Ansoff Matrix

Previously, I discussed risk management and industry competitive analysis. I will now extend those earlier discussions in this article by focusing on the ways in which a business can consider its options for its growth. Specifically, 'growth' relates to securing more sales revenue and or volume. Since businesses exist within a competitive landscape, this growth must usually occur after capturing market share from competition while managing the associated competitive risks.

Uses for the Ansoff Matrix

• Ansoff's Matrix is a marketing & corporate strategy tool. It can be used to formulate your business plan's growth-oriented mission statement. Businesses with strong growth ambitions often consult these strategies. 
• Third parties reviewing a business plan, especially investors who will suffer loss if your business' ventures fail like venture capitalists are particularly interested in your choice of strategy for enhancing revenue. Growth strategies therefore provide a very strong indication of the level of risk associated with your business' vision. 
• Defining your business strategies according to the Ansoff Matrix provides a systematic way of  integrating risk management into the marketing strategic plan. Specifically, it allows marketers to easily identify risks, rank those risks and then plan tailored responses for each risk, according to its intensity.

Types of Growth Strategy, Defining 'Product' and 'Market' & Gradations

The 4 strategies in ascending order of risk are as follows. It is worth noting that any of these strategies may be used in conjunction with another. 

1. Market Penetration
2. New Product Development (NPD)
3. New Market Development
4. Diversification

Each of these 4 strategies is graphically represented by a quadrant in the Ansoff matrix. The axes of the matrix represent strategies involving the 1) product and 2) market. Each axis is divided into either 1) current or 2) new. In other words, a strategy can involve either a pre-existing product or a new one. Similarly, the strategy can involve either a pre-existing market or a new one. Each strategy can therefore be plotted within the matrix to simultaneously consider the nature of the product and market in these ways.

As strategies involve newer products and or markets, the risk of loss and faillure increases. In other words, the level of risk increases as a business moves further away from what it already knows and into something new whether new markets and or new products. Since market research and product research & development (R&D) required to engage in something new do not guarantee success (ie sales), there is always a likelihood that your financial investment into these activities can be lost. In fact, non financial losses are also looming probabilities. As discussed below, the least risky strategy is market penetration while the most risky one is diversification

Given the potential for different definitions for 'product' and 'market', managers should communicate the interpretation that should apply to their organization. For instance, in my practice, a 'product' is any unique item for sale. It usually has its unique barcode (a digital fingerprint that hopefully conveys my message of its individuality and uniqueness). In other words, if I sold polo shirts, color variations or other items within a product line can not be collectively called a product. Instead, I select the standard or original version as a single 'product'. As will become apparent below, the decision to introduce newness like variations in color, size and so on requires some specific consideration regarding associated risks.

For my purposes, a 'market' usually consists of members who qualify for the product and can probably be served through sales channels available to their market. If the shirts are sold in City A stores and City B stores but shoppers from either city do not access the other city, I can say that I have 2 markets that are defined in terms of geographic location. I may name them the City A market and City B market. In reality however, markets may also be separated psychographically, socioeconomically and otherwise. The key point is that a 'market' is specifically defined and separate from others. For instance, Stores A and B may be feet away from each other on the same street but belong to different markets. If the stores have extremely different prices; one very high to be exclusive and the other very low to cater to budget conscious shoppers, members of one socioeconomic market are unlikely to ever visit the store of which they are not members, even if the other store is nearer to their homes.

In some organizations, quadrants contain gradients that represent different levels of newness or deviation from the current product or market. Gradation reflects varying levels of risk within a single quadrant. For instance, imagine that you decide to sell your shirts to a new market, ie the middle socioeconomic market but within the same town. The level of risk will be different if you sell the same shirts in a different city whose commercial environment is entirely new to you. The risk increases even further if you sell in a different country. 

As you might have suspected, the same gradation can apply to products. For instance, if you offered polo shirts that were extra small and pink (ie rather than the standard navy blue), you run the risk that your market will not buy them. Has your market consisted of men whose machismo will prevent them from buying pink, even for their sons? Knowing the qwirks of your market, you will also need to decide whether offering a dress shirt of linen (ie rather than a polo shirt made of jersey material) is marginally or considerably more risky. Each of these new items may appear on a different gradient. These differences are clearer if you started to offer products that are: add-ons like belts and hats that complement the main product; upsells like fancier polo shirts or; products in completely different industries like daycare services which drastically deviate from clothing.

Needless to say, while considering the gradations of product newness, you must simultaneously do this for markets. For instance, considering the qwirks of your market, do you need to treat the pink shirts as 'new' products in a 'new' market because, up until this point, your store has only attracted men, but women and their daughters are the only likely buyers? If you are thinking about the daycare services which, in addition to being a different product, also caters to a different market, its riskiness transcends pink polo shirts for women despite the fact that daycare services exists within the same quadrant for both new product and new market.

This post will now explain each of the 4 strategies in turn. However, in the cases of new product and new market development, there is additional discussion about the associated risks.

