Updated: Jul 23, 2020
During my 8+ years in consultancy, I’ve noticed amongst businesspeople that the concept of marketing is often misunderstood to be limited to the promotional aspect of the company only, i.e the well-worn ‘colouring-in department’ descriptor (although in today’s digital age that surely needs updating).
To the detriment of employee professional development and at a cost of unrealised value in their human capital, many business leaders and indeed marketers themselves are either unaware or have paid less attention to the all-so-important Strategic function of marketing that the profession is rooted in.
Anyone who has taken in the 4 P’s of marketing (or the 7 P’s if you prefer the updated version) understands that Promotion is just one of the P’s; a single facet of the discipline. To me this is an important distinction as it reminds us all of the difference between Marketing Communications (promotion) and Strategic Marketing.
Strategic marketing is a method through which an organisation differentiates itself from its competition by focusing on its strengths to provide better service and value to its customers. In a nutshell, the goal of strategic marketing is to make the most of an organisation’s positive differentiation over its competition through the consumers’ perspective.
The implementation of strategic marketing involves three questions, which include:
Where to compete;
How to compete;
When to compete.
With that background piece provided and the crayons firmly tucked away (for now at least), I’d like to introduce you to a framework I often use in my consultancy called the Ansoff Matrix.
What is the Ansoff Matrix?
The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers, and marketers devise strategies for future growth. It is named after Russian American Igor Ansoff, an applied mathematician and business manager, who created the concept in 1957.
In his matrix Ansoff describes four growth alternatives for growing an organisation in existing or new markets, with existing or new products. Each alternative poses differing levels of risk for an organisation.
1.0 Market Penetration Strategy
The first quadrant in the Ansoff matrix is market penetration. This is often adopted as a strategy when the organisation has an existing product with a known market and needs a growth strategy within that market.
A good example of such a scenario is the telco industry. Most telco products exist within a geographically defined market and must cater to that market. In cases such as this competition is very intense. This means that in order to grow, the organisation may have to go out of its way to increase market share.
Example of Market Penetration Strategy
2.0 Product Development Strategy
Product development in the Ansoff matrix refers to firms which have a good market share in an existing market and therefore might need to introduce new products for expansion.
Product development is needed when the company has a good customer base and knows that the market for its existing product has reached saturation. In this case, the market penetration strategy is no longer practical. A new product development strategy that caters to the existing market is a better approach.
Example of Product Development Strategy
3.0 Market Development Strategy
Market development is a strategy used when the firm targets a new market with existing products. Many multi-national firms are currently deploying this strategy to grow new markets in developing nations such as Latin America, Africa and India. Examples include leading footwear firms like Adidas, Nike and Reebok, which have entered international markets for expansion.
These companies continue to expand their existing brands across new global markets. For a smaller enterprise, this strategy could entail expanding from a current market to another market within the same region where its product does not currently compete.
Example of Market Development Strategy – which failed
4.0 Diversification Strategy
The diversification strategy in the Ansoff matrix applies when the product is completely new and is being introduced into a new market. An example of diversification is Samsung, which began as a trading company, later expanding into insurance, securities, and retail. Today, it is mostly known for its electronics division.
This group initially started with one product - a black-and-white television set. It entered the telecom market in 1980 developing telephone switchboards, then later into telephones, fax machines, and mobile phones. Samsung now has a market presence in a diversified global set of businesses including semi-conductors, appliances, cameras, watch making, apparel, music services, cloud computing, and home automation.
Virgin; the ultimate in Unrelated Diversification Strategy
Related Diversification V Unrelated Diversification
A company’s diversification strategy can be either related or unrelated to its original business. Related diversification is less risky than unrelated because the company shares assets, skills, or capabilities. But many successful companies, such as Virgin, continue to start unrelated businesses and deliver advantages over the established players in that sector.
There are potential synergies to be realised between the existing business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy.
There are no potential synergies to be realised between the existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated diversification strategy.
In the Ansoff matrix, each strategy carries varying levels of risk, with Unrelated Diversification carrying the highest risk level; entering a new market with unrelated new products. The key to successful unrelated diversification is identifying an industry with strong profit potential, where the firm has internal competences that helps to gain a competitive advantage. Virgin Atlantic’s market entry in the 1980s in a good example of this at a time when great customer service was a rare quality in the airline industry, which was instead plagued by cancelled flights, delays and lost baggage.
Try using the Ansoff Matrix in your business to reassess what marketing strategy you’re pursuing and whether it still makes sense or a new strategy is needed to achieve your growth goals. Better still, if you've got a marketer working in your company, encourage them to embrace the strategic roots of their profession and ask them do it!
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