Ansoff Matrix - Boosting your Startup, and Case-Study of Lenskart
A Business Tool to give wings to your Startup/Business
If you are looking for ways to strengthen your venture, be it a startup or an established business, then this is the perfect blog for you. In this blog, we will be exploring Ansoff Matrix. We will learn “What it is?” and “How to employ it in a business setting?”. Furthermore, we will go through the case-study of Lenskart, and how, by employing the principles of Ansoff Matrix, it has established itself as a monopoly in the eye-wear segment, in just over a course of 10+ years. Without any further ado, let’s dive in!
Ansoff Matrix
Ansoff Matrix is a business tool employed by organizations to analyze and plan their strategies for growth. The matrix demonstrates 4 strategies that can be employed to nurture a budding venture, and also analyzes the risk associated with each strategy. Let’s go over each of the strategies one-by-one, and comprehend the associated risks and returns with each of these strategies.
Ansoff Matrix is also referred to as the Product/Market Expansion Grid. It is named after Russian American Igor Ansoff, an applied mathematician and business manager, who created the concept.
Market Penetration
Represented by the first quadrant in the Ansoff Matrix, this strategy revolves around increasing the market share in the existing market with the existing products/services. It is one of the best strategies that can be adopted by startups, since it involves the least risk from a business perspective. Some of the ways in which firms can employ this strategy are:
- Cutting-down prices to attract customers
- Offering loyalty schemes to customers
- Increasing promotion and distribution efforts
- Taking over an existing competitor with a considerable market share (this option might only be applicable to firms who are well-established in other segments, and are trying to establish their presence in a new segment).
There’s not a clear answer as to which is the next best possible strategy. A group of members advocate for market development whereas another group of members advocate for product development. Both of the strategies involve a risk factor, since both of them involves an unpredictable element. So, it all comes down to the business itself.
Market Development
Represented by the second quadrant in the Ansoff Matrix, this strategy requires the organizations to push existing products/services in new markets. This strategy is more suited as the 2nd step, compared to the product development, if the cost of market expansion is comparatively less than that of research & innovation. Additionally, if the newer segments of market comprise of potential customers, then too, opting-in for market development could be a viable 2nd step. However, it involves a greater risk factor than market penetration, since the markets are unknown, and hence, the risks are also unknown. Some of the ways in which firms can employ this strategy are:
- Entering into a new domestic market, i.e., expanding regionally
- Entering into a new foreign market, i.e., expanding internationally
- Franchising the products/services to local experts, thereby, reducing the risks
Product Development
Represented by the third quadrant in the Ansoff Matrix, it involves organizations selling new products/services to existing customers. This can be particularly helpful, if your venture has a strong understanding of the current market and is able to provide innovative solutions to meet the needs of the existing market. Needless to repeat, just like the market development, it also involves a greater risk factor as compared to market penetration, and this greater risk factor can be attributed to the cost of research and innovation. Some of the ways in which firms can employ this strategy are:
- Investing in Research & Development to bring about novel products/services
- Acquiring a competitor’s product/service and merging resources to create innovative products (a great example of this can be Toyota Glanza and Nexa Baleno)
- Forming strategic partnerships with other ventures operating in the domain
Diversification
Represented by the fourth quadrant in the Ansoff Matrix, in involves selling new products/services in new markets. It may lead to huge gains, in terms of both monetary gains and customer loyalty, since in involves exploiting an untapped market with new products/services. However, with greater rewards come greater risks. This strategy combines the risks of both, Market Development and Product Development, since the market risks are unknown, and the products/services offered are also new. Some of the ways in which firms can employ this strategy are:
- Seeking investors, which will allow you the access to their experience, as well as an exceedingly powerful network
- Investing in R&D as well as fueling market expansion
So, these are the four different strategies, as proposed in the Ansoff Matrix, which can provide you and your startup/business with a clear roadmap to decide your next course of actions. Now, let’s move on to the case-study of Lenskart, and understand how the founders of Lenskart have employed these 4 strategies.
If you would like to read further about the Ansoff Matrix, then I have attached some great resources towards the end of this blog for you. Do check them out!
Case-Study of Lenskart
Before we commence with the case-study, let’s quickly go over a short introduction to Lenskart. Founded by Peyush Bansal, a former Microsoft employee, along with Amit Chaudhary and Sumeet Kapahi in 2010, it is an Indian optical prescription eyewear retail chain. The company had a valuation of $1 billion by December 2019 after Softbank invested around $2 million. Lenskart is one of the fastest growing retail businesses with 500+ profitable stores across 120+ cities and 50 Lac happy customers across India.