1. Market Penetration - LOW Risk
This strategy involves a 

• current product  AND
• current market

Aim: To increase market share by increasing dollar value of revenue. Within your current market, you have the option of targeting either:

• customers from competitors (direct and indirect)      --OR--
• YOUR current users to consume more

This applies to cases in which you are already serving a particular market but wish to deepen your hold on that market, ie expand market share. See examples below this strategy. When using this strategy, you likely need either very little to no market research to achieve this successfully because there are no new markets to be researched, nor products to be developed and tested. The market is already like your familiar 'home base'. NB. This strategy is not ideal if you are in an already crowded market and your product is in its mature stage.

• Example(s): forms of this strategy.
• If a brand called Kopa-Cola already sold its drink in City X (ie a pre-existing product and market) but 
• now tries to increase sales by introducing a 6-pack, perhaps pricing it so that the last bottle is free. With this approach, the brand is targeting its own customers ... OR
• now offers the drink as part of a bundle that includes tickets to movie theatres that cater to the competition's drink. With this approach, the brand is targeting the competition's customers.
• Opening new channels and or making existing channels easier to use within the existing market with new physical retail outlets, new websites, new social media, live chat, etc
• Loyalty programs encourage your current customers to continue buying. Consequently, they meet the objective of this strategy, ie to increase sales. (As a side note, loyalty has the added benefit of raising switching costs as per Porter's Five Forces).
• Market-appropriate tentpole promotions like Mother's Day special, Christmas sales, etc. These promotions may include sales like buy 1, get 1 free or earn double rewards.
• Competitions that encourage the engagement of current customers using social media features like questions in Instagram Stories.
• Shout-outs with strategic alliances, ie other businesses with non-competing offerings but the same market. You may use tools like Instagram @tags. 

2. New Product Development (NPD) - MEDIUM Risk

This strategy involves a:

• new product - a source of cost and therefore risk
• current market

This strategy is the 2nd least risky. It evolves naturally from product penetration because it is easier to sell to existing customers that you already know well than to acquire new customers. It relies very heavily on pre-existing deep insight into customer needs and successful innovation. In short, costs that cause risk relate only to new product development (NOT market research).

Uses & benefits:

• to recapture your customers who are being lured away by the competition (essentially a counter attack)
• to exploit opportunities to sell a new product. 

Example(s):

• If the abovementioned Kopa-Cola brand (that already sells its drink in City X) now tries to offer a product variation to its pre-existing market. It might offer a 'light' variation, to prevent customers from having a wondering eye when they notice that the competition and social media is talking about lowering sugar consumption.
• In the personal care cleaning industry, large synthetic detergent (syndet) bar companies began to receive a lot of competition from cottage industry makers of all-natural soap. In response, syndet makers created 'green' ingredients to their syndet bars and took advantage of the facts that there is no regulation over the word 'natural' and the average consumer does not understand the science. However, to attempt to raise entry barriers to soap makers and secure their competitive advantage, they began to push the idea of pH-neutral products as being superior and safer for human skin. They did this knowing that soap by its nature can never achieve pH balance.
• New features on the current product
• Special editions, which are variations of the current product
• New product updates.
• Case study: Apple does this very well with new  innnovative operating systems, each with existing new names.
• Market extension using strategic alliances with other companies.
• Tentpole-specific variations
• Glocal variations

Risks asssociated with new product development include the following.

• Missed opportunities due to inflexible pursuit of and faith in the original plan. This can result in tunnel vision that does not adapt to changing market needs.
• Delays due to over-stretching (human and other) resources. Allow the R&D team and equipment to focus exclusively on their task. In other words, avoid the temptation to assign these resources over too many projects and normal-business tasks because they will be less equipped to handle the unpredictable nature of R&D. In short, the solution is to have a 'capacity buffer'. A capacity buffer includes not rushing into new projects before properly completing ongoing ones and dedicating teams and equipment to a single project.
• New products that become unpopular in the market due to being too complicated with an excessive amount of features. This is very applicable to products that are technical and whose method of use needs to be learnt (like software, equipment and information). I will also add that this applies to even consumer goods whose number of components should likely be kept at a minimum to help consumers better identify what they like and consider effective. Rather than make a toothpaste that is for removing tobacco stains but also ideal for sensitivity is confusing. You are better off creating segments. Besides, your production team will have less chance of total work stoppage due to running out of one among numerous components.
• Product failure due to zero-tolerance for design failures during development process. This can result in entering the market prematurely with sub-standard products that can hurt your brand. The solution is to not only be clear on objectives based on market needs but also willingness to alter the plan and re-design the product as needed during the process. Allowing the R&D process to endure failures prevent designers from only selecting the least-risky options. Enduring the failures in-house early saved the brand from public product failure.

3. New Market Development - MEDIUM RISK

• current product
• new market - a source of cost and therefore risk

A new market can be defined by any grouping such as geographic location, psychographic segment and income level segment. Re R&D, since you are targeting new leads with the same product, you only need to perform market research (and NO new product development). You already know your product has a potential to be liked. Since the elements of newness is limited to only or mainly one between product and market, this strategy is considered to carry medium risk. (However, you might still need to follow trends of the target market's evolving needs and desires). 

