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Within the scope of Ansoff Matrix, Amazon uses all four growth strategies in an integrated manner: 1. Market penetration. Market penetration refers to selling existing products to existing markets. Amazon uses market penetration strategy aggressively. Sophisticated user experience features in general and Recommendations feature on e-retailer’s website in particular play an important role in the application of market penetration strategy. Specifically, the e-commerce giant focuses on user experience personalization thanks to efficient application of data science and machine learning with positive implications on the volume of sales of existing products to existing markets. 2. Product development. This involves developing new products to sell to existing markets. Product development is one of the core strategies used by Amazon. Started by Jeff Bezos selling only physical books online in 1997, today Amazon sells anything that can be sold online. The largest internet retailer in the world by revenue sells more than 500 million products, including products sold by third parties on Amazon platform. Top product categories include clothing, shoes, jewellery, home and kitchen appliances, books, electronic devices, sports and outdoor items and others. 3. Market development. Market development strategy is associated with finding new markets for existing products. Amazon is engaged in market development in a systematic manner. Started only in the US, Amazon currently has country-specific sites in 13 countries, including Canada, the United Kingdom, China and India. Moreover, Prime Free Same Day and Prime Free One Day services are available in more than 8000 cities and towns. Prime Now service is available in more than 50 cities in 9 countries.[1] 4. Diversification. Diversification involves developing new products to sell to new markets and this is considered to be the riskiest strategy. Amazon uses diversification to a certain extent. As a result of diversification strategy Amazon currently operates in media, hardware, advertising and other business segments. Market penetration Market penetration occurs when a company penetrates a market with its current products. It is important to note that the market penetration strategy begins with the existing customers of the organisation. This strategy is used by companies in order to increase sales without drifting from the original product-market strategy (Ansoff, 1957). Companies often penetrate markets in one of three ways: by gaining competitors customers, improving the product quality or level of service, attracting non-users
of the products or convincing current customers to use more of the company’s product, with the use of marketing communications tools like advertising etc. (Ansoff, 1989, Lynch, 2003). This strategy is important for businesses because retaining existing customers is cheaper than attracting new ones, which is why companies like BMW and Toyota (Lynch, 2003), and banks like HSBC engage in relationship marketing activities to retain their high lifetime value customers. Market development
When a company follows the market development strategy, it moves beyond its immediate customer base towards attracting new customers for its existing products. This strategy often involves the sale of existing products in new international markets. This may entail exploration of new segments of a market, new uses for the company’s products and services, or new geographical areas in order to entice new customers (Lynch, 2003). For example, Arm & Hammer was able to attract new customers when existing consumers identified new uses of their baking soda (Christensen et al, 2005).
Product development • Another strategic option for an organisation is to develop new products. Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm. • The reasons that justify the use of this strategy include one or more of the following: to utilise of excess production capacity, counter competitive entry, maintain the company’s reputation as a product innovator, exploit new technology, and to protect overall market share (Lynch, 2003). Often one such strategy moves the company into markets and towards customers that are currently not being catered for. Diversification strategy is distinct in the sense that when a company diversifies, it essentially moves out of its current products and markets into new areas. It is important to note that diversification may be into related and unrelated areas. Related diversification may be in the form of backward, forward, and horizontal integration. Backward integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same business. Forward integration differs from backward integration, in that the company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company moves into businesses that are related to its existing activities (Lynch, 2003; Macmillan et al, 2000). It is important to note that even unrelated diversification often has some synergy with the original business of the company. The risk of one such manoeuvre is that detailed knowledge of the key success factors may be limited to the company (Lynch, 2003). While diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to note that the track record of diversification remains poor as in many cases diversifications have been divested (Porter, 1987). Scholars have argued that related diversification is generally more profitable (Macmillan et al, 2000; Pearson, 1999). Therefore, diversification is a high-risk strategy as it involves taking a step into a territory where the parameters are unknown to the company. The risks of diversification can be minimised by moving into related markets (Ansoff, 1989).
