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Sunday, 15 November 2015

Looking to Diversify? The Ansoff Matrix Will Help Make the Right Decision!

One of the many issues raised by leaders in business is the possible or even actual loss or reductions in demand from their established markets.

Typical are those markets that have been attacked by the incoming cut-price retailers and the dramatic changes in reproduction of music from vinyl discs through CDs, DVDs and now downloading or streaming directly from the web.

The good times can’t go on forever and leaders need to look carefully at both the markets and the products serving them. 

There is no doubt that we generally don’t obtain the maximum from our existing customers never mind from prospects.

In a very well organised sales force in which I was involved some years ago the rules were very simple.

Of the total positive calls achieved the sales force was expected to visit existing customers:prospects in the ratio of 4:1 so that while the existing customer base was well looked after, the level of prospecting was about right for the market share that the company had achieved.

It should be understood that the company’s products were standard and universally used in engineering with little direct competition and virtually none in terms of product substitution.

This made the ratio meaningful but as soon as competition emerged to attack our market share, a strategy had to be evolved to counter it. In fact it is far better to assume that it will happen and be prepared.

It’s not a new or uncommon phenomenon. The competition will always be with us and it is essential to keep ahead of the game at all times.

I have found that the use of a marketing strategy tool called the Ansoff Matrix proved invaluable.  Designed by a mathematician, Igor Ansoff, it helps businesses to develop their marketing strategy taking into account all the various changes in the markets and the products being supplied.

The Ansoff Matrix is, of course, one of those quadrant matrices so beloved of consultants and it looks like this in its simplest form:

                                                                                                                    

Existing
Products



Existing
Markets



New Products


New Markets
          



A more advanced version looks like this:



Product Penetration



Product Development



Market Development


Product/Market Diversification













Considering market penetration the assumption is that there is always potential for some expansion of the business through a marketing strategy encompassing the existing products into existing markets.  In other words, do what you are currently doing but more of it.

Product development implies that we change the products or bring in new products and then market them to the existing markets.

Market development means that the existing products are marketed to new markets and diversification implies a complete move from exiting products and markets into new and thus challenging fields of activity.

Conventional wisdom suggests that a strategy of new products into existing markets requires 4X the effort, existing products into new markets requires 8x and new products into new markets or diversification requires an e above 12x the effort.

This is not say don’t do it; it merely makes clear that any significant change in the marketing strategy will need more and dedicated effort to make it succeed and that might mean new people and new skills.

Surprisingly for a mathematician, Igor Ansoff deprecated the use of too much analysis in using the matrix.  In fact he is said to have coined the term “Paralysis by analysis”.

The key is to use it wisely and apply commercial sense to it.  Examine all the current activity, look to discard products and markets (and customers) that do not contribute, use good market research techniques to expand knowledge of what is feasible and make sure that there is a real ethos of constant innovation throughout the business.

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