Case Studies:

• Some of your high end clothes can not be sold as normal in your usual outlet, possibly due to overproduction, returns, slight defects and so on, you find alternate 'off-price' retail outlets like TJ Maxx. TJ Maxx is a different market segment in that it is renowned for appealing to people who want high quality but at a discounted price. Consequently, your high end buyers are unlikely to shop there. If TJ Maxx is also unable to sell those products, they may pass those products on to thrift stores.
• Unlike numerous Western companies attempting FDI in China, Starbucks' foreign direct investment (FDI) entry into China was successful after some initial floundering. The success is possibly due to several reasons. For starters, its entry represented the first time a coffee culture was introduced to such an extent in China when the middle class was growing and demanding new experiences. Despite the Chinese culture that is traditionally geared towards tea, the experience was appealing to Chinese. To some extent, the aesthetics are considered glocalized with Chinese wall art, mugs and so on. Senior management admitted that their task was helped significantly by having Chinese 'friends'. My impression is that this success might involve luck because of timing. In contrast, Starbucks failed in Israel. This was due to not appropriately adapting to the  Israeli coffee culture. For instance, Israelis prefer to lounge around with ceramic cups. Carrying away Starbucks' paper cup made some Israelis feel rushed which was therefore unappealing. Since Starbucks charges a premium for the Starbucks experience, it would be understandably hard to justify paying more for an experience people did not value. The brand failed in Australia to the extent that it closed 2/3 of its locations in 2008 (only 8 years after starting its FDI there) and after sustaining over USD 100 million in losses. This occurred despite the fact that the Australia coffee market is among the largest in the world. Its failure appears to have occurred through an attempt to quickly reproduce the same US product, ie as opposed to slowly or organically becoming integrated into the new market. The Australia market is used to a more intimate experience in cafes and also has its own coffee preferences. Starbucks' menu did not adapt from more sugary drinks to what Australians would consider more sophisticated tastes. Furthermore, the high number of locations arguably made the brand appear too mass produced or commoditized and available for a premium brand. Ultimately, the premium price could therefore not be justified by consumers who found the experience below par. This case illustrates that success in one location does not naturally translate to other markets. To be clear, it is not simply a matter of american companies being incapable of globalizing. Afterall, another american company, Gloria Jean's Coffee was successful at glocalizing with over 400 outlets in Australia. Gloria Jean used Australian franchise to accomplish this success but with a menu that is adapted to the Australian taste.
• The failure experienced by Walmart in Germany is a case in point that shows the risk involved in failing to adjust an incompatible business model to the demands of local markets. Specifically, Walmart did not alter its American model before setting up stores in Germany. It was voted as the "worst supermarket" for several years and lost hundreds of millions of dollars. At the core of this problem is the fact that Walmart's value proposition is competitive price while the German market does not focus heavily on price. In general, Europeans do not even care to know the price of items while shopping.  

Example(s):

• Brand awareness promotions
• You want to target not just Gen X and Y as per your norm but now also Baby Boomers.
• You want to overcome a recession or low-income profile in your country and want to enter a different country's more affluent market. 

Risks associated with new market development may be divided into internal, external and legal. Identify risks by considering the following related factors. In all instances, seeking advice and working closely with locals (like staff, lawyers and other stakeholders) help to manage these risks. These relationships must also be maintained since the rules change. Needless to say, research your market as heavily as possible and without making assumptions.

• Internal (ie within your business)
• Cultural differences: segmentation based on demographics &/ psychographics; language; social perceptions regarding matters like race and gender; systems of measurement.
• Goals that are unclear, inadequately communicated or integrated into the functional processes throughout the organization.
• Lack of coordination, especially among virtual team members.
• Cash flow. Given the unpredicatable nature of how things can go wrong, businesses need extra emergency sources of cash.
• External
• Conversions across (volatile) foreign exchange rates, foreign business practices.
• Logistics, especially in developing countries.
• Technological networks in the location. 
• Social unrest and trends. Businesses should learn the significance of the social climate, the reasons for protests, riots, labor strikes, revolutions, wars, sudden changes in governments and so on. This is key for planning accordingly, showing appropriate solidarity and avoiding the perception of insensitivity.
• Physical environmental factors. These involve  issues as insidious as the mold that develops in highly humid climates to the raging nature of hurricanes, earthquakes, floods and so on.
• Legal
• Compliance with the regulations and laws of the new market. Consider for instance that, selling marijuana was legal in some US states but carried a severe penalty in others.

4. Diversification - HIGH Risk

This corporate strategy involves:

• new product - a source of cost and therefore risk  AND
• new market - a source of cost and therefore risk

Diversification is the single most risky strategy because it involves entering into new markets with new products. Sometimes, this strategy is used as a last resort for survival when a company's product life cycle is in decline in its market or when there is no other foreseeable means for growth (because all other strategies have been exhausted). However, it can also be used by healthy companies that simply want to grow to please its shareholders, like Amazon. I also consider new business ventures as starting in this way. Regardless of the circumstances that lead to diversification, businesses should consider cultural differences when moving internationally. If you lack sufficiently deep knowledge of your product, tread cautiously. You might be better off with another growth strategy. Also consider minimizing the high risk with strategies like franchising.

