Ansoff’s matrix

Business Management Toolkit

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Unit content

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The Ansoff matrix as a decision-making tool

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The Ansoff Matrix

• The Ansoff matrix is an analytical tool that helps managers choose and devise product and market growth strategies.
• The choice of growth strategies depends on the company’s objectives for its products and markets.

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Ansoff’s matrix growth strategies

• Market penetration
• Product development
• Market development
• Diversification

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Market penetration

• Market penetration involves a business choosing to focus on selling existing products to existing markets.
• Features of this strategy are:
• Minimal risk
• Seeks to maintain or increase market share
• Intense competition

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McDonald’s opened their first restaurant in the United States in 1955. By 2020, that had grown to nearly 14,000 restaurants in the country by market penetration.

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Product development

• Product development involves selling new products in existing markets.
• Features of this strategy are:
• Moderate risk
• Innovation to replace existing products.
• Product improvements

The Filet-O-Fish was introduced by a McDonald’s franchisee in 1965. This fish burger was developed in order to cater to religious dietary requirements of the predominantly Roman Catholic local population in the franchisee’s location. Since then, the Filet-O-Fish has become widely available worldwide.

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Market development

• Market development involves selling existing products in new markets.
• Features of this strategy are:
• Moderate risk
• Entry into overseas markets.
• New distribution channels.

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The first McDonald’s established outside of the United States opened in Canada and Puerto Rico in 1967. Today, they have approximately 36,000 restaurants in over 100 countries.

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Diversification

• Diversification involves selling new products in new markets.
• Features of this strategy are:
• High risk
• Enables spreading of risks with a balanced product portfolio.
• Use of subsidiaries and strategic units.

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McDonald’s established its first McCafé in Australia in 1993. Offering espresso based beverages and a café-style menu, this diversification strategy has grown globally with many franchises operating the McCafé concept in their restaurants.

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Types of diversification

Related diversification

Unrelated diversification

• Related diversification occurs when a business caters for customers within the same industry.
• e.g. The development of McCafé by McDonald’s.

• Unrelated diversification refers to growth by selling completely new products in untapped markets.
• e.g. Yamaha, has a diversified portfolio of unrelated products spanning motorcycles, sports equipment, electronics and musical instruments.

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Summary of Ansoff’s matrix growth strategies

Increasing risk

Increasing risk

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Approaches to learning

• Hoang textbook
• Activity 45.1 Thinking skills
• Page 614

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ATL Activity 45.1 (Thinking skills)

Discuss how knowledge of the Ansoff matrix might

help businesses that plan to expand in overseas

markets.

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Over to you

• Hoang textbook
• Question 45.1 Growth strategies
• Page 616
• Answer all parts

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Question 45.1 - Growth strategies

Use the Ansoff Matrix to explain the growth strategies in the following cases:

(a) Cadbury, the chocolate manufacturer, launches new products under the names of Crème Eggs, Flake, Crunchie and Heroes to compete with existing rival brands. [4 marks]

(b) Toyota, the world’s largest car manufacturer, launches a new line of upmarket cars under the Lexus brand to cater for wealthier customers. [4 marks]

(c) Tesco, one of the world’s largest supermarket chains, expands by providing petrol and financial services to its customers. [4 marks]

(d) McDonald’s introduces wedding services under the McWedding brand name. [4 marks]

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Evaluation of Ansoff’s matrix

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Benefits and drawbacks of Ansoff’s matrix

Benefits

• A simple, straightforward way to compartmentalise growth strategies.
• It enables discussions about potential risks and rewards of each growth strategy.

Drawbacks

• Does not quantify the level of risk of each strategy.
• Does not suggest a particular strategy. Other decision-making tools are required to do this.

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Over to you

• Hoang textbook
• Review Questions
• Page 617

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Review questions

1. What is the Ansoff matrix?

2. Why is market penetration a relatively low-risk growth strategy?

3. Why is product development a medium-risk growth strategy?

4. Why is market development also a medium-risk growth strategy?

5. What makes diversification the highest risk growth strategy in Ansoff’s matrix?

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