 

 

 

PESTEL ANALYSIS

 

STEEPLE ANALYSIS (EXTENSION OF PESTEL)

  

RABOSTIC PLANNING MODEL

 

 

THE PESO MODEL