Case studies

• Amazon has used diversification simply to grow to please its shareholders. Regarding new markets, it uses strategic alliances in this globalization process. Regarding new products, it leveraged its well known name to diversify into drastically different fields in some instances like the Amazon Web Services (AWS). Unlike the original retail Amazon, this business provides server, storage, networking, remote computing, email and mobile development and security services. In fact, this product has even become Amazon's leading revenue generator. Ultimately, this case is the classic example of the enormous rewards that can come with enormous risk.
• When a car brand needed a plastic manufacturer to make some of its parts (fairing panels), Swatch, a business that specialized in making plastic watches took the risk of making this new product (fairings) for a new market (the automobile market), both elements (product and market) with which Swatch had no experience. 
• Alphabet is a case of a highly successfully diversified business. 

Example(s):

• Mergers & acquisition can give you access to your competitors' customers. 

Sustainability of Growth Strategies

Beware however that these strategies are not always sustainable. For instance, strategies reliant on giving more for less, product variations, new sales channels, new market segments, etc can often be easily imitated by the competition and or deliver diminishing returns over time. Consequently, they are best considered as relatively short-term growth strategies for quick results. As to be expected, the most risky growth strategy, diversification has the greatest potential for more sustainable growth.

CONTENT RELATED TO THE ANSOFF MATRIX

• New Product Development 101
• Business Plan
• Risk Management 101 
• Franchising can be a means of reducing the high (financial) risks associated with new market development.
• Consignment agreements can reduce risks associated with new market development.
• Corporate strategy
1. PESTLE 
• Create SWOT (using PESTLE tool)
2. Porter's 5 Forces
• Create SWOT analysis (using Porter's 5 Forces)
• Gap analysis
3. Ansoff Matrix 
4. Boston Matrix
• Operations management 101 for productivity
• Abovementioned case studies in other content
• Amazon
• Apple
• Gloria Jean's Coffee
• Instagram
• Personal care (cleaning) industry
• Starbucks
• Swatch
• TJ Maxx
• WalMart

Porter's Five Forces of Competitive Threats within an Industry

If your industry's competitive landscape were a chessboard, the Porter's 5 Forces Model would be how you size up your opponents relative to yourself. Being able to measure the intensity of competitive risk, relative to your internal strengths and weaknesses will help you to plan strategically. In short, the Porter's 5 Forces Model is a tool for developing your corporate strategy.

Uses & Benefits

• to help in creating items for a SWOT analysis.
• to determine whether you want to enter into an industry
• to continually evaluate the intensity level of competition in their current industry
• to adjust and then justify strategic decisions in presentations
• business plan 
• corporate strategy risk management plan
• annual reports

Using Porter's 5 Forces involves systematically answering 5 set of questions about the industry. It can therefore be converted into an internal survey requiring managers to rank each item, optionally on a Likert interval scale like 1 - low, 2 - medium and 3 - high. The lower the overall risk, the better the chance of dominance within an industry. I can not stress enough how important it is to customize your responses according to your particular business. Even businesses within a single industry can likely have very different outcomes because of their unique brand positioning strategy.

0. List industry leaders and other key competitors. 

Is the market concentrated? (ie do the top 4 players account for at least 80% of all industry sales?) Do your competitors compete on the basis of differentiation thereby asking premium prices? What is customers' perception of quality among your competitors?

1. The threat of new entrants.

Are you in or thinking of entering into an industry and wonder what type of competitive threats you will or can potentially face? These questions focus on how difficult it is to enter the industry, ie 'entry barriers'.

• Entry barriers
• Scale economies. If current players already enjoy scale economies, they are likely to have a considerable cost advantage over new entrants who can not achieve these scale economies.
• Relative Differentiation. What is your and or competitor's level of differentiation? The higher the differentiation, the harder it is for others to compete directly. For instance, if you have highly innovative products, they will be harder to immitate and therefore give you relatively low levels of risks. Equally, if your competitor is the one with highly differentiated products, your competitive risk is high.
• Customers' switching costs. How easily can customers switch between you and your competitor? The concept of 'costs' should not be perceived only in terms of product price. Instead, consider switching costs from the customer perspective regarding how customers perceive value and costs. For instance, common ways in which businesses raise switching costs include legally binding purchase contracts; emotionally binding loyalty rewards programs that motivate FOMO; superior benefits like convenient distribution channels or hassle free guarantees with more accessible and empowered customer support.
• Entry costs. Do new entrants need to hire research and development teams, gain specialty competencies, buy factory space and so on?
• PESTLE factors. Do you and or your compeititors face restrictions and or permissions that make entry relatively harder? Examples include trade agreements, Customs regulations, embargos and so on.

If you wish to enter into a market with very large and intimidating players, avoid trying to compete in attack against them. This is too costly and futile. Your best approach will be to enter the market within a specialized niche.

2. Bargaining Power of Suppliers. Are you in a buyer's or seller's market for your supplies? Specifically, if you have multiple options for your necessary supplies, you have more power. However, the converse is true. The ideal is to have multiple suppliers. Afterall, if one supplier raises prices, your business has low switching cost, perhaps you are not contractually bound.

