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38216410 Ansoff Matrix and Gap Analysis Explained 2

38216410 Ansoff Matrix and Gap Analysis Explained 2

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Published by Himanshu Sharma

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Published by: Himanshu Sharma on Jul 01, 2012
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04/14/2013

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Despite the appeal and wide acceptance of Ansoff Matrix, some do not entirely agreewith him when he says
consumers do not buy on price
. WALMART probably failednot only because it tried to implement its 'American' model in Germany, but also becausethere existed already a well established cost leader in the market: ALDI (Germandiscount supermarket chain with $58 Billion revenue in 2008 --- low cost supply chain,clever logistics ... --- market share food retailing: approx. 19% = 50% of all discountsupermarket chains*). Cost leadership is one of Porter's Generic Strategiesand wouldcertainly not work if consumers would not buy on price.*Prof. Dr. Wolfgang Fritz - Die Aldisierung der Gesellschaft 
 
An Article on Ansoff Matrix
The article focuses on the main aspects of Ansoff analysis. The four strategic optionsentailed in the Ansoff matrix are discussed along with the risks inherent with each option.The article includes tips for students and analysts on how to write a good Ansoff analysisfor a firm. Moreover, sources of findings information for Ansoff analysis have beendiscussed. The limitations of Ansoff analysis as a strategic model have also beendiscussed.
Introduction
The Ansoff matrix presents the product and market choices available to an organisation.Herein markets may be defined as customers, and products as items sold to customers(Lynch, 2003). The Ansoff matrix is also referred to as the market/product matrix insome texts. Some texts refer to the market options matrix, which involves examining theoptions available to the organisation from a broader perspective. The market optionsmatrix is different from Ansoff matrix in the sense that it not only presents the options of launching new products and moving into new markets, but also involves exploration of  possibilities of withdrawing from certain markets and moving into unrelated markets(Lynch, 2003). Ansoff matrix is a useful framework for looking at possible strategies toreduce the gap between where the company may be without a change in strategy andwhere the company aspires to be (Proctor, 1997). 
Main aspects of Ansoff Analysis
The well known tool of Ansoff matrix was published first in the Harvard BusinessReview (Ansoff, 1957). It was consequently published in Ansoff’s book on ‘CorporateStrategy’ in 1965 (Kippenberger, 1988). Organisations have to choose between theoptions that are available to them, and in the simplest form, organisations make thechoice between for example, taking an option and not taking it. Choice is at the heart of the strategy formulation process for if there were no choices, there will be little need tothink about strategy. According to Macmillan et al (2000), “choice and strategic choicerefer to the process of selecting one option for implementation.” Organisations in their usual course exercise the option relating to which products or services they may offer inwhich markets (Macmillan et al, 2000).
 
The Ansoff matrix provides the basis for an organisation’s objective setting process andsets the foundation of directional policy for its future (Bennett, 1994). The Ansoff matrixis used as a model for setting objectives along with other models like Porter matrix, BCG,DPM matrix and Gap analysis etc. The Ansoff matrix is also used in marketing audits (Liet al, 1999). The Ansoff matrix entails four possible product/market combinations:Market penetration, product development, market development and diversification(Ansoff 1957, 1989). The four strategies entailed in the matrix are elaborated below.Ansoff Product-Market Growth MatrixSource: Ansoff (1957, 1989)
Market penetration
Market penetration occurs when a company penetrates a market with its current products.It is important to note that the market penetration strategy begins with the existingcustomers of the organisation. This strategy is used by companies in order to increasesales without drifting from the original product-market strategy (Ansoff, 1957).Companies often penetrate markets in one of three ways: by gaining competitorscustomers, improving the product quality or level of service, attracting non-users of the products or convincing current customers to use more of the company’s product, with theuse of marketing communications tools like advertising etc. (Ansoff, 1989, Lynch, 2003).This strategy is important for businesses because retaining existing customers is cheaper than attracting new ones, which is why companies like BMW and Toyota (Lynch, 2003),and banks like HSBC engage in relationship marketing activities to retain their highlifetime value customers. 
Product development
Another strategic option for an organisation is to develop new products. Productdevelopment occurs when a company develops new products catering to the samemarket. Note that product development refers to significant new product developmentsand not minor changes in an existing product of the firm. The reasons that justify the useof this strategy include one or more of the following: to utilize of excess productioncapacity, counter competitive entry, maintain the company’s reputation as a productinnovator, exploit new technology, and to protect overall market share (Lynch, 2003).Often one such strategy moves the company into markets and towards customers that arecurrently not being catered for. 

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