Ansoff Matrix - Part 2

Clarification to the Ansoff product-market matrix Ford Falcon example The Ansoff product-market matrix shows different ways organisations can achieve growth - Ansoff Matrix introduction. Some of the important messages from this model are that: Market penetration should be the main initial focus for all organisations, that is, making sure that current resources are being most effectively employed and ensuring that the organisation is doing the best it possibly can with its current products/services and customers.

Once market penetration is achieved, then product development and/or market development follows, depending on the capabilities of the organisation (i. . some organisations are strong at product/service development, some at market development and some at both). Diversification should only be attempted once the other quadrants are addressed, as this option represents the highest risk for organisations, typically requiring new capabilities. Many organisations achieve this through acquisition (of for example, brands, know-how, plant and infrastructure, and other assets) rather than building their own capabilities themselves from scratch.

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Of course, organisational reality is not so black and white, and there are overlaps between the quadrants. Indeed, the purpose of the Ansoff matrix is not to be able to classify options, but rather to present a framework that enables thoughtful consideration of the options available to an organisation in the context of the likely risks and capabilities based on its “newness” to the organisation. In market penetration, the aim is to increase market share with existing products and markets.

This can be a done in a variety of ways, such as through greater marketing efforts, buying competitors in the same products and markets, and making simple, low risk product enhancements to make the product more attractive or to make the product purchased more often. Activities over time to upgrade or update products in a relatively minor way would also be regarded as market penetration, such as new editions of a standard textbook like an Introductory Accounting textbook, so as to ensure new books are bought more often than if the new editions were only brought out when a major change (e. . introduction of a GST or VAT) occurred.

New product development typically aims to make more major changes, changes that can even alter the basis of competition in an industry. These can be changes from expanding the product range by adding new flavours or options, adding new products developed by the organisation or built under license, to new, disruptive technologies that can provide enormous competitive advantage to the organisation that makes the change, and also change the nature and structure of an industry.

Take for example, the introduction of digital screen making in the printing industry which effectively made the need to prepare films to make screens for printing fabric redundant, with designs being etched directly onto coated screens from computers, effectively removing an entire step in the chain of production. The Ford Falcon example provided in the Module 4 materials is presented as market penetration.

The justification for this classification takes into account the quantum of the change from year to year, the risk it represents to the company and also perhaps any capability requirements that such a development might require (in terms of whether the company has this capability or not). While the change each year is not that large, over time the change from the original model is significant and some of the steps are also quite large.

Typically, product development is more of a step change than product enhancements or incremental changes over time. These product enhancements to the Ford Falcon are designed to make people want to upgrade their cars; if these changes occurred only rarely, there would be little reason to buy a new car until the old one had worn out. Hence, we have classified the Ford Falcon example as market penetration rather than product development.

Page 1 of 2 W hile the Ansoff matrix presents distinct quadrants, the reality for organisations is that product and market development is a continuum from market penetration and within an organisation, all these activities are typically being undertaken simultaneously, often by different teams with the aim of achieving above average growth in the industry within which they operate.

Some organisations are strong at product development and have limited capability in market development. Other organisations are strong at acquisition rather than developing their own capabilities. When analysing case facts, the context is important and any assumptions you make to support your justification for selecting the particular Ansoff classification/quadrant should be clearly stated.

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