Ansoff’s matrix

It’s not a Lamborghini it’s a Volkswagen…

Published on: 04 Oct 2014

When it comes to cars, things used to be simple. Most brands were known for a certain type of car.

For example, Mercedes produced luxury limousine cars, Porsche produced sports cars, Toyota produced mid range cars and Land Rover made 4×4 off road cars.

But that was a while ago and things have changed dramatically within the car industry.

The famous Maserati sports car brand for example is working on the Maserati Kubang and as the photo shows it’s clearly not a low slung sports car.

It’s a 4×4 off-roader and whilst there’s a good chance that the only time it will actually go off road is when the owner parks on the pavement it’s definitely more 4×4 than sportscar.

So why the introduction of the new product? (For those of you studying the various strategy papers then why the product development in Ansoff’s Matrix?)

Well it seems that they are hoping to follow in the footsteps of Porsche whose off road Cayenne model has proved to be a best seller.

As well as introducing new types of cars the car industry has also seen a number of major conglomerates appear with some serious car brands within them.

When people used to talk about Volkswagen for example they were generally referring to the ubiquitous VW golf but the Volkswagen Group is now home to far more cars than VW cars.

The VW Group with its headquarters in Germany is the largest carmaker in Europe and nearly one in four new cars bought in Europe are VW Group cars.

So does this mean that 25% of the new cars have VW badges on them?

Far from it in fact as the following car brands are all part of the Volkswagen Group:

Audi, Bentley, Bugatti, Lamborghini, Scania, SEAT, Skoda and of course Volkswagen.

So all of the above car makes are in fact part of the VW group.

Now if you’re an executive working for the VW Group and were offered a company car which one would you choose.

Now let me think.

Bugatti or Lamborghini. Which one would I go for…

Was it a good bet or not? 10 years and £1.4 billion later and the answer seems to be…

Published on: 27 Oct 2010

Although people have been gambling for a long time, the profile of the betting industry has changed dramatically over recent years.

The bookmakers that were seen on many a high street seem to be gradually disappearing.

People are still gambling though but the delivery method of the industry is switching to internet based gambling rather than placing bets at a physical bookmakers.

Ten years ago former professional gambler Andrew Black and former JP Morgan trader Edward Wray started up a betting business that addressed matters in a new novel way.

For years the typical approach to gambling had been where a bookmaker set the odds and it was up to the individual gambler whether or not he or she accepted these odds and placed the bet.

Betfair pioneered the concept of person to person betting whereby individuals bet against each other rather than the bookmaker. Betfair provide the platform for the betting and take a commission on each transaction.

A gambler will say that they want to bet on a certain event happening (or not happening) and if another gambler wants to accept the bet then the transaction goes ahead. Betfair provide the mechanism for this to happen.

This is known as a betting exchange and is a great example of where first mover advantage really counts.

In order for the business model to work there has to be a critical mass of gamblers that are willing to offer and accept bets. Without this critical mass the business simply would not work.

Another example of where first mover advantage has been critical to business success is in online auctions. After all, who are the main competitors to eBay?

Back to Betfair though and it certainly is a good business model. Risk for example, is nicely reduced as the company is not standing to lose on the bet but instead takes a nice commission on each transaction.

So how well has it done over the last 10 years?

The answer to this can be found last Friday when 15% of the company was floated on the London stock market and the company was valued at £1.4bn.

Betfair’s advisors were some of the biggest names in the business and included Goldman Sachs, Morgan Stanley and Barclays Capital to name a few.

Amongst other things their job was to identify the price range of the proposed offer. Initial indications were that it would be between £11 to £14. The final initial public offering (IPO) price was set at £13.

With some of the top investment bankers involved and Betfair being in the gambling industry (which is not necessarily renowned for being generous to gamblers) it was something of a surprise to some people to see the share price rise by nearly 20% in the first day of initial trading after the IPO. After all, this could imply that the IPO was undervalued if there was such an initial jump in price.

I wonder what odds you would have got from Betfair that the IPO share price would rise by 20% on the first day of trading?

Marks & Spencer – the figures weren’t padded out but what about…

Published on: 08 Oct 2010

Marks & Spencer (M&S) are one of the best known retailers in the UK. First established back in 1884 they have been a mainstay of British fashion for as long as anyone can remember.

They have however had a turbulent journey over the last few years but yesterday they announced their results for the quarter ended 2 October and a number of things were quite impressive.

First of all, the ability to release their figures within 3 working days of the end of the quarter was in itself no mean feat.

The figures themselves were also very good with group sales up by 6.5% and all the major divisions showing impressive growth. So, how have they managed this? After all, although we’re coming to the end of the recession people are still being careful about money.

