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ANSoff Product/Market Matrix:

The ANSoff Growth matrix is a tool that helps businesses decides their product and market

growth strategy.

ANSoff’s product/market growth matrix suggests that a business attempts to grow depend

on whether it markets new or existing products in new or existing markets.

The output from the ANSoff product/market matrix is a series of suggested growth strategies

that set the direction for the business strategy. These are described below:

Market Penetration:

Market penetration is the name given to a growth strategy where the business focuses on

selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

i. Maintain or increase the market share of current products—this can be achieved by a

combination of competitive pricing strategies, advertising, sales promotion and perhaps

more resources dedicated to personal selling.

ii. Secure dominance of growth markets.

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iii. Restructure a mature market by driving out competitors: this would require a much more

aggressive promotional campaign, supported by a pricing strategy designed to make the

market unattractive for competitors.

iv. Increase usage by existing customers—for example by introducing loyalty schemes. A

market penetration marketing strategy is very much about “business as usual”, l he business

is focusing on markets and products it knows well. It is likely to have good information on

competitors and on customer needs. It is unlikely, therefore, that this strategy will require

much investment in new market research.

Market Development:

Market development is the name given to a growth strategy where the business seeks to sell

its existing products into new markets.

There are many possible ways of approaching this strategy, including:

1. New geographical markets; for example exporting the product to a new country.

2. New product dimensions or packaging.

3. New distribution channels.

4. Different pricing policies to attract different customers or create new market segments.

Product Development:

Product development is the name given to a growth strategy where a business aims to

introduce new products into existing markets. This strategy may require the development of

new competencies and requires the business to develop modified products which can

appeal to existing markets.

Diversification:

Diversification is the name given to the growth strategy where a business markets new

products in new markets.

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This is an inherently more risky strategy because the business is moving into markets in

which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about

what it expects to gain from the strategy and an honest assessment of the risks.

H. Igor Ansoff Ansoff was a mathematician and a business manager. He known as the father of Strategic management.Ansoff was born in Vladivostok, Russia on December 12, 1918.In 1937 Ansoff emigrated to the USA and graduated at Stuyvesant High School, New York City.Following graduation Ansoff studied General Engineering at Stevens Institute of Technology where he received a Master of Science degree in the Dynamics of Rigid Bodies.

Ansoff then went on to study at Brown University, receiving his Doctorate in applied mathematics. 

Ansoff then joined UCLA, California where he participated in the Senior Executive Program. For the next 17 years he was professor at the USA International University (now called Alliant International University). 

He served in the U.S. Naval Reserve and as a liaison with the Russian Navy during the second World War. 

Market penetration

Under this strategy, the business sells existing products in the existing markets trying to increase

Either the number of consumers using the product that is bringing in new consumers Consumption levels of the existing consumers

It mainly aims at 4 objectives-

Enhancing market share of the existing products Securing market share of dominant marketso Restructure the existing market by thrashing out competition by aggressively

promoting the product.o Increasing consumption levels of existing consumers

Market Development

Under this, the firm sells existing products in new markets which can be done through-

Exploring new geographical markets Changing the packaging for the new markets Developing new distribution channels Differentiated pricing in different markets.

Product development

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Here, firm introduces new markets into the existing markets. This is mainly done to adapt to the changing demands and accordingly modifying the products to create business.Diversification

Under this, the firm ventures with new products into new markets. This is most risky strategy out of all the ones described above.

Ansoff MatrixThe Ansoff product/ market matrix is a tool that helps businesses decides their product and market growth strategy. 

It suggests that a business' attempts to grow depend on whether it markets new or existing products in new or existing markets.

It is used by marketers who have objectives for growth. Ansoff's matrix offers strategic choices to achieve the objectives. There are four main categories for selection.

The four main categories

Market Penetration (existing markets, existing products)Here we market our existing products to our existing customers.

This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market penetration seeks to achieve four main objectives:

Maintain or increase the market share of current products - this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling.

Secure dominance of growth markets.

Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors.

Increase usage by existing customers. For example by introducing loyalty schemes.

A market penetration marketing strategy is very much about "business as usual". The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research. 

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Market Development (new markets, existing products)Here we market our existing product range in a new market.

This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development.Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

New geographical markets; for example exporting the product to a new country

New product dimensions or packaging: for example New distribution channels

Different pricing policies to attract different customers or create new market segments

Product Development (existing markets, new products):This is a new product to be marketed to our existing customers. 

Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.

Business Diversification (new markets, new products):This is where we market completely new products to new customers. The diversification can be divided again into horizontal, vertical and lateral diversification.Diversification is an inherently higher risk strategy because the business is moving into markets in which it has little or no experience.

