Strategic Direction: Ansoff’s Matrix

• Strategic direction is the course or route that a business has chosen to follow in order to achieve corporate objectives
• Strategic Direction is established by an assessment of the business’ internal strengths and weaknesses and External Opportunities and threats (SWOT)
• Strategic Direction influences which markets a business chooses to compete in and which products to offer
• Strategic Direction is influenced by: Corporate objectives, core competencies, competitive environment, attitude to risk and external environment
• Ansoff’s Matrix looks at the degree of risk and potential for reward from different strategic options
• Ansoff identified 4 potential strategies: Market Penetration, Market Development, New Product Development and Diversification
• Market Penetration = Existing Product, Existing Market
• Market penetration is where a business tries to sell more of an existing product to an existing market
• Market penetration is a low risk strategy but also has limited potential reward
• Examples of market penetration include Tesco opening new stores or McDonald's offering breakfast items all day.
• Market Penetration approaches: Encourage customers to purchase products, changes to marketing mix, extension strategies.
• Potential dangers of Market Penetration include: Competitor’s reactions, Short term benefit and Market saturation.
• Market Development = Existing Product, New Market
• Market Development is where a business attracts new customers to buy existing products
• Market Development Approaches: Enter new international market, change promotional tactics and adding new distribution channels (Eg. E-commerce)
• Potential Dangers of Market Development: Product not accepted by new customers, Business lacks understanding of new market, alienation of current customers.
• Product Development: New Product, Existing Market
• Product Development is where a business sells new and better products to existing customers
• Product Development risk comes from high R&D costs and competitors reactions
• Product Development Approaches: Launch substantially improved version of existing products, Introduce new complimentary products, new product innovation.
• Potential Dangers of Product Development: May shorten product life cycle, May damage brand.
• Diversification = New Product, New Market
• Diversification is where a business sells new products to new markets
• Diversification is high risk but has high reward potential
• Diversification Approaches: Investment R&D and market research
• Potential Dangers of Diversification: Heavy investment in new products and services can be risky.