Ansoff Matrix of CVS Health

Posted by Matthew Harvey on Sep-01-2020

1. Introduction

The Ansoff matrix is a strategic tool developed to facilitate and guide businesses in decision pertaining to business growth. The Ansoff matrix offers four strategic choices to businesses to choose from – market penetration, market development, product development and diversification. An organization or a business is to choose any of these four strategies, or a combination – deepening on various internal and external factors.

The external factors may include aspects of political stability and economy of a region, and internal factors may include aspects of talent management, and resource capacities. Based on an analysis of the internal and external factors, organizations decide different strategies for growth – which may be broadly defined under the Ansoff matrix.

Figure 1 Ansoff Matrix (Daft, 2016)

1.1. The CVS Health makes use of the Ansoff matrix for successful international growth

The CVS Health has been successful in its global operations and business based on its strategic growth choices and decisions. These growth decisions and growth paths have been varied for different regions, at different time points – based on the internal and external organizational factors. However, the CVS Health has successfully made use of the Ansoff matrix repeatedly to become one of the leading beverage giants internationally. Some of the strategies that CVS Health has successfully used under the Ansoff matrix and categories are detailed below.

2. Market penetration

The market penetration strategy is used by businesses that seek growth for existing products in markets where their brands are existing, and already operational.

2.1. Increase production capacity

  • Increased production capacity will allow CVS Health to reach more customers within the same market
  • Increased production capacity would also lead to more efficiency and effectiveness – especially for controlling overhead costs
  • Controlled overhead costs would lead to competitive pricing and would appeal to the consumers in the same market
  • Increased attractiveness and competitive pricing within the same market will lead to increased sales and consumption – and thus a higher market penetration

2.2. Increased marketing investment

  • The CVS Health can also increase its investment in marketing and advertising activities to increase market penetration
  • The CVS Health should try to develop and design engaging communication content that is relevant to its various market groups
  • Engaging communication and investment in marketing activities, and advertising will allow the CVS Health to reach more consumers within the same market
  • With higher marketing investment, the CVS Health will be able to increase its market penetration within the existing markets for existing products

2.3. Enhanced distribution

  • The CVS Health can explore new and innovative means of distribution
  • The CVS Health can also explore new channels of distribution for their products
  • New and enhanced distribution channels and strategies will allow the CVS Health to reach new consumer segments and consumer groups in the same market – which may have been inaccessible previously
  • Improved supply chains and distribution systems may lead to increased penetration within the same market by improving accessibility

2.4. Competitive pricing

  • The CVS Health may introduce competitive pricing and price cuts to increase the appeal of its products
  • Competitive pricing will be a source of competitive advantage for the company, and will lead to enhanced consumer engagement with the product
  • At the same time, competitive pricing will increase the sales for the CVS Health and lead to increased penetration

2.5. Reduce operational costs

  • The CVS Health can reduce operational costs to increase competitive pricing
  • Competitive pricing will help the CVS Health increase its sales volume and consumption
  • Lower operational costs will lead to less costs being passed on to the consumers, and will make the products offered by the CVS Health more desirable and affordable
  • Higher affordability and accessibility will help the CVS Health increase its market penetration

2.6. Acquiring competitors

  • The CVS Health can acquire competing players in the market
  • The acquisitions will give the CVS Health leverage in reaching different consumer groups and segments
  • The acquisitions will also allow the CVS Health to develop leverage through diversified supply chain and distribution channels
  • Acquisitions will lead to higher penetration through improving the CVS Health’s accessibility of different consumer groups and segments in existing markets

2.7. Partnerships and joint ventures

  • The CVS Health can also enter strategic p[partnerships and joint ventures with other players in the market
  • These can be players belonging to similar industry, or even different industries
  • Strategic partnerships and joint ventures will allow the CVS Health to gain access to different consumer groups, and their market behaviour and consumption patterns
  • Additionally, the CVS Health will be mitigating risk factors through limited investment – which in turn will safeguard it against potential losses
  • Joint ventures and partnerships can provide the CVS Health with guided means of increasing penetration in existing markets

2.8. New product benefits and features

  • The CVS Health can identify new features and characteristics in existing products for existing markets
  • This identification will lead to innovative and novice product consumption purposes and behaviour
  • Consumers should also be made aware of these new and innovative usage patterns and consumptions ways of the CVS Health products by the company
  • Increased marketing and communication of new product use and benefits, along with characteristics and features will lead to increased consumption in existing consumer groups and segments, as well as in new consumer segments and groups
  • This will facilitate the CVS Health in improving its overall market penetration in existing companies

2.9. Increased frequency of consumption

  • The CVS Health can also initiate communication and marketing aimed at increasing the frequency of consumption of the products in existing markets
  • Increased consumption frequency will lead to an overall increased consumption
  • The CVS Health will thus be able to increase the sales volume sold to existing consumers in existing markets
  • The company will be able to increase its market penetration through these means

3. Market development

With market development strategies, the CVS Health can enhance its business growth through introducing existing products in new markets. This will be possible for the CVS Health with different strategies.

3.1. Research and development

  • The CVS Health should invest in research and development to identify possible new markets and consumer segments for its products
  • The R&D should focus on identifying and understanding different market cultures, trends, and consumer behaviours - and how they differ dim consumer behaviour patterns in existing markets

3.2. Regional expansion

  • The CVS Health can expand regionally
  • This will include expansion locally to different cities, or within the same geographic region
  • Regional expansion should also take into consideration any cultural differences that will need to be accommodated in the expansion process in terms of marketing or product modifications and consumption methods.