For a business to adopt a diversification strategy, it must have a clear idea about what it expects to gain from the strategy and a transparent and honest assessment of the risks.

BCG MatrixBoston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix) developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the basis of their related market share and industry

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growth rates. It is a two dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is a comparative analysis of business potential and the evaluation of environment.

According to this matrix, business could be classified as high or low according to their industry growth rate and relative market share.

Relative Market Share = SBU Sales this year leading competitors sales this year.

Market Growth Rate = Industry sales this year - Industry Sales last year.

The analysis requires that both measures be calculated for each SBU. The dimension of business strength, relative market share, will measure comparative advantage indicated by market dominance. The key theory underlying this is existence of an experience curve and that market share is achieved due to overall cost leadership.

BCG matrix has four cells, with the horizontal axis representing relative market share and the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s are located in different industries, then the mid-point is set at the growth rate for the economy.

Resources are allocated to the business units according to their situation on the grid. The four cells of this matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a particular type of business.

1. Stars- Stars represent business units having large market share in a fast growing industry. They may generate cash but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these business units are highly competitive in the industry. If successful, a star will become a cash cow when the industry matures.

2. Cash Cows- Cash Cows represents business units having a large market share in a mature, slow growing industry. Cash cows require little investment and generate cash that can be utilized for investment in other business units. These SBU’s are the corporation’s key source of cash, and are specifically the core business. They are the base of an organization. These businesses usually follow stability strategies. When cash cows loose their appeal and move towards deterioration, then a retrenchment policy may be pursued.

3. Question Marks- Question marks represent business units having low relative market share and located in a high growth industry. They require huge amount of cash to maintain or gain market share. They require attention to determine if the venture can be viable. Question marks are generally new goods and services which have a good commercial prospective. There is no specific strategy which can be adopted. If the firm thinks it has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be adopted. Most businesses start as question marks as the company tries to enter a high growth market in which there is already a market-share. If ignored, then question marks

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may become dogs, while if huge investment is made, then they have potential of becoming stars.

4. Dogs- Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash nor require huge amount of cash. Due to low market share, these business units face cost disadvantages. Generally retrenchment strategies are adopted because these firms can gain market share only at the expense of competitor’s/rival firms. These business firms have weak market share because of high costs, poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if there is fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business units and makes it possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such as-

1. BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus, the true nature of business may not be reflected.

2. Market is not clearly defined in this model.3. High market share does not always leads to high profits. There are high costs also

involved with high market share.4. Growth rate and relative market share are not the only indicators of profitability.

This model ignores and overlooks other indicators of profitability.5. At times, dogs may help other businesses in gaining competitive advantage. They

can earn even more than cash cows sometimes.6. This four-celled approach is considered as to be too simplistic.

The BCG Matrix method is the most well-known portfolio management tool. It is based on product life cycle theory. It was developed in the early 70s by the Boston Consulting Group. The BCG Matrix can be used to determine what priorities should be given in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both high-growth products in need of cash inputs and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth. The basic idea behind it is: if a product has a bigger market share, or if the product's market grows faster, it is better for the company.

THE FOUR SEGMENTS OF THE BCG MATRIXPlacing products in the BCG matrix provides 4 categories in a portfolio of a company: Stars (high growth, high market share)o Stars are using large amounts of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash.o Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in Stars, because the rewards will be Cash Cows if market share is kept. Cash Cows (low growth, high market share)

