The four strategies of the Ansoff Matrix are:
- Market Penetration: It focuses on increasing sales of existing products to an existing market.
- Product Development: It focuses on introducing new products to an existing market.
- Market Development: Its strategy focuses on entering a new market using existing products.
- Diversification: It focuses on entering a new market with the introduction of new products.
The market penetration strategy can be done in a number of ways:
- Decreasing prices to attract existing or new customers
- Increasing promotion and distribution efforts
- Acquiring a competitor in the same marketplace
For example, telecommunication companies all cater to the same market and employ a market penetration strategy by offering introductory prices and increasing their promotion and distribution efforts.
The product development strategy can be done in a number of ways:
- Investing in R&D to develop new products to cater to the existing market
- Acquiring a competitor’s product and merging resources to create a new product that better meets the need of the existing market
- Strategic partnerships with other firms to gain access to each partner’s distribution channels or brand
The market development strategy can be done in a number of ways:
- Catering to a different customer segment
- Entering into a new domestic market (expanding regionally)
- Entering into a foreign market (expanding internationally)
For example, sporting companies such as Nike and Adidas recently entered the Chinese market for expansion. The two firms are offering the same products to a new demographic.
For example, automotive companies are creating electric cars to meet the changing needs of their existing market. Current market consumers in the automobile market are becoming more environmentally conscious.
There are two types of diversification a firm can employ:
1. Related diversification: There are potential synergies to be realized 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.
2. Unrelated diversification: There are no potential synergies to be realized 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.
The buying process of customers ************************
1. Problem/need recognition
This is often identified as the first and most important step in the customer’s decision process. A purchase cannot take place without the recognition of the need. The need may have been triggered by internal stimuli (such as hunger or thirst) or external stimuli (such as advertising or word of mouth).
2. Information search
Having recognised a problem or need, the next step a customer may take is the information search stage, in order to find out what they feel is the best solution. This is the buyer’s effort to search internal and external business environments, in order to identify and evaluate information sources related to the central buying decision. Your customer may rely on print, visual, online media or word of mouth for obtaining information.
3. Evaluation of alternatives
As you might expect, individuals will evaluate different products or brands at this stage on the basis of alternative product attributes – those which have the ability to deliver the benefits the customer is seeking. A factor that heavily influences this stage is the customer’s attitude. Involvement is another factor that influences the evaluation process. For example, if the customer’s attitude is positive and involvement is high, then they will evaluate a number of companies or brands; but if it is low, only one company or brand will be evaluated.
4. Purchase decision
The penultimate stage is where the purchase takes place. Philip Kotler (2009) states that the final purchase decision may be ‘disrupted’ by two factors: negative feedback from other customers and the level of motivation to accept the feedback. For example, having gone through the previous three stages, a customer chooses to buy a new telescope. However, because his very good friend, a keen astronomer, gives him negative feedback, he will then be bound to change his preference. Furthermore, the decision may be disrupted due to unforeseen situations such as a sudden job loss or relocation.
5. Post-purchase behaviour
In brief, customers will compare products with their previous expectations and will be either satisfied or dissatisfied. Therefore, these stages are critical in retaining customers. This can greatly affect the decision process for similar purchases from the same company in the future, having a knock-on effect at the information search stage and evaluation of alternatives stage. If your customer is satisfied, this will result in brand loyalty, and the Information search and Evaluation of alternative stages will often be fast-tracked or skipped altogether.
On the basis of being either satisfied or dissatisfied, it is common for customers to distribute their positive or negative feedback about the product. This may be through reviews on website, social media networks or word of mouth. Companies should be very careful to create positive post-purchase communication, in order to engage customers and make the process as efficient as possible.
The Cost Leadership Strategy
Porter’s generic strategies are ways of gaining competitive advantage – in other words, developing the “edge” that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:
- Increasing profits by reducing costs, while charging industry-average prices.
- Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.
Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!
The Cost Leadership strategy is exactly what – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase market share.
You, therefore, need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:
- Access to the capital needed to invest in technology that will bring costs down.
- Very efficient logistics.
- A low-cost base (labour, materials, facilities), and a way of sustainably cutting costs below those of other competitors.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you and that other competitors copy your cost reduction strategies. This is why it’s important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of “continuous improvement.”
The Differentiation Strategy
Differentiation involves making your products or services different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value.
To make a success of a Differentiation strategy, organizations need:
- Good research, development and innovation.
- The ability to deliver high-quality products or services.
- Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.
Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.