3.3. International expansion

  • The CVS Health an also enjoy business growth through international expansion
  • International expansion will allow CVS Health to access different consumer groups, and increase its overall share of the pie
  • International expansion will require the CVS Health to conduct in-depth PESTLE, Porters 5 forces and SWOT analyses to develop a comparative strategy and overview for planned expansion
  • The company will also need to understand the possible cultural differences, and make accommodations to its expansion strategy accordingly. Cultural differences should be taken into account in the process of global expansion.

3.4. New customer segments

  • The CVS Health can also explore new consumer segments in the same market for its products
  • The company can identify new product uses and features and target new consumer segments for the existing products
  • This will allow the company to tap into new markets and new market trends within the same market to help in growth and expansion

3.5. Brand awareness

  • The CVS Health also invests in activities of building brand awareness
  • Building brand awareness is important to help the company reach new consumer segments, and increase visibility
  • Increased brand awareness for the CVS Health also leads to increased brand recall – which is important for purchase decisions
  • Consequently, building brand awareness is important for increasing sales, and driving growth in new markets

3.6. Customer education

  • The CVS Health should also educate consumers in new markets for its products
  • This market education is important for allowing consumers in understanding the products, and its offerings
  • The consumers will also be able to understand consumption patterns for the products better with education
  • The CVS Health increases sales through educating new consumer segments in existing and new markets to lead to overall business development and growth/

4. Product development

When a company seeks to expand business growth in existing markets through new products, it is termed as product development. The CVS Health drives product development in different ways.

4.1. Modifications to existing products

  • The CVS Health can introduce modifications and improvements in existing products to offer consumers new and enhanced offerings
  • This will lead to increased sales and consumption of the product

4.2. Launch new products

  • The CVS Health also often engages in R&D activities to understand and identify new points of consumer demand
  • The company then undergoes a NPD process, and develops and launches new products in the market for consumers
  • This increases the breadth of the company’s reach, and also allows CVS Health to penetrate new market segments

4.3. Research and development

  • CVS Health regularly invests in research and development – especially pertaining towards understanding market trends and consumer behaviour
  • Investment in R&D has allowed the CVS Health to remain competitive through innovation and creativity – in product launches as well as other functional areas such as marketing, operations and finances
  • Research and development has also built the CVS Health to become more efficient in its operations and routine activities.

4.4. Strategic partnerships

  • The CVS Health engages in strategic partnerships to explore options for product development as well
  • Strategic partnerships allows CVS Health to have access to new product developments, and processes with limited financial investment- and thus limited risk involved
  • This is important for CVS Health – to be able to understand the new product, and development process along with the market reaction and acceptability of the same before engaging in fill fledged production of own

4.5. Product quality

  • The company can also engage in new product development through introducing different quality products in the same market
  • This will allow the CVS Health to penetrate new market and consumer segments, as well as target new consumer groups

5. Diversification

Diversification refers to business growth and development that occurs when a company engages in new product development in new markets. Diversification is an important and allows businesses like the CVS Health to remain competent, innovative, and competitive – thereby remaining relevant for the consumer markets.

5.1. Vertical diversification

  • Vertical diversification for the CVS Health means looking for growth and business development by introducing new products under existing product lines.
  • This means that the new product developments and launches by the CVS Health would be similar to, and categorized under existing product groups and categories.

5.2. Horizontal diversification

  • Horizontal diversification occurs when the CVS Health decides to introduce and engage with new product developments and launches that are not associated with the existing products
  • It is however beneficial to introduce new products launches and developments for products that share similar economic environments with the visiting products.

5.3. Diversification towards a new business

  • The CVS Health can also diversify into becoming a conglomerate by engaging in a different business altogether
  • Diversification through a new business would involve the CVS Health to explore new business ideas and option to launch or acquire for purposes of growth and development

5.3.1. Mergers and acquisitions

  • One of the ways through which the CVS Health may explore conglomeratic growth of entering new businesses is through mergers and acquisitions
  • The CVS Health can partner with, or acquire companies and businesses that interest it in an effort to diversify into new markets and new consume groups with products and services that are completely new, and not related to existing offerings

6. References

Ansoff, H., 1957. Strategies for diversification. Harvard business review, 35(5), pp. 113-124.

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Daft, R., 2016. Contemporary Strategy Analyses. New York: John Wiley & Sons.

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Hill, C. & Jones, G., 2007. Strategic Management: An Integrated Approach. Boston: Cengage Learning.

Hrebiniak, L., 2005. Making strategy work. Philadelphia, PA: Wharton School Publishing.

Hussain, S., Khattak, J., Rizwan, A. & Latif, M., 2013. ANSOFF matrix, environment, and growth-an interactive triangle. Management and Administrative Sciences Review, 2(2), pp. 196-206.

Kipley, D. & Lewis, A., 2011. Strategic Management: Incorporating Ansoff. New York: Pearson.

Martinet, A., 2010. Strategic planning, strategic management, strategic foresight: The seminal work of H. Igor Ansoff. Technological Forecasting and Social Change, 77(9), pp. 1485-1487.

Moussetis, R., 2011. Ansoff revisited. Journal of Management History, Volume Jan.

Thompson, J. & Martin, F., 2010. Strategic Management: Awareness & Change. Hampshire: Cengage Learning EMEA.

Thomson, N., 2010. Basic Strategy in Context: European text and cases. Hoboken, NJ: John Wiley & Sons.

Witcher, B. J. & Chau, V. S., 2010. Strategic Management: Principles and Practice. Boston: Cengage Learning EMEA.

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