Limitations of Ansoff Analysis While Ansoff analysis helps in mapping the strategic options for companies, it is important to note that like all models, it has some limitations. By itself, the matrix can tell one part of the strategy story but it is imperative to look at other strategic models like SWOT analysis and PESTLE in order to view how the strategy of an organisation is formulating and might change in the course of its future. For example, the Ansoff analysis of Virgin Cola shows that the brand has been launched in the UK and USA using a market penetration strategy, which essentially reflects that the brand needs to increase its brand recognition (Vignali, 2001). The SWOT analysis conducted by Vignali (2001) showed an opportunity that Virgin Cola could explore diversification into new ranges of Virgin Cola products. PESTEL analysis of Virgin Cola showed that there was need to constantly evaluate the soft drinks industry in all countries, in order to reflect customer trends, thereby allowing the brand to gain market share and also predict trends faster than the competition. Therefore, the steps to be taken while conducting a strategic analysis of an organisation include SWOT analysis, PESTEL and Ansoff matrix as fundamental models of analysis, which should be used in conjunction and not in isolation, to view the complete strategic scenario. Also, recommendations made on the basis on only one of the models are not concrete and lack in depth. The above is also supported by the example of M&S where the company was not able to keep up with the trends and suffered from decline in sales due to competitors like Next, which were relatively more aware of customer trends and needs. Marks and Spencer came up with the Per Una range of clothing in order to compete effectively and gained market share. M&S would not have been able to identify which strategy to opt for growth, if a PESTEL analysis was not conducted. While the role of analysis in making strategic choices cannot be undermined, it is imperative to note that judgement plays a crucial role in making critical strategic choices that may change the future of the firm (Macmillan et al, 2000). Lastly, the use of Ansoff matrix as a marketing tool may not be really useful as the matrix is critical for analysing the strategic path that the brand may be following, and does not essentially identify marketing options.
The business environment of the twenty first century is highly complicated. It is not easy to survive the intense competition and to survive it any company must have a source of sustainable competitive advantage. Now, competitive advantage can arise from multiple sources. It is not just technology or an excellent product or service that can be a source of competitive advantage. Excellent supply chain or human resources too can become a source of competitive advantage too. Michael E porter has outlined three generic strategies that can help a firm create a source of competitive advantage. They are cost leadership, differentiation and focus. The third one has been sub divided into two more categories – cost focus and differentiation focus. The industry is replete with such examples where firms have used one or more of these strategies for competitive advantage. Amazon is the largest online retailer and has found very sharp growth in the recent years. This article analyzes the generic strategy used by Amazon and the intensive strategies it has used to find growth in the market.
Generic Strategy: Amazon’s main generic strategy is that of differentiation. How it has differentiated its business models is with the use of technology and skilled human resources. It serves its customers through its website and apps. The online model does not require the use f physical retail space. The only space utilized is that for office work. Amazon has developed a lot from being a book seller to being the largest retailer online. Not just this Amazon used best in class
technology to serve its customers and enable its employees to perform. It has software and algorithms for various things including box sizing to delivery. It also has a rich history of developing and introducing cutting edge technology at its fulfillment centers that help its employees deliver efficiently. Apart from these things, another special feature about Amazon’s business model is its focus on customer service. This is not just a point of differentiation but one of the key competitive strengths of Amazon. It is known for its great quality of service. Its quality of customer service has turned it into the favorite of online shoppers. However, the large range of products that it sells also comprises a key competitive strength. In this way, Amazon has achieved a sustainable competitive advantage. While several competitors have entered the market place and tried to challenge its position using strategies like lower prices, Amazon has continued to rule. It introduced Amazon prime to help its customers get their products delivered faster. It continues to improve its level of customer service and that’s how it has retained its number one position in the online market place. Both excellent technology and customer service has helped it achieve faster growth. Overall, it has managed a seamless user experience for its online customers.
Intensive Strategies: The Ansoff matrix provides fourth growth strategies – market penetration, market development, product development and diversification. These strategies can be used by brands to grow their market share and find faster growth.
Market penetration: This is the strategy of selling more to a brand’s existing customer base. Amazon entered the market as a book seller and grew to become the largest retailer. As it set its foothold in the market as a known bookseller it introduced other products too which could be bought online. This is how Amazon has grow its market presence. Today, it sells millions of products and this product line continues to grow with more suppliers entering its system.
Market development: Market development means selling the same products or services to new customers or in new markets. Jeff Bezos had launched Amazon out of his garage. Today, Amazon has grown into a global company. While the North America and some European nations including Germany and UK are the main strongholds of Amazon, it has continued to grow its presence globally. In the recent years it has sharply increased its presence in the Asian countries by spending more on marketing and advertising. It continues to grow its presence globally. As the internet activity has continued to grow globally, so has done its market presence.
