The Business Book

(Joyce) #1

257


See also: Managing risk 40–41 ■ Take the second step 43 ■ How fast to grow
44–45 ■ Protect the core business 170–71 ■ The MABA matrix 192–93


SUCCESSFUL SELLING


greater sales might be achieved
through competitive pricing,
advertising, loyalty programs, or
by driving out competitors.
“Market development” entails
selling the same product in different
markets. Additional spending may
be unnecessary unless localization
is required, but the cost of setting
up distribution channels in the new
market poses some risk. In this
model, different geographic or
demographic markets, or alternative
sales channels—such as online or
direct—might be tapped.
“Product development” strategy
is the sale of new or significantly
improved products to an existing
market. Here, the cost of product
development, associated
distribution, and marketing support
poses a risk. Companies adopting
this strategy might offer variants of
the product, or develop related goods.
The final, and riskiest strategy, is
that of “diversification”—moving into
new product areas and new


markets. This strategy reduces risk
in the long term by alleviating a
company’s reliance on core products.
However, a company can risk a great
deal, depending on the initial
outlay, and needs to have plenty of
resources if the strategy fails.

A risky venture
UK supermarket Tesco’s venture
into the US shows the risks of
diversification. After 10 years’
preparation, it launched its Fresh &
Easy stores in 2007, but misread the
market. Positioning itself in the
middle, it was neither upscale nor
discount, with most of its outlets in
working-class suburbs where
consumers looked for bargains.
Critically, Tesco’s small-scale,
walk-in stores did not suit the
average car-dependent US shopper.
The investment did not pay off,
costing Tesco over $1.9 (£1.2)
billion. The outcome may not have
been forecast by Ansoff’s matrix, but
the risk would have been clear. ■

Market
penetration

EXISTING
PRODUCTS

NEW
MARKETS

NEW
PRODUCTS

EXISTING MARKETS

Market
development

Product
development

Diversification

Ansoff’s matrix is
expressed as a square
divided into four equal
cells, each of which
represents different
marketing strategies,
with different
combinations of
product status and
market conditions.
Market penetration is
clearly the least risky,
while the quadrant of
diversification presents
the highest risk.


Is Ansoff’s matrix
still relevant?

Igor Ansoff (1918–2002) is
remembered as the father of
modern marketing strategy.
His matrix has generated many
variations over the decades
and became one of the
foundation stones of business
strategy, underpinning ideas
such as core competence and
competitive strategy.
In the 1970s Ansoff
recognized the problem of
“paralysis by analysis”—the
overthinking of a problem and
subsequent failure to act. He
advocated a more flexible
approach, based on local
conditions and a company’s
individual cirumstances.
Ansoff’s matrix has
limitations. Because it focuses
on market potential and
strategies for growth, it is not
able to support other factors
and scenarios, such as the
resources available, or if a
company’s priority is survival
rather than growth. However,
used with other marketing
tools, it remains valuable and is
still used to gauge actual and
expected growth.

As companies became
increasingly skillful strategy
formulators, the translation of
strategy into results ... created
paralysis by analysis.
Igor Ansoff

Increasing risk

Increasing risk
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