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o Profits and cash generation should be high. Because of the low growth, investments which are needed should be low.o Cash Cows are often the stars of yesterday and they are the foundation of a company. Dogs (low growth, low market share)o Avoid and minimize the number of Dogs in a company.o Watch out for expensive ‘rescue plans’.o Dogs must deliver cash, otherwise they must be liquidated. Question Marks (high growth, low market share)o Question Marks have the worst cash characteristics of all, because they have high cash demands and generate low returns, because of their low market share.o If the market share remains unchanged, Question Marks will simply absorb great amounts of cash.o Either invest heavily, or sell off, or invest nothing and generate any cash that you can.THE BCG MATRIX AND ONE SIZE FITS ALL STRATEGIESThe BCG Matrix method can help to understand a frequently made strategy mistake: having a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a generic return on capital of say 9,5% for an entire corporation.In such a scenario: Cash Cows Business Units will reach their profit target easily. Their management have an easy job. The executives are often praised anyhow. Even worse, they are often allowed to reinvest substantial cash amounts in their mature businesses. Dogs Business Units are fighting an impossible battle and, even worse, now and then investments are made. These are hopeless attempts to "turn the business around". As a result all Question Marks and Stars receive only mediocre investment funds. In this way they can never become Cash Cows. These inadequate invested sums of money are a waste of money. Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become Cash Cows (or Stars), or otherwise companies are advised to disinvest. They can then try to get any possible cash from the Question Marks that were not selected.OTHER USES AND BENEFITS OF THE BCG MATRIX If a company is able to use the experience curve to its advantage, it should be able to manufacture and sell new products at a price that is low enough to get early market share leadership. Once it becomes a star, it is destined to be profitable. BCG model is helpful for managers to evaluate balance in the firm’s current portfolio of Stars, Cash Cows, Question Marks and Dogs. BCG method is applicable to large companies that seek volume and experience effects. The model is simple and easy to understand. It provides a base for management to decide and prepare for future actions.LIMITATIONS OF THE BCG MATRIXSome limitations of the Boston Consulting Group Matrix include: It neglects the effects of synergy between business units. High market share is not the only success factor. Market growth is not the only indicator for attractiveness of a market. Sometimes Dogs can earn even more cash as Cash Cows. The problems of getting data on the market share and market growth. There is no clear definition of what constitutes a "market". A high market share does not necessarily lead to profitability all the time. The model uses only two dimensions – market share and growth rate. This may tempt management to emphasize a particular product, or to divest prematurely. A business with a low market share can be profitable too.

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The model neglects small competitors that have fast growing market shares.

BCG(Boston consulting group)matrix is the well-known framework, used for portfolio management by the business. This could be asked in the exam scenario based question where business has number of investments.

1. STAR (high growth rate/high market share)

1. High growth rate requires high levels of investments to cope with competitors in the markets. This can cause significant cash outflows from the business. High market share should provide cash for these investments. Cash generated from operations is to be re-invested into the business.

2. Main challenge for the business is to maintain or even increase its market share to generate cash for growing needs of the business.

3. Eventually, at the maturity of the market star will be turned into cash cow generating cash that could be invested elsewhere.

4. Is the future of the organization.

5. Product development and innovation is the key to success as new competitor are emerging in the market. This will keep the business ahead of others.

6. Cash generated from cash cows can be utilized on star.

2. CASH COW (low growth rate/ high market share)

1. This is the main cash generating unit for the business.

2. There is very difficult to sustain growth rate because of market is at the maturity stage.

3. Business should focus on maintaining its market share.

4. Growth is only possible through increase market share probably at the expense of others.

5. Competition is robust at this stage; marketing is primarily activity at this stage.

6. Innovation would not help at this stage because new development can quickly be copied by competitors.

3. QUESTION MARK(high growth rate/low market share)

1. This is the part of portfolio demanding cash for his growing needs but does not generated cash because of low market share.

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2. It has potential to become star if market share is increased otherwise as the time passes it will became dog rather than becoming cash cow.

3. Marketing and innovation both are useful tools at this stage.

4. It requires greater management time and resources to prevent the investment being eroded.

5. Either heavy investments should be made or it should be sold but this option only transfers problem to the buyers, it does not solve the problem.

6. Strategic alliance with other competitor facing the same problem or acquisition by successful competitor may help resolve the issue.

4. DOG (low growth rate/ low market share)

1. It does not provide any growth to business either way.

2. It may still generate some cash for the business so it is wise to retain it in absence of other investment proposal, if not, it should be disposed to realize cash.

3. Strategies decided to re-position it to cash cow should be carefully considered otherwise it will waste money which could be used on star.

4. Market share can be obtained by selling standard products at relatively low price as an incentive to buy the product. Cost-efficiency is key to success. Perhaps by targeting people of a lower – middle class.

LIMITATIONS OF BCG MATRIX.

1. It does not consider profit margin.

2. It does not take account of any ethical reason for holding an investment e.g. creation of an employment in the region.

3. It does not identify any criteria for deciding acceptable growth rate and market share.

4. There may be any other strategic reason for holding investment e.g. cross-selling benefits, strengthening up-side or downside supply chain.

PEST AnalysisThe PEST analysis is an external analysis in which ‘P’ represents Politics, ‘E’ for Economic, ‘S’ for social and ‘T’for Technology. The PEST analysis describes a framework of macro environmental factors that are important for strategic management.

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Factors of the PEST Analyis

Political factors indicate to what extent the Government influences in the economy. These factors are of crucial importance for strategic management. Political factors include areas such as fiscal policy, labour law, environmental law, trade restrictions, rates and political stability. Political factors may also include goods and services the Government wants to provide or does not want to provide or be provided (for instance subsidies). The Government also has great influence on the healthcare, education and infrastructure of a country or nation.

