Igor Ansoff was a famous mathematician, theorist, and an amazing manager - strategist of companies and institutions from all across the United States.
Many of his tactics are considered valid by this site and are used as investing tactics along with value investing ideas from Warren Buffet and other famous value investors.
Igor Ansoff has made many theories on how businesses and institutions should be run, but one of the most famous theories he invented for the GROWTH of businesses is the product market growth matrix which will be used and talked about on this site for investing advice.
The product market growth matrix consists of 4 possible ways that a company can grow.
If you think about it this theory is more than likely true because every product or service that is out there appeals to a certain market of people that want to buy it depending on the situation.
There are 4 ways that a company can grow the first of which is the least risky but also has the least chance of making a lot of money and the last of which on the list bellow is the riskiest but has the highest chance of making a large gain by a company or institution.
Market Penetration - The first way a company can grow is penetrate existing markets with existing products; this is generally done by taking a market share away from your competition for reasons such as "lower prices".
Wal-Mart would be a good example of how successful market penetration can be.
Wal-Mart, when they added a grocery store onto their store they are penetrating the grocery market and taking a market share away from grocery companies by advertising lower prices.
Remember market penetration is a means of gaining money from current markets with current products being sold already.
The next way a company can grow is through product development - which is new products to existing markets.
This means that when a fast food company for instance makes a new Sandwich to sell people they are trying to use product development to grow.
They are pleasing the same market only this time they have a new sandwich that the people can try i.
e.
a new product.
Product development is not only important in keeping customers happy but it also has a tendency to make current customers spend more money within a company they are used to doing business with.
The next way companies can grow is through market development - which is trying to sell existing products to new markets.
This forum of growth can be very effective and is many times achieved through clever advertising.
A good example of market development would be a clothing company that was originally meant to appeal to rich people, but later on that company advertised their products in such a way that appealed to poor and middle class people as well.
They might come out with an advertisement like "No Matter what your situation in life, you just can't go without such and such a brand of clothing.
" What they are trying to do is spread their current products to new markets that at one time didn't work because it wasn't appealing to them.
There are many other examples of how companies have used this tactic in marketing and growth.
The final way that a company can grow is Diversification which is trying to sell new products to new markets.
Diversification is the riskiest form of growth but also it has the greatest chance of success of gaining a market share if it works.
If My Satellite Company sells Satellite TV signals but then all of a sudden thinks that it can make more money developing a brand of actual TV'S themselves, then that would be a sign of the company trying to grow using diversification.
My company is now taking on a totally new market and a new product that they are trying to sell and compete with.
Many times companies use a combination of these stated four tactics to try and grow.
For instance My Satellite Company is now producing their own brand of TV'S using diversification; the intent is that they will use market penetration with cheaper prices on TV'S to gain a market share away from our competition coupled with the intention of having TV'S that are unique or better in some way so we can use product development to make our market share grow in the markets we have diversified too.
It's important as an investor to note what tactics the companies you invest in for the long term are using as a growth plan.
It's also important to be able to understand why or how the company is being successful in gaining its fair share of any market that is out there in the U.
S.
Use Igor Ansoff(s) teachings well and make sure you consider this matrix when you are thinking about making your next long term value investment.
Ask yourself when trying to find good stocks, how does the company I am investing in have an advantage in one or more of these areas?