Case study: 

While otherwise very strong in its industry, Tesla faced 'high' risk in this area because they depended on their suppliers because they had only one supplier for the majority their components. Ironically, this might have occurred because of their highly differentiated product which gives them relatively low risk regarding differentiation. 

3. Bargaining Power of Buyers. As in the previous point, the lower the relative bargaining power of buyers to switch to competitors, the lower your risk. 

Case study:

Interestingly, while Tesla faced 'high' risk as a buyer with its suppliers, its sheer contribution to those suppliers is so considerable that they are not that badly off overall because they also have relatively low risk as a significant customer, possibly the largest of that supplier. However, if this question were being analyzed from the perspective of those suppliers, they would suffer high risk of Tesla's relatively high bargaining power. 

4. Threat of Substitution. Are there alternatives to your product? Such alternatives need not only be precisely the same. However, they should be considered. For instance, a movie theater should not only consider other movie theaters as substitutes. Since their customers are ultimately buying entertainment, the substitutes can range from video games, parks, board games and so on. 

5. Rivalry among Competitors. This final question should consider all of the previous ones. To answer this question, consider signals of rivalry like price discounting. 

 

CONTENT RELATED TO PORTER'S 5 FORCES OF COMPETITIVE THREAT

• Business plan
• Corporate strategy
1. Porter's 5 Forces
1. Create SWOT analysis (using Porter's 5 Forces). Create subsections that address each unique product at a time.
2. Ansoff Matrix
3. Boston Matrix
• Risk management 101
• Abovementioned case studies in other content
• Tesla

Boston Matrix

The Boston Matrix aka "BCG Matrix"; is a decision-making tool used by managers to evaluate the portfolio of products (and services) offered by 1 business based on levels of 1) market growth and 2) market share as a snapshot of the current situation. When using this tool, it is ideal to also consider the product life cycle (PLC) of each product being offered.

The aim of a commercial business is essentially to get its products into the cash cow quadrant. If you find that most of your products in your portfolio are doing exceedingly well as cash cows, extend your aim to consider the long term. Specifically, use proceeds from cash cows to re-invest into question marks which will hopefully eventually graduate to being stars and then cash cows.

Question marks | Stars | Cash Cow | Dogs

Total Available Market | Market Share | Market Growth

Uses & Benefits

• to analyze products in the portfolio
• to know into which products in your portfolio you should invest (for product development, promotion, etc)

Key terms

The Total Available Market (TAM) refers to the total revenue opportunity or demand for your product or service across all segments, all possible substitutes or alternatives and over all possible channels. In other words, the number of people that would want your product if they had the budget. Another way to consider it is all of the demand available to a supplier if he were the only supplier (ie with no available alternatives). For instance, if you sold juice, your TAM will include all types of beverages from water, to areated drinks, to fruit juices and so on. The TAM ought not be confused with the 'Served Available Market' aka SAM. The SAM relates to market subset that you serve as a specialist segment or through particular channels. If you sold health smoothies, your SAM would be a niche or subset of the TAM of beverages. It would comprise the subset of the population that is willing and able to invest in healthy living.

For the sake of clarity, always specify your market in a way that is meaningful, including the product type and whether using demographic and or geographic location parameters.

Diagramatically, your TAM (and or SAM) is most commonly illustrated with a piechart. Other forms are on bar charts and stacked bar charts. The piechart represents 100% of gross sales in dollars. FYI, the percentage can also relate to other measures like units sold or number of buying customers. 

To calculate the TAM, look for research data that may have been published by an industry analyst. Use the data form that suits your needs best. For instance, the most common form relates gross sales dollars. Sources of data for completing the calculation may include Nielsen. You can calculate in a top-down fashion, meaning that you start with data for the entire market, usually from a third party or a bottom-up fashion, meaning that you start with your individual very best scenario. For the latter, use the following.

SAM = target customer profile's average customer value for a period X population.

Market Share is the portion of a market's total sales revenue enjoyed by a single product within your portfolio. The formula is as follows.

Market Share = (your product's revenue / whole market's revenue) x 100

Example(s): 

Your product revenue is $1k, whole market's revenue is $5k.

Market share = (your product's revenue / whole market's revenue) x 100

Market share = ($1 / $5k) x 100

Market share = 20% 

Whichever product has the highest market share is considered the market leader. A leader can demand higher prices and negotiate more easily with retailers to have the leading product stocked. However, leaders ought never rest on their laurels. The strength of a leader's market share depends on how brand loyal his customers are and how near behind and strategically engaged his competition  / 'market challenger' (the 2nd place leader) is. In other words, customer switching  to other brands becomes a significant risk.

Market Growth of the TAM. NB. Unlike the market share which relates to your individual product, market growth relates to the percentage change of your whole market for a period. (There is no need working this out first on your individual market growth and then considering the possibly varying industry-wide growth. Rather considering the market growth for the whole industry skips those extra steps. Besides, the market share considers your individual product's share within the current whole market). Below is the formula for calculating the industry's market growth.

Market growth = (new revenue - old revenue) / old revenue.

Example(s): 

Old revenue is $1m 

new revenue is $1.5m

TAM / Market growth =  (new revenue - old revenue) / old revenue. 

TAM / Market growth = ($1.5m - $1m) / $1m.