Economic factors include growth, interest rates and the inflation rate of an economy. These factors have a major impact on how businesses operate and make decisions. For example, interest rates may influence an enterprise’s cost of capital and therefore they may influence to what extent a company grows and expands. Exchange rates may affect the costs of export goods and the supply and prices of imported goods.

Social factors are, among other things, cultural aspects and include health consciousness, population growth, age structure, careers and an emphasis on safety. These social factors influence the demand for the products and services of an organization and how this organization responds to this demand. An ageing population, for example, may imply a smaller and less flexible staff resulting in higher labour costs. Based on social factors, organizations may change their management strategies to adapt to these developments for example by recruiting older staff on account of a shortage of knowledge workers.

Technological factors include ecological and environmental aspects as well as aspects of research and development (R&D) and automation. Technological factors influence entry barriers, minimum efficient production levels and insourcing and outsourcing considerations. In addition, technological factors affect the costs and the quality of products and services and often lead to innovation.

SWOT ANALYSIS :The term "SWOT" is an acronym for the words "strengths", "weaknesses", "threats" and "opportunities". A S.W.O.T framework involves composing lists of the internal strengths and weaknesses a business that are relevant to a certain project and then creating lists of opportunities and threats that exist outside of the company that could impact the project. For example, consider a tech company wants to increase its sales by expanding its product offerings. If the company owns a patent on a new type of computer processor technology, the patent could be listed as a strength, but if it the company does not have the resources to engineer and produce a prototype

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of the new processor, managers might list lack of capital as a weakness. Venture capitalists often invest in businesses with new ideas that have the potential for large growth, so the potential to attract venture capital could be listed as on opportunity. If competitors are in the process of developing similar technologies it could constitute a threat. Once all four lists are composed, managers can brainstorm ways to maximize strengths, limit weaknesses, take advantage of opportunities and avoid or reduce threats.

How to Organize It

SWOT Analyses are often arranged as a 2 by 2 matrices with the lists of strength and weaknesses in the first two boxes in the first row and the lists of opportunities and threats in the second row. By arranging the analysis this fashion, the lists are separated into internal factors that can affect a project on the first row and external factors on the second row. In addition, the first column consists of the positive factors (strengths and opportunities) and the second column consists of negative actors (weaknesses and threats.). This method provides a simple framework to keep lists organized and conceptualize how the lists are related.

Purpose of a SWOT Analysis

The purpose of a Strengths, Weaknesses, Opportunities, and Threats framework is to get managers thinking about everything that could potentially impact the success of a new project. Failure to consider a key strength, weakness, threat or opportunity could to lead to a poor business decisions. For example, if the tech company with the patent for a new processor did not recognize the threat that its competitors were developing similar products, it might overestimate the sales potential of the new processor and take on debt to fund the development of the processor only to discover that the new product does not bring in enough revenue to pay off the debt. In other words, a strenghts, weaknesses, opportunities, and threats brainwork can help managers avoid making costly mistakes and determine which projects are most likely to succeed.SWOT analysis is a business analysis process that ensures that objectives for a project are clearly defined and that all factors related to the project are properly identified. The SWOT analysis process involves four areas: Strengths, Weaknesses, Opportunities and Threats. Both internal and external components are considered when doing SWOT Analysis, as they both have the potential to impact the success of a project or venture. The following is a brief summary of SWOT Analysis components:

1. StrengthsStrengths in SWOT analysis are the attributes within an organization that are considered to be necessary for the ultimate success of a project. Strengths are resources and capabilities that can be used for competitive advantage. Examples of strengths that are often cited include:

o Strong brand nameso Good reputationo Cost advantages of proprietary know-how

2. WeaknessesThe factors within the SWOT analysis formula that could prevent successful results within a project are

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Weaknesses. Weaknesses include factors such as an abundance of rivalry between departments, a weak internal communication system, lack of funding and an inadequate amount of materials. Weaknesses can derail a project before it even begins. Other Weaknesses include:

o Weak brand nameo Poor reputationo Ineffective and high cost structure

3. OpportunitiesOpportunities are classified as external elements that might be helpful in achieving the goals set for the project. These factors could involve vendors who wish to work with the company to help achieve success, the positive perception of the company by the general public, and market conditions that could make the project desirable to the a segment of the market. Additional Opportunities include:

o Arrival of new technologyo Unfulfilled customer needso Taking business courses (training)

4. ThreatsThese external factors could gravely affect the success of the project or business venture. The possible threats that are critical to any SWOT analysis include a negative public image, no ready-made market for the final product and the lack of vendors who are able to supply raw materials for the project. Some other threats include:

o Trend changeso New regulationso New substitute products