According to Marc Bolland, the Chief Executive of M&S, “Customers are returning to quality. In Food they are responding well to our better value and innovation, and in Clothing are increasingly choosing M&S’s great fashions and quality that lasts.”

They were also successful in introducing “innovative new products” (classic Ansoff’s Product Development). For example, they have just announced that they will be the first to launch men’s “enhancing underpants” on the UK high street.

On the ladies side of things the success of the “Wonderbra phenomenon” has been well documented since they were introduced in the 1990s but in the words of M&S the Bodymax enhancement pants for men have a number of advantages.

The “frontal enhancement pants” are “specifically designed to visibly enhance your shape” and the “bum lift pants” are said to “lift and shape your buttocks for a visibly sculpted look”.

Mr Bolland also said that there had been “a positive response to increased investment in marketing”. It will be interesting to see how they market the enhancement pants.

Now, you’re possibly thinking what sort of person would buy these enhancement pants? You may also be wondering how comfortable they are to wear.

In answer to this final point I’ll let you know as soon as my pair are delivered.

Is this your shopping list: bread, milk, eggs and Viagra?

Published on: 24 Sep 2010

Monday could be a big day for a lot of people.

Tesco, one of the leading UK supermarkets, will commence selling the erectile dysfunction drug Viagra.

Viagra has been a huge success for Pfizer. It’s one of their blockbuster drugs and millions of the little blue tablets have been sold over the last 10 years.

One of the drawbacks though for a lot of men that want the drug is where to get hold of it from. In the UK you generally need either a doctors prescription or to risk buying it from potentially suspect internet sites.

Tesco are one of the most successful supermarket chains in the world. In strategic Ansoff’s Matrix terminology they have done very well with market development (4,811 stores in 14 countries with an amazing 2,482 stores in the UK alone) together with product development (an estimated 40,000 product lines ranging from pizza to petrol to perfume).

Tesco are about to add another product line to their offerings and from next Monday shoppers will be able to pick up Viagra from over 300 Tesco stores.

As finance people we know all about the challenge of getting pricing decisions right.

Tesco are not the first mainstream chain of stores to stock Viagra. Last year, the high street chemist Boots became the first store in the UK to sell Viagra without a prescription. You can currently buy 4 of the blue pills from Boots for £55.

A price skimming or premium pricing strategy for Tesco wouldn’t really work as the Viagra market is a mature market. Tesco has instead undertaken a classic penetration pricing strategy whereby they price the product at an attractive price with the aim of growing its market share.

From Monday, you will be able to buy 8 of the blue pills at Tesco for £52.

Whilst the per tablet charge at Tesco is a lot lower than what can be found at Boots, £52 is still a significant amount of money. There’s a recession on and times are hard for a lot of people. Only time will tell whether Tesco made the correct pricing decision.

Baking a profit but is the future product or market (or both)?

Published on: 19 Mar 2010

In our last blog entry we discussed the impact of the “lipstick factor” on the performance of some cosmetic companies in the recession. Another company that has performed well in the current challenging business environment is Greggs bakery.

Those of you that are in the UK have probably heard of the Newcastle based bakery chain, Greggs. Despite there being a recession the chain has achieved impressive results. Yesterday they announced their results for the 53 weeks to 2 January 2010 with sales up 5% to £658 million and profits up 8% to nearly £50 million.

Greggs were reported as saying that their success was down to “great quality, great taste and great value” and it’s no doubt that customers wanting value in this recession have helped them achieve their impressive results.

Greggs would make a great case study for ACCA paper P3 and the papers in the enterprise pillar of the CIMA exams. For example, Ansoff’s Matrix (or the product-market mix as it is commonly known) could be discussed (click here for our ExPress notes on P3 which provide more details on Ansoff’s matrix).

Highlighting a couple of areas within the product – market mix we can see:

1.    Present product, present market.

Greggs is predominantly UK based but they also had operations in Belgium. In other words, they were selling their existing products in an existing market (Belgium). The options in Ansoff’s matrix for this area are withdrawal, consolidation and penetration. The operations in Belgium were loss making and the view was that this would not change in the foreseeable future so Greggs decided to withdraw from the Belgium market.

2.    New product, present market.

Greggs has said that they have removed all artificial colours and trans fats from their products. In other words they are introducing new healthier products in their existing markets. This is an example of product development.

3.    Present product, new market.

There are currently in excess of 1,400 Greggs stores in the UK. Greggs are planning on opening another 600 stores in the next few years. This is a classic case of market development where existing products are released in new markets.

Bakeries can very much be considered to be a traditional industry but if Greggs has anything to do with it then it will become a growth industry as well.

The ExP Group