Product development: Amazon has also focused on product development to grow its market presence. Apart from kindle it also introduced the fire phone. However, while Kindle was a major hit, Fire could
not be very successful. In this way, Amazon has used product development to grow its market share.
Diversification: From being a book seller, Amazon has grown into a brand that offers a diverse array of products and services. Today, it competes with companies like Apple, Google and Netflix. It is not just an online retailer but also a provider of web services and streaming videos. Amazon web services or AWS is an on demand cloud platform that provides more than 90 services and is continually launching new features and functionality. Amazon prime provides streaming videos. In this way, Amazon has continued to diversify into new fields of business to grow its brand and market share. Sources: https://www.amazon.co.uk/p/feature/6emvp3z9gbuf6vz https://aws.amazon.com/ https://prezi.com/rcsx8igqnqza/amazon-ansoffs-matrix/ https://research-methodology.net/amazon-ansoff-matrix-2/
of the products or convincing current customers to use more of the company’s product, with the use of marketing communications tools like advertising etc. (Ansoff, 1989, Lynch, 2003). This strategy is important for businesses because retaining existing customers is cheaper than attracting new ones, which is why companies like BMW and Toyota (Lynch, 2003), and banks like HSBC engage in relationship marketing activities to retain their high lifetime value customers. Market development
When a company follows the market development strategy, it moves beyond its immediate customer base towards attracting new customers for its existing products. This strategy often involves the sale of existing products in new international markets. This may entail exploration of new segments of a market, new uses for the company’s products and services, or new geographical areas in order to entice new customers (Lynch, 2003). For example, Arm & Hammer was able to attract new customers when existing consumers identified new uses of their baking soda (Christensen et al, 2005).
Product development • Another strategic option for an organisation is to develop new products. Product development occurs when a company develops new products catering to the same market. Note that product development refers to significant new product developments and not minor changes in an existing product of the firm. • The reasons that justify the use of this strategy include one or more of the following: to utilise of excess production capacity, counter competitive entry, maintain the company’s reputation as a product innovator, exploit new technology, and to protect overall market share (Lynch, 2003). Often one such strategy moves the company into markets and towards customers that are currently not being catered for. Diversification strategy is distinct in the sense that when a company diversifies, it essentially moves out of its current products and markets into new areas. It is important to note that diversification may be into related and unrelated areas. Related diversification may be in the form of backward, forward, and horizontal integration. Backward integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same business. Forward integration differs from backward integration, in that the company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company moves into businesses that are related to its existing activities (Lynch, 2003; Macmillan et al, 2000). It is important to note that even unrelated diversification often has some synergy with the original business of the company. The risk of one such manoeuvre is that detailed knowledge of the key success factors may be limited to the company (Lynch, 2003). While diversified businesses seem to grow faster in cases where diversification is unrelated, it is crucial to note that the track record of diversification remains poor as in many cases diversifications have been divested (Porter, 1987). Scholars have argued that related diversification is generally more profitable (Macmillan et al, 2000; Pearson, 1999). Therefore, diversification is a high-risk strategy as it involves taking a step into a territory where the parameters are unknown to the company. The risks of diversification can be minimised by moving into related markets (Ansoff, 1989).
Limitations of Ansoff Analysis While Ansoff analysis helps in mapping the strategic options for companies, it is important to note that like all models, it has some limitations. By itself, the matrix can tell one part of the strategy story but it is imperative to look at other strategic models like SWOT analysis and PESTLE in order to view how the strategy of an organisation is formulating and might change in the course of its future. For example, the Ansoff analysis of Virgin Cola shows that the brand has been launched in the UK and USA using a market penetration strategy, which essentially reflects that the brand needs to increase its brand recognition (Vignali, 2001). The SWOT analysis conducted by Vignali (2001) showed an opportunity that Virgin Cola could explore diversification into new ranges of Virgin Cola products. PESTEL analysis of Virgin Cola showed that there was need to constantly evaluate the soft drinks industry in all countries, in order to reflect customer trends, thereby allowing the brand to gain market share and also predict trends faster than the competition. Therefore, the steps to be taken while conducting a strategic analysis of an organisation include SWOT analysis, PESTEL and Ansoff matrix as fundamental models of analysis, which should be used in conjunction and not in isolation, to view the complete strategic scenario. Also, recommendations made on the basis on only one of the models are not concrete and lack in depth. The above is also supported by the example of M&S where the company was not able to keep up with the trends and suffered from decline in sales due to competitors like Next, which were relatively more aware of customer trends and needs. Marks and Spencer came up with the Per Una range of clothing in order to compete effectively and gained market share. M&S would not have been able to identify which strategy to opt for growth, if a PESTEL analysis was not conducted. While the role of analysis in making strategic choices cannot be undermined, it is imperative to note that judgement plays a crucial role in making critical strategic choices that may change the future of the firm (Macmillan et al, 2000). Lastly, the use of Ansoff matrix as a marketing tool may not be really useful as the matrix is critical for analysing the strategic path that the brand may be following, and does not essentially identify marketing options.
