Hello readers and welcome back to our project management series. Hope you had fun and were enlightened going through our two-part article on “Understanding the project environment.” For those who missed it, you can view the articles here. Part 1 and Part 2. In our article today, we will be exploring the Ansoff product market matrix.
You have just been selected as the senior project manager for an FMCG in Indonesia and you report directly to the Group Managing director of the company. During your first strategic meeting, the board of directors decided to increase overall company revenue by reducing production cost, launching a new product in the Indonesian market and expanding its current product to the Indian market. You have been selected as the project manager in charge of expansion into the Indian market. How do you go about it?
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In fulfilling this task, we are faced with a lot of strategic decisions and our ability to choose the right strategy from a pool of options in the least possible time sometimes guarantee the success of the project. The Ansoff matrix was developed in 1957, and it’s a fast guide in determining which growth strategy an organization should adopt. It is also known as the product market expansion grid as it details the growth strategy an organization should pursue with relation to the market type.
Fig 1. The Ansoff Matrix
We will explore the four quadrants of the Ansoff matrix, analyze them detailing the techniques required in implementing each of the strategies.
THE MARKET PENETRATION STRATEGY
This marketing strategy is used when organizations aim to achieve a market increase with existing products in an existing market. Although none of the marketing strategies is risk free, the market penetration strategy is generally believed to have the least risk. This is because it leverages an existing product in a familiar market. However, it involves rigorous competition with existing competitors in order to gain a greater share of the market or maintain leadership position in a known market. Since this strategy involves selling more of the same items to the same set of people, the following are tactics required in achieving this strategy.
Advertisement: this involves understudying your target customers and identifying their most preferred form of media. Having understood this, we then encourage and persuade our audience to buy our product by showing the advantages, benefit and competitive edge our products have over its competitors. Apart from selecting the medium of advertisement, the message also has to be crafted so that your target audience can relate with it. For example, the target market for IKEA (an economical do it yourself furniture outfit) and BULTHAUP (a high class customized furniture outlet) would be totally different and so would their target medium and messages. While IKEA might choose to advertise in the subway dallies, BULTHAUP might choose to advertise in exquisite magazines
Use of Loyalty Scheme: Let’s not forget, our aim in this strategy is to increase sales of same product in same market. Loyalty schemes make customers feel relevant but more importantly encourage customers to make repetitive purchase. The use of loyalty schemes is now popular in a lot of industries ranging from airline, grocery, banking etc.
Sales and price promotion: It is not unlikely for users to be pricing sensitive in existing markets. Also depending on the market structure, sales promotion might be the easiest way of retaining old customers while attracting new customers. Some of the most popular sales promotion strategy includes; half prices, buy one get one free (BOGOF), match and mix, promotions etc.
Mergers and acquisition (M&A): In matured markets M&A’s is one of the easiest ways of penetrating the market. Buying off an existing firm or partnering with one would allow you to leverage on the goodwill, brand and reputation of that organization. For example, in the mobile messaging application industry Facebook recently bought Whatsapp. Although Facebook had its own messaging platform and could have decided to market it to the public, buying a competitor has helped penetrate the mobile messaging platform at a faster rate.
NEW PRODUCT DEVELOPMENT
This strategy involves selling a new product to the same people (existing market). Let us remind ourselves that product here refers to both products and services. This means it is applicable to both the manufacturing and the service sector. This strategy is useful to a firm that has its strength towards a particular market than a product i.e. a firm whose customers are loyal. A good example of an organization that has successfully implemented this strategy is Apple Inc. Due to the high customer loyalty of Apple fans, apple has successfully introduced new products to the same market and it has always been well received by its customers. The following are tactics to be used by a project manager in order to effectively implement the new product development strategy
Related product: In developing a new product to an existing market, related products are the most suitable. Using Apple as an example again, we can all see the direct relationship between the iPod, iPhone, iPads and the MacBook computers. Let us for a second imaging Apple developing running sneakers as its next product to compete with Adidas and Nike or toothpaste to compete with Colgate. How easy would it be to successfully sell these products to their consumers? This is not to say that diversification should only be within the same industry, but it is easier to sell a related product to the same customer base than a non-related product.
Product variation. New product in this case might not necessarily mean a totally new idea but adding incremental value to an existing product. This trend is very popular in the IT industry (mobile phones especially) where flagship products are released every year with an incremental value over the previous ones.
Quality Improvement: This is very important in the service industry. This involves improving customer satisfaction, reducing time to the market and rendering higher quality services. Benchmarking is a good way of achieving quality and this can be done against internal company standards or against industry leaders.
Here we aim to sell the same product to new customers or in a new region. This strategy is very useful for an organization whose home market is saturated. An example is Tesco, a UK grocery store. Tesco is the largest grocery store in the United Kingdom and has about 40 percent market share, which is the largest an individual store is allowed to have in the UK. Its growth strategy now is to develop new markets which involves rendering the same service but in a new market. The following are tactics that should be explored for a market development strategy
Target Market: A different geographical market either home or abroad should be targeted for expansion purposes. Although geographical location is the main focus when market development is being discussed, new markets can be created in other ways. Creating a new market segment is one of the new ways of developing a new market. A good example is Lucozade boost. Lucozade boost in the 1990’s and early 2000’s was originally marketed as a recovery drug and known for its ability to help sick people recover faster. It was; however, able to create a new market by selling the same product but rebranding its product as energy and targeting a new market which was the youth rather than the sick.
Increase sales channels: An increase in sales channels would lead to an increase in target market. Different sales channel generally appeal to different market audience and as many as possible market channels should be explored. A feasibility report should be carried out to determine which market channels have an audience that would be interested in the product we are marketing.
Diversification can be said to be the most risky of all the growth strategies. It involves launching a new product in a new market and most times might be outside the organizations area of competence. Diversification strategies are sometimes referred to as a suicide strategy. The diversification strategy can; however, be worth it if the return on investment is high enough to compensate for the risk involved. There is no specific tactic to be used during diversification since it involves a totally new and uncharted area to the organizations existing portfolio. Proper planning is necessary for successful diversification. This involves learning about the new market, understanding the competitors, analyzing the risk involved, consumer analysis, market trend, product differentiation and many more. A company, which has successfully diversified, would have reduced risk. This is because should one business line encounter challenges the other would not be affected since they are unrelated.
This article explored the product-market strategy also known as the Ansoff Matrix. The strategy explored the growth strategy that can be employed by any organization from a product and market perspective and was divided into four sections, which are market penetration, product development, market development and diversification. This is important to the project manager and senior management especially at the initiation phase of a project because it provides the basic guidelines that can be followed after we have determined the right strategy to be employed based on the organizations’ product and market need.
That’s all we have for today and once again thank you for reading. Do not forget to drop your thoughts and questions in the comments section.
Ansoff, H. I. (1957). Strategies for Diversification. Harvard Business Review.
- Reed, R., & Luffman, G. A. (1986). Diversification: The growing confusion. Strategic Management Journal, 7(1), 29-35.
- McDonald, M. (1996). Strategic marketing planning. Kogan Page Publishers.