Let's have a session on Ansoff's matrix. So in 1957, Igor Ansoff came up with this strategic direction model. And the idea is it shows the options that exist to a growing business of how it can compete with its rivals, with its competitors. And basically, it's two ways that you can compete with those rivals. You can strategically compete in terms of products and or strategically compete in terms of. markets, which are basically the axis for the model. So you've got markets on one axis and products on the other axis. Now they can be split into new and existing for each of these. So you've got new markets and existing markets, and the same with products, new products and existing products, which leaves us with four quadrants. These quadrants have names. So if you have the decision that you are strategically going to compete with your rivals by using your existing products and compete in existing markets, then this is known as market penetration. We'll get to that in a minute. Now, if you decide that you are going to compete on existing products, but you're going to enter new markets to compete with your rivals, then this is known as market development. Again, we'll get to that in a second. Now, if you are going to compete on new products, but in existing markets, this is called product development. And the most risky of all is diversification. When you decide to enter... new markets, and you decide to use new products in those new markets. That is diversification. And as I said before, that is the most risk, because the idea is, is as you move from existing to new, whether it's products or markets, you get increasing risk. And you can see here, increasing risk, and the most risk is diversification. Now, the medium risk comes in terms of product development and market development, and the least risk, the safest way that you could compete with your rivals. is through market penetration, because you basically stay in the same markets, looking at the same segments, and also you're keeping with those existing products that you have. Now let's look at each of these quadrants in more detail. So looking firstly at market penetration, so that's when you're looking at existing products and existing markets, that could be in terms of geography or segmentation. Well, clearly, as we said before, this is the least form of risk because the reason why it's the least form of risk is because you're not looking to move into new products. So there's no research and development needs to be done and you're not moving into new markets. There's no market research needs to be done. So essentially, you've just saved costs there. The whole point of market penetration or penetration is you're trying to drive up that market share. And you'll drive up that market share by selling more. Selling more because you might want to do sales promotions. It could be competitions or coupons or buy one, get one free. And it could be through advertising, but clearly advertising has costs there. And you might even use extension strategies to try and enable you to penetrate the market better. Now, the one issue potentially with market penetration is that if the market is saturated, there's lots of competition, there's not much chance for growth. You think about the product lifecycle, you're maybe in the maturity stage. Well, it might not be very rewarding in terms of extra profits if you continue with a strategy of market penetration. Other things to think about with market penetration is if you plan to divest or do any form of retrenchment, that is essentially doing market penetration in terms of your strategy to compete with rivals. The next quadrant to look at is product development. So product development is when you look to target existing markets, the same markets, but you now want to release new products into those existing markets. This is seen as having medium risk. Medium risk because... So you are, yes, you are targeting existing markets, so you don't have to do that additional market research, but you are releasing new products. New products need research and development. Research and development costs. Essentially, product development is selling new products to the same audience. So therefore, it might help or make sense to do it if you have initial brand loyalty, if you are a market leader or at least have a strong market share. Also, it might help if you've got high cash flow, because high cash flow could mean that you can finance this research and development. Beyond that, if you have a really efficient and effective research and development team, that might mean that you could do lean design. Essentially, you can get the product first to the market ahead of your rivals. Because if you can do that, then you can use price skimming, you can charge a higher price, higher price, higher margins. You get me. Good stuff. And on top of that, you could do extension strategies. Extension strategies. even more so than in market penetration where you might just be able to do a rebrand because now you could look to add new features add new updates we've seen the largest or one of the largest companies by market capitalization in the world worth 1.5 trillion right now which is not orange is another fruit well they essentially are doing all of this in terms of their product development when they're thinking about those rectangles that we all use now the last thing to think about is issues so you could argue that I said earlier on that it doesn't require market research, but maybe it does because maybe you need to do some form of market research to ensure that you are designing products that are meeting consumer needs. They're meeting the adapting, changing, and evolving trends that are always happening. So there might still be some market research there. Now let's move on to the next. This is when you use existing products, so your same products, but you look to target new markets. New markets, it could be in terms of lifestyle, in terms of income, in terms of demograph, or it could be, and it is more frequently in terms of geographical location, likely the fact that you will move internationally. Now, this is seen as having medium risk. Medium risk because in terms of products, it's the same products, so no need for research development, no costs there, but you need to do market research in terms of the fact that you are moving into a new market, you are looking to develop a new market. So market research does not guarantee sales. Market research does not guarantee sales. So it's always worth pointing that out. And therefore, there is some risk there in terms of those costs that you're going to have to absorb in the case of doing that market research. You also need to think about cultural issues, especially if you're moving internationally. And it might help if you have your core competency. of your business is the fact that it's your product and nothing else, because then you might be better positioned because you understand your product inside out. So you could understand how you could use that same product in that new market. You might want to use advertising to help you grow that new market, or you might want to use omni or multi-channel distributions. Probably you're going to be extending e-commerce because that's probably the most cost-effective way to penetrate a new market. Other things to think about is that you might want to think about the fact that when you move into an untapped market, why are you doing it? A good little feeder for an essay might be the fact that you're trying to overcome a domestic recession and you need to look to make sales elsewhere because consumers don't have the income in the particular market you are in. So you want to move to another market to find a more affluent market where consumers are willing to spend for your product. Now, let's move on to Zenex. The last quadrant to look at is diversification. diversification is the most risk of all it's when you as a business look to move into new markets and also release new products new markets new products so therefore new markets means you need to do market research. And you may not have any experience in that particular market. Alongside that, you need to do research development into a new product for which you may not have any experience in that. Both of those mean high costs, the highest costs. So therefore, it leads to the most risk. The most risk, and you can see with the increasing risk on the Ansoff's matrix over there. Now, other things to think about is usually when we talk about diversification, we might think of it... as a distressed business or a business that needs to change its strategy because it needs to try and increase its profits or its sales. It might make sense if the market the business operates in has become saturated and alongside that, the product that they sell, maybe they have a small or narrow range. And also that product itself is in the decline stage of the product lifecycle. But there are examples on the other side. We look at Amazon. Amazon is an example of a business that has diversified because it just wants to grow. It wants to grow, to continue to please its shareholders and the enormous market capitalization that it's developing. And also there, it's used the fact that it has a massive brand image. It uses synergies, and we can see that with AWS. So we had Amazon Retail Marketplace, the Amazon that we all know, but then Amazon now has moved into cloud computing, a completely different product, a completely different market, and now AWS is seen as the most exciting part of the Amazon product range. And that's completely due to diversification, which shows that despite the fact that it incurs huge risk it can bring with it enormous rewards. And we're seeing right there on Amazon that AWS by the mid-2020s could be worth more than the rest of Amazon itself. Great application for exams. And I'll see you at the next sesh.