ANSOFF MATRIX

This is perhaps the most quoted model of all in marketing theory and
practice.
Ansoff claimed that in marketing we can only ever be talking about
products and markets,
and that these can only be old, or existing, and new, or potential. Thus
marketers have:
 existing products which they can sell to existing markets
 existing products which they can sell to new markets
 new products which they can sell to existing markets
 new products which they can sell to new markets.
Using these combinations gives a choice, according to Ansoff, of four
possible basic strategies:
Market Penetration
This strategy – same product/same market – will be appropriate when a market is growing
and not yet saturated.
Penetration can be achieved by:
 Attracting non-users of a product
 Increasing the usage, or purchasing rate, of existing customers.
The strategy will often be implemented by increasing activity on one or more of the mix
elements – for example, using more intensive distribution, aggressive promotion, pricing, etc.

Market Development
This strategy – same product/new market – is often found when a regional business wishes
to expand or if new markets are emerging because of changes in consumer habits. It can
also occur when a new use has been discovered for an existing product.
Implementation of this strategy involves appealing to market sectors (or geographical
regions) not currently catered for and many mean a repositioning of products as well as, very
often, new distribution methods or channels.

Product Development
With this strategy – new product/existing market – an organization develops new products that
appeal to its existing markets. It may simply be a product "refinement" – for example,
change of packaging or taste, etc.
Product development is most prevalent when branding exists. Promotional aspects will
emphasise the added qualities of the "new" product and link it specifically to the security of,
and confidence in, the brand. This strategy builds on customer loyalty and the benefits to be
gained by purchase. Other mix elements, such as distribution, may remain unchanged.

Diversification
This strategy – new products/new market – is sometimes introduced so that a company does
not become too dependent on its existing SBUs. It can be a form of "insurance" against
potential disasters that could occur in the event of drastic environmental changes. It can also
simply be a means of growth and expansion of power, etc.
"New" might be a totally innovative product, which has never been seen in the marketplace,
or it can be a product which is already available in the market but is new to the firm. In either
case, Diversification means catering for market sectors which are also new to the firm. If a
new product is developed for the existing market it is Product Development and not
Diversification.
Firms can diversify by producing their own new products or by taking over some other
product. In the latter case there are two main types of diversification – integration (which
may be vertical or horizontal) or conglomeration.
 Vertical integration
This involves the acquisition of some other enterprise in the chain of distribution
between the manufacturer and the customer. It can be either "forward", i.e. towards
the customer, or "backward" towards the source of raw material.
For example, a company dealing in writing stationery may vertically integrate forward
by taking over a retail outlet to sell its products, or backward by taking over a paper
mill. Although there will obviously be control benefits to be gained in either of these
examples, the company will be dealing with a product, or products, and markets which
are new to them.
 Horizontal integration
This is the acquisition of another organisation which has a feature that is desired – i.e.
the acquired organisation may be using similar materials or components for which they
have a monopoly of supply. This is particularly relevant when materials, etc. are in
short supply. The company that is acquired may use similar production methods and
have greater capacity; or its distribution channels may be highly effective and would
prove advantageous; or it may have some other quality which could be seen as a
benefit – for example, Johnson Brothers (china manufacturers) taking over the
Wedgwood china company and capitalising on the Wedgwood brand and reputation.

 Conglomeration
This strategy moves the firm away from its existing product-market situation into an
entirely new area in order to satisfy a primary objective. Quite often this is done as a
short-term activity that will allow an organisation to recover from a temporary setback in
market conditions. For example, a company that produces ladies' lingerie, and is faced
with cash problems in the short term, may reap instant profits if it invests in "spotbuying"
and "selling-on" of oil on the open market. This type of activity can also be part
of a longer-term strategy to spread risks.
Applying the Ansoff Model
We can assess the value of the Ansoff model by considering its application by Coca-Cola,
who have used all four strategies. (The following analysis is adapted from Evans and
Berman (Marketing, 1990)).

(a) Market penetration

 More adults used in commercials – "You can't beat the feeling" theme
 Price discount and promotions (fun caps) to existing customers
 Increasing sales through fast-food outlets
 Strengthened distribution network.

(b) Market development

 Greater emphasis on China, Eastern Europe, South America, Middle East, Africa
 Appeal to men with Diet Coke
 Changing image of soda from children to "family".

(c) Product development

 New brands/flavours
 New containers.

(d) Diversification
 Manufacturer of water treatment and conditioning equipment
 Acquiring Columbia Pictures, Embassy Communications
 Licensing company name for clothing range.

BOSTON CONSULTING GROUP MATRIX (BCG)

Using the variables of market share and market growth rate, planners can plot their
products/SBUs onto a grid which will then suggest certain strategies that can be used.
Because analysis is undertaken on an individual basis (SBU/product) it means that firms can
mix and match their efforts in order to achieve optimum results at any given time.
The basic grid is shown in Figure 3.5. The two variables of market share and market growth
rate give a matrix of four possibilities. Individual SBUs/products are shown as circles within
this with the following attributes:
 Their position on the grid represents the position of the SBU/product in one company
in accordance to the growth rate of the market(s) and the share held.
 Their size of the circle is proportionate to the percentage of total income produced by
that product/SBU for the actual organisation.
 The location of the circle indicates market growth rate and relative share in relation to
the leading competitor in the field. In Figure 3.4, market share of 0.1 means that the
product has only 10% of the volume of its leading competitor. Market share of 10
means that the product is leader and has ten times the sales volume of its nearest
competitor. It is important to remember that the mid-point of the axis diagram
represents the point where a product/SBU has equal share to the leading competitor.
Changes in proportionate share, or market growth rates, will move the position of the circle(s)
on the grid.