TAM / Market growth = 50% growth     or    +50%

Question Mark products 

• Current performance:
• low market share
• high growth
• PLC stage (probably): introductory.
• Aspirations: to become a 'star' 
• Cash situation: cash neutral
• Usual decision: to build
• invest in R&D (if established business, from cash cows)
• brand awareness
• Tasks:
• Do you have sufficient cash?
• Does your average rate of return (ARR) suggest that this is  product worthwhile?
• If you want to increase market share, there are 2 ways.
• While difficult, it is possible to increase your overall market or TAM. This involves convincing behavioral change or perceptions. Example(s)
• Scientific' research from sources that the market trusted in the 1980s motivated consumers to consider coconut oil very unhealthy and therefore undesirable. Olive oil was promoted as a healthier alternatives. Ironically however, the market has swayed again in the opposite direction after wealthy companies funded new market research that said otherwise, Currently, coconut oil has manic popularitiy among the health movement. 
• Take market share from your competition. BEWARE. Your competition is not asleep. New entrants are monitored closely because their growth presents a threat to the market share of pre-existing brands. Stealing market share involves SWOT analyses; manipulating internal strengths and weaknesses regarding each of the 4Ps according to opportunities and threats regardin your competition and the industry as a whole.

Star products 

• Current performance:
• high market share
• high growth rate
• PLC stage (probably): growth, possibly quick growth. New competitors entering into the market.
• Aspirations: to become a 'cash cow' 
• Cash situation: neutral
• Usual decision: to hold
• Tasks:
• Do lots of marketing to create entry barriers against new entrants to protect your USP
• Do price skimming, if you can

Cash Cow products 

• Current performance:
• high market share
• low growth rate
• PLC stage (probably): Slower growth, mature.
• Aspirations: 
• Cash situation: cash generating. Very good sales.
• Usual decision: 
• to 'milk it', ie exploit the market as much as possible. 
• to set aside some cash and plan for future investments. 
• Tasks:
• Pay shareholders or other invesstors.
• Withhold some of the dividends for future R&D for other innovations you hope to develop into being another cash cow.

Dog products 

If you remained in the cash cow, you might eventually end up naturally in the dog phase.

• Current performance:
• low market share
• low growth rate
• PLC stage (probably): growth but you are not getting any of the market share. This is the least ideal situation because the market is not actually in decline. Instead, you are experiencing negative growth.
• Aspirations: ... 
• Cash situation: cash neutral. While there is a negative sales trend, this situation does not necessarily mean that you always lose cash at this point.
• Usual decision: to divest
• Tasks:
• to make a decision regarding when you will finally divest. This point is usually when your revenues start to fall below a specific point.
• to perform a breakeven analysis to see whether you have already broken even.
• to exploit whatever little you can get before it is definitely time to finally divest
• to do as many product extension strategies as possible like re-branding, re-packaging.
• to use this product as a loss leader or part of a bundle to push your upcoming stars for which you are price skimming.

CONTENT RELATED TO THE BOSTON MATRIX

• Business Plan
• Income Elasticity of Demand
• Risk management 101
• Corporate strategy
1. Porter's 5 Forces of competitive threats
1. Create SWOT analysis (using Porter's 5 Forces) 
2. Ansoff Matrix can be used to analyze options for increasing market share
3. Boston Matrix 
• New Product Development 101

Matriz de Boston

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Brand Positioning 101

Earlier, I discussed the unique value proposition (UVP) concept, ie a special aspect of your offering that provides true or perceived value (emotional and functional benefits) to consumers. However, this post will extend that discussion to consider how your brand's UVP fits or is positioned within the context of your competitive market landscape. When measured properly, brand positioning aka benchmarking can even allow you to plot your and competing brands on a single graph using each brand's score where each score is based on consumers' perceptions of UVP. The scatter plot graph will therefore allow you to see the relative position of each brand. To further clarify; the graph would represent said 'market landscape' and the UVP score of each brand would be positioned as a plot point (perhaps using the brand's logo) on that graph.

On that basis, can you now see how 'brand positioning' may be understood to be the strategic process of creating competitive advantage in consumers' mind, especially at the 'evaluating alternatives' phase of their buying decision? Continual horizon scanning and proactive brand positioning or repositioning are the cornerstones for creating and maintaining a premium brand.

Why is brand positioning important?

The point of brand positioning is answering the question 'What value proposition sets (or can set) you apart from the competition?' Let's face it! If a brand is to be competitive to enjoy high income streams from an appreciative market, it needs bragging rights, about something.

Just imagine how, if your brand positioning makes you a clear outlier, your brand will be more 'recognizable' or better yet, can be 'recalled' (the 2 measures of 'brand awareness'). In turn, a brand with greater brand awareness is one that is sought after more.

As discussed previously, de-commoditizing, aka differentiating your product, even if it is an otherwise boring commodity allows you to communicate value and justify your price. 

Brand positioning is the sine qua non for effective market communication. It is afterall a means of using your bragging rights to establish your brand as a leader its unique way within the collective consumer mind. 

