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Creating a Market Matrix: A Comprehensive Reflection



Creating a Market Matrix: A Comprehensive Reflection

Introduction

In the late 1950's, the Russian-American engineer, Igor Ansoff, a founder of strategic management, argued that strategic planning was essential for firms operating in a complex, turbulent environment. At that time, sociologists dominated the research on strategic adaptation of non-profit organisations primarily and concluded that ad-hoc management was appropriate when the demand and the technology in the firm's markets evolved incrementally. Ansolff's article, 'Strategies for Diversification', in the Harvard Business Review provided a practical framework for selecting a firm's expansion route in a growing market by reasoning that long-range planning was necessary to drive managerial decision making when the speed of change exceeded the firm's ability to respond.

Creating a Market Matrix: A Comprehensive Reflection

Ansoff simplified the competitive position of firms by defining two dimensions: the products - what it sold -- and the markets - to whom they are sold. Managing growth effectively required that new products fit within the firm's mission, organisational strengths and existing products (Sabbadin, et al, 1999). A 'common threat' between products had to exist to create synergy. A firm could make four strategic choices depending on the newness of the market and its products:

Market Penetration

The relatively low risk strategy growth strategy directed towards selling existing products to existing customers primarily through well- known markets and products (Sabbadin, et al, 1999). A market penetration strategy seeks two objectives:

- maintain or increase the market share of current products;

- increase product usage of existing customers.

This strategy works best in industries where economies of scale apply -- when the firm's average cost of producing and distributing products decreases as the size of its operations increases. To execute a market penetration strategy a firm requires a defendable competitive position to avoid likely retaliation from competitors.

Market ...