Ansoff's matrix

3.Product development

• This growth strategy involves introducing new products to existing customers.

• If focuses on product differentiation in order to remain competitive or to improve its competitiveness.

• Typically, products are developed to replace their existing ones (e.g., the latest iPhone) or to extend the product range (e.g., iTunes, iPads, and Apple Watch) and marketed at current customers.

• It is a medium-risk growth strategy because product development can incur substantial investment costs, such as the expenditure on market research (to find out what customers want), prototyping, and test marketing.

•  Top tip!

It is not always easy to know whether a growth strategy is product development or market development. For example, marketing a new Lynx (deodorant) or LEGO product to females are examples of targeting new customers (i.e., market development) and new products (i.e., product development). The same applies to cosmetics companies, such as Maybelline, that have more recently targeted male customers with their makeup products. What is important is that students explain their answers and provide reasons for their arguments.

4.Diversification

• Diversification involves organizations moving into new markets with new products, e.g., Honda lawnmowers, Lenovo smartwatches, IKEA's infamous meatballs, or the Golden Arch Hotel of McDonald’s in Switzerland.

• Diversification is a high risk growth strategy as the organization enters a market that it has no experience or expertise in. Existing rivals may already have established themselves with brand recognition and customer loyalty.

There are two types of diversification:

• Related diversification – the organizations operate within the same industry, e.g., Coca-Cola entering the energy drinks market.

• Unrelated diversification – involves the organization entering new industries, e.g., McDonald’s entering the hotel industry or offering wedding reception services.

In summary, the Ansoff Matrix is a simple visual Business Management decision making tool that enables managers and decision makers to consider four generic growth strategies. However, there are numerous limitations of this Business Management tool:

• It only considers two dimensions of growth (products and markets), whereas strategic analysis of an organization’s growth options is far less limited in the real world.

• It does not quantify the risks or rewards associated with the respective strategies. Indeed, the risks involved in the four growth strategies differ substantially. Hence, managers will still need to assess the degree of risks, the likely costs, as well as the potential rewards, associated with each growth option.

• Selection of any of these growth strategies still requires further research and analysis, such as the research and development (R&D) costs of product development or the cost of overseas expansion for a market development strategy.

Using Ansoff's Matrix, discuss the implications of IKEA's decision to introduce Swedish meatballs to its stores.

DISCUSS - Means pros and cons. Paragraph explaining/defining the key concepts and 3 drawn out pros and cons (10 marks)

Ansoff's Matrix is a strategic planning tool used to analyse and plan business growth strategies. It categorises strategies into four quadrants: market penetration, product development, market development, and diversification.

IKEA's decision to introduce Swedish meatballs, is a form of product development involving the introduction of new products (meatballs)  to existing customers (existing stores). This is a medium risk approach

IKEA's move to diversify its offerings through the introduction of Swedish meatballs presents several advantages. First and foremost, it allows the company to expand its product portfolio beyond furniture, tapping into the culinary market. This diversification not only meets the evolving needs and preferences of existing customers but also provides an opportunity to enhance brand loyalty.

Moreover, by leveraging its established customer base, IKEA can introduce a novel product category to its existing customers. This strategy has the potential to increase customer loyalty and lifetime value, as the introduction of Swedish meatballs offers a unique and complementary experience during the shopping journey.

The introduction of food items, such as Swedish meatballs, goes beyond merely expanding product lines. It strategically aims at maximizing store visits by offering an enhanced customer experience. The presence of food options not only prolongs the time customers spend in the stores but also opens avenues for cross-selling opportunities, potentially leading to increased overall sales.

However, this strategic decision is not without its challenges. Introducing a new product category, particularly one involving food, brings about operational complexities. From supply chain management to adhering to stringent food safety regulations, IKEA needs to address these challenges effectively to ensure a seamless integration of Swedish meatballs into its existing product offerings.

Another consideration is the potential risk of brand dilution. As IKEA ventures into the culinary domain, there is a discernible risk of diluting the brand image originally associated with furniture. Striking the right balance and ensuring a cohesive brand identity become critical in mitigating this risk.

Lastly, the endeavour to develop and market a new product demands additional resources. Whether in terms of financial investments, staff training, or marketing efforts, IKEA must carefully allocate resources to support the successful integration of Swedish meatballs into its product lineup. A misalignment with consumer preferences or an inadequate response to operational challenges could result in wasted investments.