The Ansoff matrix and the marketing mix

The Ansoff matrix

• The Ansoff matrix sets out the four ways a business can grow, according to whether the product and the market are existing or new.

	Existing market	New market
Existing product	Market penetration — sell more of what you have, to the people you already sell to	Market development — take the existing product into a new market or segment
New product	Product development — sell a new product to your existing customers	Diversification — a new product in a new market

• Risk rises as you move away from the top-left corner. Market penetration is the safest because the business already knows the product and the customers; diversification is the riskiest because it knows neither.
• What it is for in the plan: it names the strategy in one phrase and immediately tells you what the main risk is.
  • Market penetration — cheapest and safest, but limited by the size of the existing market. Achieved by taking share from competitors, increasing usage, or improving retention.
  • Market development — the classic New Zealand export strategy: a proven product taken to a new country. The risk is that the new market's customers are not like the old ones.
  • Product development — uses the existing customer relationship, so distribution is already there. The risk is development cost and cannibalisation.
  • Diversification — highest risk, and usually only justified when the existing market is declining.

Segmentation, targeting and positioning

• Before the mix, three decisions:
  • Segmentation — divide the market into groups that behave differently. By demographics, location, lifestyle, values, usage or benefit sought.
  • Targeting — choose which segment or segments the plan aims at. A plan that targets "everyone" targets nobody, and its promotion cannot be written.
  • Positioning — decide what the product should mean to that segment, relative to competitors. Position on the benefit that matters to them and that the business can actually deliver.

The marketing mix

• The marketing mix is the set of decisions that deliver the positioning. The four elements must be consistent with each other and with the positioning — that consistency is what makes a strategy sound.
• Product.
  • Features, quality, range, packaging, branding, guarantee, after-sales support.
  • For a new market: what has to change? Size, format, flavour, labelling language, ingredient compliance, certification.
• Price.
  • The price level relative to competitors, and the pricing method:
    • Cost-plus — add a margin to cost. Simple; ignores what the customer will pay.
    • Competitive — price against rivals. Safe; invites a price war.
    • Premium — price high to signal quality. Requires the product to justify it.
    • Penetration — price low to gain share fast, then raise. Risky, because raising a price is hard.
    • Skimming — price high at launch to recover development costs, then lower. Works where early buyers value being first.
  • Remember the channel margins: the price the exporter receives is not the shelf price. A distributor and a retailer each take a margin, and the retail price must still be competitive after both.
• Place.
  • Which channels: direct online, distributor, wholesaler, specialty retail, supermarket, food service.
  • Each has a different margin, a different volume and a different amount of control over how the product is presented.
• Promotion.
  • Advertising, digital and social, public relations, in-store sampling and display, trade shows, sales promotion, packaging itself.
  • Choose channels by where the target segment actually is, not by what is cheapest or most familiar.
  • For a business entering a market, trade promotion — persuading distributors and retailers to stock the product — usually has to come before consumer promotion. There is no point creating demand for a product nobody can buy.