The Ansoff Matrix

https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/

The Ansoff Matrix is a useful way of looking at growth opportunities. Devised by Igor Ansoff in 1957, it is a framework for marketing directors to devise strategies for future growth. By combining present & new products and present & new markets into a 2x2 chart, the four product strategies for growth are illustrated, with the risks associated with each strategy .

Market penetration - Increasing sales of existing products for an existing market. (eg: branded shampoo sold at a discount in store/online for core market)
Product development - Introducing new products to an existing market (eg: new wilko KIN branded shampoo sold in store/online for core market)
Market development - Entering a new market with existing products (eg: targeting branded shampoo at a new audience, such as an 18-24 year old student market)
Diversification - Entering a new market with the introduction of new products (eg: wilko KIN branded shampoo being sold in other retailers)

From the diagram it's clear to see that market penetration is the least risk strategy whilst diversification is the riskiest.

Market penetration

In this strategy, a business uses its products in an existing market to increase its market share and win competitors' customers. This can be achieved by cutting prices, increasing promotion and distribution of the product or acquiring a competitor in the same market.

For example Morrisons bought the failing Safeway supermarket chain which immediately increased the number of Morrison's stores and sales volume. Bookmakers all largely cater for the same market, thus use sign up offers, promotional odds on big events and free bets to increase their promotion efforts in a competitive market.

Greggs used social media to survey its 20k followers about its brand and used that information to create a 7.5% increase in turnover. Greggs also has more outlets than the likes of McDonalds, KFC and Subway with stores in high streets, retail parks and concessionary kiosks in train stations meaning the brand has more penetration in the market and is therefore the UK's largest retail food chain.

wilko aims to have market-leading or parity on price on branded products with it's main competitors which it identifies as B&M, Home Bargains and Dunelm. wilko has seasonal sales, regular "2 for £X" offers and also has its own range of products - including paint, health & beauty and household items which is a USP.

To protect the penetration already gained, a business may consider methods of discouraging competitive entry. Barriers can be created by cost advantages (lower labour, cheaper raw materials) and being more aggressive in promotion, retaliating to competitor's movements.

wilko's market leading price for a branded Flash speedmop

Product development

The product development strategy involves the development of new products for existing markets. One option is to increase product variants to give consumers more choice. Eg: The flagship Samsung Galaxy S20 was launched in 2020, and the S21 will follow in 2021. Samsung also release mid-range models such as the A-series, giving consumers a greater choice in specifications, functionality and price. When a new model comes out, customer's may repurchase and upgrade to the enhanced-value product, however when new ranges are cheaper than the original, it could hit sales of the core product. (The entry-level models could also target a slightly different market, such as younger people with less income, linking this to market development )

More examples include the iPod and its subsequent touch, shuffle and nano models. Ford's introduction of new electric cars & updates to existing models (Focus, Fiesta etc) as consumers are becoming more environmentally conscious. Microsoft is a classic example of replacement products being introduced (Windows 10) whilst older products such as Windows 7 & Vista are still supported.

wilko were first to market in 2020 with new plastic free wipes for the more environmentally conscious customer. All of their wipes, from multi-surface wipes to baby wipes are now plastic free and are less harmful to the environment.. wilko's own brand of shower gel comes in a number of scents, to give customers a different experience whilst showering and may encourage repeat purchases as customers "try out" each variant.

A business may acquire a competitor's product and merge resources to create a new, better product to meet the needs of a market.

wilko's range of plastic-free wipes. Our baby & face wipes are also plastic-free.

Market development

In this strategy, a business enters a new market with existing products (or new uses of). This may mean expanding into new geographic regions - either regionally or internationally - or customer segments. The strategy is most successful when the business has proprietary it can leverage into new markets - such as a patent, copyright exclusivity or trade secret. Also when consumer behaviour in the new markets does not deviate too far from existing customers and they are profitable. (ie: have disposable income) .

Nike & Adidas recently entered the far-East market, selling the same equipment & clothing as in the existing Western markets.

Tesco practised market development by taking its existing products - sold in supermarkets to a new market segment by opening up convenience stores and expanded into petrol forecourts. Tesco Express allows shoppers to grab their products in their local store or whilst filling-up, without having to make a specific journey to the supermarket. There are now more opportunities for customers to access their products than just on the weekly shop.

wilko now open more stores in out-of-town retail parks & large shopping centres such as Meadowhall than its traditional home on the high street. Customers often benefit from free parking and can conveniently park directly outside the store to click & collect.

New store in St James' retail park in Sheffield opened in 2019

Diversification

This is when a business enters new markets with a new product. This is the most risky strategy as entry is not based on the business' core competencies but is moving into unfamiliar territory with both market and product development required. The risks can be somewhat mitigated by related diversification where there are some similarities between the existing business and new product. (eg: wilko launch new skincare range). Conversely, unrelated diversification is when there are no similarities between exiting business and new product. (eg: wilko hypothetically launch a new mobile network). This strategy may offer the greatest potential for growth as it opens up an entire new revenue stream for the business in. a market previously untapped.

Microsoft - known for PCs and operating systems - entered the games console market when it was dominated by the Sony Playstation and Nintendo 64. The Xbox was launched in 2000 to compete with Sony's next-gen PS2 & Nintendo Game Cube and has since become the main competitor to Sony, with the latest Xbox X and PS5 consoles launched in 2020. Nintendo has lost its share in the core market and now target's its WiiU and switch consoles to a younger audience.

wilko's diversification is demonstrated with KIN brands LTD launched in 2019 with the aim of getting wilko branded products (KIN, Skin therapy, Fruits etc) into other retailers.

wilko's own brand Fruits shower gel in various scents.

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