Market Penetration strategy means the continuation of an existing strategy. It may be appropriate in the short-term when the market is static or when the business is waiting to see how situations develop. However, in the long term such tactics are unlikely to be realistic or beneficial. They may reflect a lack of strategic awareness on the part of the management team.
Market penetration involves gaining market share as opposed to maintaining it. When the overall market is growing, penetration may be relatively easy to achieve, because the absolute volume of sales of all firms in the market is growing and some firms may not be able to satisfy demand. In static or declining markets, a firm pursuing a market penetration strategy is likely to face competition.
Existing Markets/New Products – Product Development
Product development is when the firm is making substantial modifications, additions or changes to its present product range, but it operates from the security of its established customer base. In research and development industries, product development may be the main direction of strategy because product life cycles are short, and because new products may be a natural spin-off form the research and development process. New product development can be risky and expensive.
New Markets/Existing Products – Market Development
Market development can include entering new geographical areas, promoting new uses for an existing product and entering new market segments. It is an appropriate strategy to pursue when the organisations distinct competence rests with the product rather than the market.
New Markets/New Products – Diversification
Diversification can be classified as:
Horizontal diversification refers to the development of activities, which are complementary to or competitive with the organisation’s existing activities.
Vertical integration refers to the development of activities, which involve the preceding or succeeding stages in the organisation’s production process. Backward or upstream vertical integration takes place when the organisation engages in an activity related to the proceeding stage in its production process. Forward or downstream vertical integration takes place when the organisation engages in an activity related to a succeeding stage its production process. Conglomerate diversification refers to the situation where at face value the new activity of the organisation seems to bear little or no relation to it’s existing products or markets.
The advantages of diversification include:
* Cost savings due to the effects of synergy (where the combined effect exceeds the sum of the individual effects)
* Spreading of risk
* Control of supplies (mainly related to vertical integration)
* Control of markets (mainly related to vertical integration)
* Improved access to information
* Escape from declining markets
* Exploitation of under-utilised assets
Possible disadvantages of diversification include:
* Inefficiency due to loss of synergy
* Inefficiency due to loss of managerial control
Cadburys use of the Ansoff Matrix
Relaunching product e.g. Dairy
Milk as a King size.
Special offers e.g. crunchy
25% extra free.
Advertising e.g. Coronation
Drinks – lemonade
– Tonic water
Cakes and biscuits
Cadburys use of Market Penetration is when they Relaunch, advertise or use special offers to increase sales. Examples of this is when extended dairy milk by add a king size and special offers would be 25% extra crunchy free and Cadbury also sponsors coronation street to to gain customers from advertising.
Cadburys Product Development would be their new product such as Boost,
Mye and Snow flake, which Cadburys have done to widen their product range.
Cadburys Market Development is when they put their chocolate bars into different markets such as seasonal good such as Easter eggs for example a dairy milk Easter egg.
Cadburys Diversification is when they move in to another market such as the drinks market as Cadburys Schweppes, which do lemonade and tonic water. Another form of Cadburys Diversification would be
Cadburys moving from chocolate bars to chocolate cake and biscuits.
Evaluation of the Ansoff Matrix
This model is very simplistic as only shows areas which products can go into or what they can do it has nothing about business finance or other external factors and its not always the same for all market. But this model is useful if you use it with the Boston matrix and the