Differentiate on the basis of attributes that your customers use  for measuring significant value 

When customers compare brands, they do so on the basis of single variables (at a time) that are meaningful to them. For instance, legal customers may use the extent to which lawyers listen to them analytically, a form of customer service. A car buyer would not have the same criteria for a car salesman, even if he is concerned with customer service. In short, the positioning must be customized for each industry, segment, brand, product, etc.

Some attributes that are commonly used for brand positioning include the following. 

• product quality
• customer service
• convenience
• price
• differentiation

To illustrate, the quality-based positioning approach, companies may highlight their superior quality through product performance (perhaps in resolving a pain point), compliance with well established industry standards for quality (like ISO certification), exceptional craftsmanship, raw materials that meet well esteemed specifications, sustainable practices, small-batch production, ... in short, whatever it is that defines 'quality' in their industry. 

What attributes are important in your industry? How does your brand offer something that feels like a breath of fresh air to customers? For instance, if your industry offers a product  or service whose implementation or use are renowned as being complicated, does your brand offer strong customer support that makes the process much easier? 

Think insurance policies and their tedium! This is arguably the reason why Geico selected their famous 'grunt test' campaign. They wanted to show the world how their sign up process was so easy, that even a grunting cave man can understand it.

Attributes of focus should also change with emerging market trends. However, attributes can be anything that really matters to your consumers. Was your brand the first of its kind which is a fact that your customers value? Are you just the most popular? Are you the only one that responded to certain events that are near and dear to the hearts of your target market? Have you done a SWOT analysis of your competition and want to use a campaign to directly call out a competitior's weakness?

Most industries have multiple key attributes that can be simultaneously represented on 'perceptual maps' like below. Like in this example, consumers rate each key attribute so that brand managers can observe the relative position of all competing industry players. Each brand manager then contemplates "Do I like my current brand position?" "Is there a gap in the market that I can fill?" 

In the example above, taste and being natural are the 2 key attributes for 3 key players in the sugar industry. A gap exists in the quadrant for more tasty and less natural, which would be better than Equal's current position of low ratings on both attributes. Should Equal fill that gap? However, the brand manager may also consider shifting the brand's positioning to the right if trends emerge in which consumers are happy to sacrifice taste for more natural products. If Equal's brand manager wants to respond to that trend, that brand may produce a variant that is more natural, perhaps only to a marginal extent to perhaps offer a natural option that is likely more affordable than Truvia. 

The SWOT analysis of industry players (ie strengths, weaknesses, opportunities and threats) can provide many attribute ideas. 

Repositioning

Repositioning is brand risk management. Brand managers must continuously scan the horizon for changes that warrant significant branding response. Common prompts include changing target market (perceived) needs, improvements in your competitors' UVP, new product substutes and waning consumer interest. 

Case study: Perceptions of the Old Spice brand changed over time. Specifically, the brand was unable to attract younger male demographic because it was associated with 'old men'. To counteract this, the brand changed its image. It appealed to younger men by changing its personality with style elemnts like younger very masculine male models and campaign slogans like 'Smell like a man, man!' are cases in point. This not only changed the brand's demographic by raised sales by 27% within only the first 6 months of the campaign's launch in 2010 but also emerged its category leader as a consequence.

Case study: Starbucks lost over 28% profits over 2 years following the 2008 economic crisis. In the face of economic hardship, consumer attitudes changed. They began to see coffee as a commodity - an ostensible existential nightmare for a brand that built on presenting coffee as a luxury. Consumers were opting for cheaper options like McDonalds coffee. In response to this risk management 'white swan', the brand hired BBDO, an agency that specializes in branding to reconvince the market that their coffee was worth the extra cost. Its campaign included slogans like "If your coffee isn't perfect, we'll make it over. If it still isn't perfect, you must not be in a Starbucks." and "Beware of a cheaper cup of coffee. It comes with the price". In short, the brand used the quality positioning strategy. 

Case study: McDonalds recognized that consumer perceptions were becoming disfavorable. Specifically, consumers began to perceive it as unhealthy. The brand improved this reputation with healthier options like salads.

The brand positioning statement. 

A brand positioning statement briefly 1) identifies the target market, 2) describes benefits / value to the target and 3) implies current relative exploitable weakness in your competition or industry. This statement can be used for recreating mission statements for internal and or external customers. 

Examples.

• For serious athletes, Nike gives confidence that provides the perfect shoe for every sport.
• To cultured millenials, Starbucks is a premium coffee house that adds an intimate and valuable experience to a consumer's life style by integrating caffeine with a comproftable environment.

