Translating an inspired idea into a robust business plan
014 The Ansoff Matrix or Market Options Matrix
The alternate strategic directions for a business are either to a) grow the business, i.e. embark on a development strategy, b) do nothing, or c) withdraw. Generally you would be making a business plan in order to develop a business. However, among a portfolio of products or SBUs, it may be best to withdraw some "problem children" or "dogs" in order to concentrate resources on stars.
Market Penetration Selling more of an existing product to the same customers or market is generally regarded as the easiest development strategy. Products and markets are well known, and this strategy potentially provides the best scope for leveraging existing skills and assets.
Product Development The basis of a product development strategy is to sell new products in addition to existing products into the same market or to the same customer groups. The term "new products" is to be understood not as enhancements or versioning of existing products, but genuinely new products that satisfy different needs and generate incremental sales. Because the new products are sold into existing markets or to existing customers, some aspects of the value chain can be leveraged, notably distribution and customer knowledge. It may also be possible to leverage other aspects of the value chain such as manufacturing or warehousing. If there is no further growth for an existing product, product development may be the only way to achieve growth. Because new product sales leverage existing assets, a contribution is earned and this reduces the cost base for existing products. This increases the competitive position for existing products, thus reinforcing a cost leadership strategy.
Market Development Here a business seeks to sell existing products to new markets or customer groups. A classic way of market development is extended geographic reach, either within the country or by exporting. Generally modifications to the marketing mix are required, such as adjustments to the products to appeal to new market segments, printing manuals in different languages and ensuring compliance with local standards.
Diversification Diversification offers the least scope to leverage existing competencies and resources. The strategy aims at selling new products into new markets. Diversification can be further distinguished into related or unrelated diversification. Related diversification refers to situation where a firm stays broadly within the industry, but needs to acquire new competencies and resources. Unrelated diversification takes a business into a completely new field, i.e. into a different industry. Because it is unrelated, it is often difficult to establish a strategic logic for such moves, other than perhaps a limited degree of synergy.
Further Reading You will find a more detailed discussion on the topic and examples in the book “Guide to Business Planning”.