The Ansoff matrix

Two questions: which markets shall we compete in, and what products shall we offer? Ansoff crosses them, and the result is a risk ladder.

• Market penetration — sell more of the existing product to the existing market: loyalty schemes, price promotions, more advertising, raising usage frequency, taking share from rivals. Lowest risk — the firm knows the product and the customer. But it is limited by market size, and in a saturated market it means a price war.
• Market development — the same product, a new market: a new country, a new segment, a new channel. Risk is in the customer: different tastes, laws, competitors and culture. Cheap in R&D, expensive in market knowledge.
• Product development — a new product to the existing market. Risk is in the product: R&D cost, technical failure, cannibalisation of the existing range. But it exploits an asset the firm already owns — its customer relationships and brand.
• Diversification — new product, new market. Highest risk: the firm knows neither. It can spread risk across unrelated cycles and open genuinely new growth — but it is the graveyard of over-confident boards.

Place the strategy on the Ansoff matrix

Tap an action, then tap the Ansoff quadrant it belongs to.

Choosing the direction — with numbers

A firm rarely picks a quadrant on instinct. It quantifies the options — usually with expected values (3.2.2) — and then tempers the arithmetic with judgement about risk and capability.

Your turn — penetration

Your turn — EV of market development

Your turn — EV of diversification

EV is not the whole answer

Strategic positioning: how to compete

Porter argues there are only two ways to win — be cheaper, or be different — and each can be pursued broadly or in a narrow niche.

• Cost leadership — be the lowest-cost producer in the industry. It comes from economies of scale, the experience curve, tight process control, low-cost inputs and relentless efficiency. It lets the firm win a price war and still make money — and it survives a recession when rivals cannot. Note the trap: cost leadership is not the same as charging the lowest price; a cost leader can charge the market price and simply keep a fatter margin.
• Differentiation — offer something customers see as unique (quality, brand, design, service, innovation) and charge a premium. It makes demand less price elastic and builds a barrier to entry — but it requires continuous investment, and the premium collapses the moment the difference is imitated.
• Focus (niche) — apply either approach to a single narrow segment, serving it better than a broad rival can. High margins, deep loyalty — and total exposure if the niche shrinks or a giant enters.

Your turn — the value of cost leadership

What the £8m actually buys

This is why cost leadership is a strategic weapon, not just an accounting outcome. The cost leader can choose to take the extra margin as profit, or spend it on a price war it is uniquely able to survive. The rival has no equivalent move. A cost advantage is optionality — and it is exactly what a differentiator must build a brand to defend against.

Match each strategic position to its description

Tap an item on the left, then its partner on the right.

Stuck in the middle

Bowman's strategic clock

Bowman refines Porter by plotting perceived value to the customer against price, giving a richer menu of positions:

• Low price / low value — the bargain basement. Viable only on huge volume.
• Low price — cost leadership. Needs genuine cost advantage or margins vanish.
• Hybrid — moderate price, high perceived value. Very powerful when it can be sustained (it is what disciplined discounters achieve), and hard to copy.
• Differentiation — high perceived value at a standard or a premium price.
• Focused differentiation — very high value, very high price. Luxury.
• The failing strategies — increased price without added value, high price with low value, and standard price with low value. Each relies on customers not noticing, and each ends in lost share.

Bowman's advantage over Porter: it separates price from cost and puts the customer's perception at the centre. A firm's value proposition is not what it spends — it is what buyers believe they are getting. That is why a hybrid position (good value at a fair price) can beat both a discounter and a premium brand.

When the advantage erodes

The benefits — and the fragility — of competitive advantage

Benefits: higher margins (a premium, or a lower cost, or both) · greater customer loyalty and less price-elastic demand · a barrier to entry · the ability to survive a price war · and, ultimately, a ROCE above the industry average, sustained over time.

Why it is so hard to maintain:

• Imitation. Anything visible gets copied. Product features are copied in months.
• Technological change can render a whole cost base or a whole capability obsolete overnight.
• Changing customer tastes — you can be excellent at something people have stopped wanting.
• Complacency and strategic drift — success breeds the belief that the formula is permanent (3.10.4).
• New entrants and substitutes reset the terms of competition entirely (3.7.7).

What actually lasts?

Thinking like an examiner

• Ansoff is a risk ladder. Never say "diversify to spread risk" without acknowledging that diversification is the riskiest quadrant — the firm knows neither the product nor the market.
• Match the direction to the capability. The right strategy is the one the firm's core competences can actually deliver. A brilliant strategy the firm cannot execute is a bad strategy.
• Porter demands a choice. "Stuck in the middle" is the default fate of firms that will not commit.
• Cost leadership is optionality. It lets a firm take margin or fight a price war. Differentiation buys a lower |PED|. Say which weapon this firm needs.
• Advantage decays. Always ask how quickly a rival could copy it — and what the firm is doing to stay ahead.

The big ideas to know

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