The business environment of the twenty first century is highly complicated. It is not easy to survive the intense competition and to survive it any company must have a source of sustainable competitive advantage. Now, competitive advantage can arise from multiple sources. It is not just technology or an excellent product or service that can be a source of competitive advantage. Excellent supply chain or human resources too can become a source of competitive advantage too. Michael E porter has outlined three generic strategies that can help a firm create a source of competitive advantage. They are cost leadership, differentiation and focus. The third one has been sub divided into two more categories – cost focus and differentiation focus. The industry is replete with such examples where firms have used one or more of these strategies for competitive advantage. Amazon is the largest online retailer and has found very sharp growth in the recent years. This article analyzes the generic strategy used by Amazon and the intensive strategies it has used to find growth in the market.
Generic Strategy: Amazon’s main generic strategy is that of differentiation. How it has differentiated its business models is with the use of technology and skilled human resources. It serves its customers through its website and apps. The online model does not require the use f physical retail space. The only space utilized is that for office work. Amazon has developed a lot from being a book seller to being the largest retailer online. Not just this Amazon used best in class
technology to serve its customers and enable its employees to perform. It has software and algorithms for various things including box sizing to delivery. It also has a rich history of developing and introducing cutting edge technology at its fulfillment centers that help its employees deliver efficiently. Apart from these things, another special feature about Amazon’s business model is its focus on customer service. This is not just a point of differentiation but one of the key competitive strengths of Amazon. It is known for its great quality of service. Its quality of customer service has turned it into the favorite of online shoppers. However, the large range of products that it sells also comprises a key competitive strength. In this way, Amazon has achieved a sustainable competitive advantage. While several competitors have entered the market place and tried to challenge its position using strategies like lower prices, Amazon has continued to rule. It introduced Amazon prime to help its customers get their products delivered faster. It continues to improve its level of customer service and that’s how it has retained its number one position in the online market place. Both excellent technology and customer service has helped it achieve faster growth. Overall, it has managed a seamless user experience for its online customers.
Intensive Strategies: The Ansoff matrix provides fourth growth strategies – market penetration, market development, product development and diversification. These strategies can be used by brands to grow their market share and find faster growth.
Market penetration: This is the strategy of selling more to a brand’s existing customer base. Amazon entered the market as a book seller and grew to become the largest retailer. As it set its foothold in the market as a known bookseller it introduced other products too which could be bought online. This is how Amazon has grow its market presence. Today, it sells millions of products and this product line continues to grow with more suppliers entering its system.
Market development: Market development means selling the same products or services to new customers or in new markets. Jeff Bezos had launched Amazon out of his garage. Today, Amazon has grown into a global company. While the North America and some European nations including Germany and UK are the main strongholds of Amazon, it has continued to grow its presence globally. In the recent years it has sharply increased its presence in the Asian countries by spending more on marketing and advertising. It continues to grow its presence globally. As the internet activity has continued to grow globally, so has done its market presence.
Product development: Amazon has also focused on product development to grow its market presence. Apart from kindle it also introduced the fire phone. However, while Kindle was a major hit, Fire could
not be very successful. In this way, Amazon has used product development to grow its market share.
Diversification: From being a book seller, Amazon has grown into a brand that offers a diverse array of products and services. Today, it competes with companies like Apple, Google and Netflix. It is not just an online retailer but also a provider of web services and streaming videos. Amazon web services or AWS is an on demand cloud platform that provides more than 90 services and is continually launching new features and functionality. Amazon prime provides streaming videos. In this way, Amazon has continued to diversify into new fields of business to grow its brand and market share. Sources: https://www.amazon.co.uk/p/feature/6emvp3z9gbuf6vz https://aws.amazon.com/ https://prezi.com/rcsx8igqnqza/amazon-ansoffs-matrix/ https://research-methodology.net/amazon-ansoff-matrix-2/
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