Steps: How to establish your brand positioning

• Know the key industry attributes and how to measure them.
• In most cases, a variable is simply a contiuum of the same thing. For instance 'price' is either low or high or range in dollar values. 
• In footwear, one key attribute is a categorical scale that has 'performance' and 'fashion' on either of its extremes. ('Correspondence analysis' is used for statistically for mapping categorical variables).  
• Determine your current brand positioning. This can be an informal 'back of an envelope' exercise and or part of a formal beta testing survey. 
• Analyze your compeitition; identify them and perform SWOT analyses for them (while also incorporating into them considerations of the PESTLE analsyis). In addition to this simple video, see the other more comlex discuss at the end of this post.  
• Analyze your industry for weaknesses that you can resolve. 
  • When Geico realized that an inherent weakness in its (insurance) industry was that consumers found the standard application process upsettingly difficult, they differentiated the brand by providing the value of convenience with an application process that was uniquely so much simpler that it could even pass a cave man's 'grunt test'.  
• If any, know your industriy's inherent shortcomings.
• Know your UVP
• Create a positioning statement for a promotional campagin. 
• Establish a suitable positioning strategy. This is particularly important when your attribute-related market positioning is similar to that of competing brands. In such cases, select a strategy as the basis of differentiation. Strategies may be one of the other attributes like one listed above; price, convenience and so on. The price-quality trade-off is very common. 
• M&Ms emphasized the product quality by stressing the product's durability, safety, reliability. Its tagline "Melts in your mouth, not in your hands" is consistent with that. 

                   

• Integrate your brand's differentiating qualities throughout your brand's organization, especially into all elements of the front line including brand personality like brand style, a 'differentiating tagline' and so on.
• Constantly evaluate how well your positioning is working.
• Scan the horizon for emerging trends that can change the nature of the market landscape and, by so doing, present new risks (opportunities or threats). 
• Reposition to adapt to emerging trends and circumstances. This often involves changing key brand elements like the product (qualities), price and even brand personality. 

     

• Avoid brand extensions that are generally unsuccessful and, over time, may even dilute the power of your brand position in the mind of consumers. Line extensions may include extending the product mix to include other types of products. The risk appears to occur when brands attempt to do something contrary to the key characteristic  that helped to gain its position with clarity in the minds of consumers. Examples include the following. 
• Bayer's was a leader as a pain relieving medicine because of 'Aspirine'. However, a subsequent attempt to use the well established name to introduce an alternative non-Aspirine pain reliever 'Bayer Migraine' failed.
• Dial was a well established brand for soap. However, when it introduced deodorant, the deodorant failed.
• My gag reflex is still strong every time I remember the case of Colgate, a well established brand renowned for clearn dirty mouths that then attempted to use their name Colgate for food products. Am I the only one that has this strong a reaction? Possibly not because the new food product was unsuccessful.

You can use perceptual mapping not only for single brands against others but also for different iterations (formulas, colors, etc) while doing new product development. Furthermore, you can make the graph three dimensional to include the variable of unassisted brand recall if respondents needed to name the competing brand. The plot for each brand will not be a dot but a circle whose size reflects the number of times it was recalled.

CONTENT RELATED TO BRAND POSITIONING

• Positioning is very important in the 'evaluating alternatives' phase within the customer's buying decision process.
• 'De-commoditizing' aka differentiating your product,
• Unique Value Propositions (UVP)
• Branding 101
• Brand core values
• Brand personality
• Brand mascot
• Brand awareness & brand awareness srategy
• Emotional marketing to emotionally engage your target market.
• Industry analysis
• Ansoff Matrix: Market & Product Development Strategy
• Porter's 5 Forces of Competitive Threats is an ideal accompaniment to a SWOT analysis.
• Packaging design strategy
• LIfestyle branding strategy
• SWOT analyses of key players in different industries.
• When completing your SWOT analysis, pay special attention to the strengths of your competitors, especially the leaders. Those strengths should not be the basis on which you should try to compete with them. You will need to find some alternative.
• Protecting your intellectual property
• Product demand matrix is essentially another type of brand positioning tool. However, its two variables are price and number of customers demanding the product. It therefore plots sales channel locations where your and competing brands may enjoy demand that corresponds with your product offering based on its level of high endedness and price. It is useful for figuring your more direct competitors and provides an opportunity to know which competitors to observe for inspiration for packaging, pricing and so on.
• Perceptual maps. When analyzing your perceptual map, see if the plots exist in all or most quadrants. This is favorable to a straight line. For instance, in simpler plots, price and quality are commonly used as the 2 attributes, However, since these variables are often highly correlated in the minds of the market, the plot essentially measures only 1 (and not 2) variables. In such a case, all of the plots form a clear straight line, often a diagonal one. This type of result is not ideal as it suggests that the research process was not designed to get maximum value from the data. To counteract this issue, it is advisable to use variables that are not as highly correlated. Having said this, note that patterns with wide gaps do not necessarily indicate this issue. In some cases, they suggest a gap that can be exploited or one tjat is undesirable. Examples of undesirable gaps include cases in which manufacturers will not make expensive products to be sold cheaply .... or customers won't buy expensive products that are low quality.
• The other way. Can you plot how you perceive key characteristics of your target market personality type? ... If your target's problems are special or outlying somehow, you might have the opportunity to personalize your messaging even further. For instance, Skinny-fat solution, a muscle building plan might signal to its target by saying, "It's hard enough for regular guys to build muscle. But us; the skinny-fat guys? It's impossible with the typical advice ..." Notice how this brand is making a very clear distinction between the regular segment and its own. It also shows how the competition is failing this niche. "... This is why I don't follow typical advice. Instead, I use my own 3-step system. Want to learn 
• Abovementioned case studies in other content
• Bayer's
• Colgate
• Dial
• McDonalds
• Nike
• Old Spice
• Starbucks
• Internal links: brand position statement;