BCG Classification of Products

Using the BCG means that planners can classify their products/SBUs into four categories
according to their position on the matrix. This classification can also help in understanding
the "nature" of the products/SBUs – i.e. whether they are "cash providers" or "cash users".
The four classifications are defined as follows.
 Question Mark (sometimes referred to as Problem Children or Wildcats)
Question Marks are products which have low market share and are in high growth
markets. The product/SBU has not yet reached a dominant position in the market.
Although it may be generating funds, it still requires a lot of investment for development
and the company must decide if they want to keep investing. For example, in Figure
3.5 the company has three Question Marks. Planners may decide that it would be
better to concentrate all efforts on one of them, in order to make it successful, and keep
the others just ticking along until they have secured the position of the most favourable.
The product which is producing a greater proportion of revenue for the company (the
one with the largest circle) may be chosen for additional effort as it obviously has good
earning potential. A greater market share should be gained as soon as possible.
Decisions of this type would be based on a variety of factors relating to the product(s)
and the competitive environment.
 Star
If Question Marks succeed they become Stars – leaders in high growth markets. Stars
are the "providers of tomorrow" and a company with no Stars should worry. The
company depicted in Figure 3.5 has two Star products – one which has the leading
share in its market and one which has only slightly more share than its leading
competitor. Efforts should be made to increase the share of the second product in
order to secure its future profitability, particularly as the market has a very high growth
rate – this could be where future earnings lie.

This, of course, means investment, which can be a cash drain on the organisation.
Even Stars with high market share may involve investment in promotion or distribution,
etc. if the competition is attacking.
Stars can therefore both produce revenue and use resources – which can mean
"breaking even". Investment decisions must be based on the future potential of the
product and its market. Companies want to retain the share that Stars hold, but they
also want the market to stabilise as stable markets are much easier to cope with than
high growth markets which can mean difficulties in production and distribution.
In Figure 3.5 the Star with the leading share is moving down the spectrum which
indicates that growth in that market is slowing or stabilising and, providing no share is
lost, the Star should become a Cash Cow.
 Cash Cow
When market growth reaches a stable level (10% is used in our diagrams as an
example but this will vary according to the particular market) Stars become Cash Cows
providing they hold a leading share of the market. If they lose any market share to the
competition they will "slip" into either being a marginal Question Mark or, at very worst,
a Dog. Cash Cows produce good revenue, do not require high investment and often
mean that economies of scale can be gained.
The money earned from Cash Cows should be used to invest in other products/SBUs
which are placed in the other classifications on the BCG matrix.
Figure 6.5 shows that the company has only one Cash Cow so is vulnerable. A loss in
market share could mean trouble, even more so if there is no Star to come in and take
the place of the Cash Cow. In this situation a company would have to pump in finance
to support its Cash Cow, thereby deflecting support from the other categories. If the
company continued to support other categories and neglected its Cash Cow, the Cash
Cow could eventually become a dog.
In our example, it would be very dangerous if the Cash Cow slipped to being a Dog, as
the Star which could come into the Cash Cow category is not making as much money
for the company as the current Cash Cow. Given these circumstances it is likely that
the company would invest in its current Cash Cow to retain market share.
Sometimes Cash Cows which are losing their share can be turned into Question
Marks, which is preferable to becoming Dogs, but this situation will only really occur if
something happens to revitalise the market – perhaps a new use for a particular
product may be found and the market will begin to grow again.
 Dog
Dogs have weak market share in low growth or stable markets. These products can
often take up more time than they are worth. They usually produce low profits and very
often incur losses. They will always consume cash, even if it is just in the time taken to
manage them.
Given the fact that Dogs consume cash many are often dropped by companies, but it is
not always wise to do that immediately as they may still be making money.
In Figure 3.5 you can see that the proportion of the company's revenue for one of its
Dog products is actually higher than the proportion of revenue gained by one of its Star
products. If the company were to drop the Dog, they would have less cash coming in,
which could have serious repercussions.

The competition must also be considered, as well as the effects on customers.

Dropping a product from a range can upset buyers who will then look for alternative
sources for that product. The alternative sources may also be able to offer other
products which the buyers want and they may place their future orders with the new suppliers –
resulting in the loss of even more sales overall. Decisions on product
deletion must therefore not be taken lightly or without full investigation.
Dogs that are retained tend to be kept because they are recognised as being a product
with "other" benefits. For example, the customer will have to come back to the
company to buy consumable supplies which are actually highly profitable for the
company, or perhaps the product has such a high image and reputation in the market
that the company prefers to maintain it.
There is also danger in keeping on a Dog if it is proving to be useless as this just
wastes resources that could be better employed elsewhere. Decisions to retain Dogs
past their useful life are usually based on someone's great belief in, or favour for, that
product – they become "Pets". For example, the owner of a company may wish to
maintain a product which was the foundation of the company's current product range
despite the fact that the market has changed and technology has bypassed the original
product. Sentimentality, and the power of the owner, will ensure that the product is
retained and money will be wasted.
We should also not overlook the case of products which have just been launched and
the market has not really taken off. Such products could be classified as Dogs but,
given more investment, the market might be stimulated into a faster growth rate and
the Dog could actually gain more share. Sometimes the faith of one manager in a
product can turn a company's portfolio around completely.

EX 1

Club Fun is a UK company which sells packaged holidays. Founded in the 1960s, it
offered a standard ‘cheap and cheerful’ package to resorts in Spain and, more
recently, to some of the Greek islands. It was particularly successful at providing
holidays for the 18-30 age group.

What do you think the implications are for club Fun of the following
developments?

 A fall in the number of school leavers.

 The fact that young people are more likely now than in the 1960s to go into
higher education.

 Holiday programmes on TV which feature a much greater variety of

locations.

 Greater disposable income among the 18-30 age group.