ansoff matrix

creasing sales force activities. This strategy is moderately

risky and entails finding newmarkets for existing products/services. It is appropriate whenthe core competency of thecompany lies in its product/service.

Companies follow this strat-egy by targeting different ge-ographical markets at home orabroad using different saleschannels (such as e-commerceor modern trade) and targetingdifferent groups of people(based on age, gender, demo-graphics or psychographicfactors).

For example, Nike was firstknown for running shoes. Lat-er, it moved into shoes for bas-ketball, tennis, football andnow, most leading sports shoecompanies have re-segmentedthe whole market to addressthe casual user who, inciden-tally, is the largest customergroup. GSK has taken Horlicksfrom being a bedtime drink inthe UK to an all-day, all-agesdrink in India.

PRODUCT DEVELOPMENTThis strategy is also moderate-ly risky and involves develop-ing new products/services forexisting markets/customers. Itis often most appropriatewhere the strength of the busi-ness lies in its relationship withcustomers.

Crisil (a subsidiary of S&P)has used this strategy to startoffering research and analyticsservices to its financial services

Shyam Pattabiraman

Nothing excitesmarkets morethan growth plansannounced by list-

ed companies but investorsneed to understand that everygrowth strategy comes with acertain degree of risk, which iswhat separates expectationfrom actual results at the end ofthe day. One of the oldest, yetmost widely used frameworkfor evaluating growth strate-gies, is the Ansoff matrix (refertable).

MARKET PENETRATIONThis is the least risky strategysince it merely involves sellingmore of the same products/services to the same customersor finding new customers with-in existing markets.

For example, educating peo-ple about brushing twice daily,attending to sensitive teeth,shaving every day or washinghands often could potentiallyincrease the sale of tooth-pastes, razors and handwash-es/sanitisers.

GSK Consumer, Colgate andHUL continue to use this strat-egy to increase market share.In the wristwatch business, Ti-tan has managed to increasemarket penetration by encou-raging the trend of owningmultiple wristwatches for vari-ous occasions.

A few ways in which compa-nies increase market penetra-tion are by advertising,introducing loyalty schemes,launching price or other spe-cial offer promotions, and in-

clients. L&T has expanded tooffer a wide gamut of infras-tructure/construction/coreengineering-related products/services to clients.

DIVERSIFICATIONThis strategy is consideredhigh risk since it involves mul-tiple unknowns, that is, bothgetting into entirely new mar-kets and entirely new products.The common risks seen in get-ting into unrelated businessesis lack of synergy, executionrisk and sub-optimal resourceutilisation — so much so thatmarkets usually discount thevaluations of such diversifiedlisted entities.

However, a few businessgroups such as Virgin and Tatahave defied the perception byusing their brands as the large-st synergy providers. Theirstrong brands have helped indiversification. These con-glomerates have also managedto cultivate a strong managerialtalent pool that is fungibleacross their companies.

M&ASIn addition to these growthstrategies in the Ansoff matrix,companies often consider ac-quisitions — horizontal, for-ward or backward. But despitethe expectation that acquisi-tions could fast-track growth,they are usually fraught withrisks such as winner’s curse(over-paying) and post-mergerintegration. Statistics estimatethat nearly 80 per cent of merg-ers and acquisitions fail to de-liver value. Needless to say,ex-ante all companies that pur-sue acquisition-led growth be-lieve they belong to theremaining 20 per cent.

Chasing growthA company canexpand usingvarious strategiessuch as increasingmarket penetration,diversifyingproducts andthrough M&As.

(The author is a businessconsultant. Feedback can be sentto perspective@thehindu.co.in)

Nike... Making strides to deliver value. — Reuters