Phase 1 | Market Penetration
Prior to 2010, buying spectacles (“specs” for short) was a cumbersome process. One first had to go to an optician, get his eyesight checked out, choose the glasses (frames and lenses), and then wait for 6–7 days to get the specs. Additionally, back then, the major proportion of population was used to buying non-branded specs, with no guarantee or warranty, primarily because the branded specs like Titan Wear costed around INR 1500+, a price-point which made them pretty unaffordable. Now, most of you would be assuming that the reason behind this hefty price range might be due to the production cost, marketing cost, etc. But the fact is that all the costs combined only accounted for 25–35% of the selling price. The actual reason behind this hefty price range was the absolute necessity of the product, i.e., the specs themselves. It doesn’t matter whether a person is a cab driver, or a student, corrective lenses were an absolute necessity to each and every one of them, and hence, ventures in the eyewear segment dominated this necessity to make themselves huge monetary profits.
This is where Lenskart spotted the opportunity to penetrate the market. It started manufacturing specs with a much lesser price tag of as low as INR 250+, that too with 1 year warranty on frames/lenses, 14-days return policy, and many other lucrative schemes. Furthermore, before 2010 specs were viewed as a medical aid, and as you must have guessed by now, Lenskart turned this stereotype upside down, by presenting specs as a fashion apparel instead of a medical aid. This is how Lenskart was able to establish it’s presence in the market, despite of big mammoths like Titan and Warby Parker already present in the eyewear segment.
Phase 2 | Product Development
In order to strengthen their presence, Lenskart quickly moved to the second phase. In order to beat the local brands, Lenskart offered thousands of designs, as opposed to only a few hundred of designs provided by the local brands. Unlike the local brands which had a small error margin, Lenskart offered their specs with a 0% error margin with the help of their technically-equipped manufacturing units. Lenskart started by selling contact lenses and eyeglasses only, but it very soon started selling apparels like reading glasses, computer glasses, sunglasses, smartphone glasses, etc.
Additionally, the founders of Lenskart identified a key obstruction to their success, which was the fact that accessibility and affordability to opticians was scarce, and even if someone could reach out to an optician, the job of collecting the eyesight scores from the optician, then entering them into the Lenskart app/website, and ordering the specs was a tedious process, which deviated a large proportion of their probable customers to local brands offered by the opticians themselves. In order to remove this obstruction, Lenskart made some strategic investments in state-of-the-art technology, using which they could afford to send their own eyewear specialist to visit the customer’s house along with 100+ best-selling frames for the customer to choose from, thereby, completely eliminating the possibility of the customer leaving the house. This is how by carefully investing in the product development, Lenskart was able to increase its customer base.
Phase 3 | Market Development
In 2014, Lenskart expanded its focus to include the third phase, with an astounding move, i.e., they started opening up walk-in stores across the country. This was primarily motivated by the fact that back in 2014, a majority of the Indian eyewear segment was filled with customers which had no way of online access. Thus, their offline stores served as a platform to attract those customers, which in-turn acted as mediators who could put online orders for their customers, and since the name of Lenskart was pretty well known by then, these offline stores enjoyed the brand recognition of Lenskart over their unbranded alternatives. Another huge advantage enjoyed by the Lenskart walk-in stores as compared to other walk-in stores was the liberty from dead inventory. Since a Lenskart walk-in store was simply a front for people to come and try out various frame designs and the orders were actually completed by its robust e-commerce supply chain, hence, a Lenskart walk-in store didn’t have to maintain any inventory. Moreover, it meant that a Lenskart walk-in store could display thousands of frame designs, as compared to only a few hundreds of designs by local brands.
Lenskart further fueled its offline expansion by offering high commissions of up-to 25–30% to its franchise owners, which was possible because of the exceptionally huge margins enjoyed by Lenskart, by virtue of its superior manufacturing technologies and robust e-commerce supply chain. This is how by strategically planning its way around market development, Lenskart became even a bigger sensation in the eyewear segment.
Phase 4 | Diversification
After becoming a dominating player in the segment, Lenskart started with the fourth phase. It entered into the premium eyewear space with John Jacobs with a range of INR 3000+ and into the semi-premium eyewear space with Vincent Chase with a range of INR 1000–1500. Furthermore, Lenskart also picked up a minority stake in the US-based 3D face modelling startup, Ditto (now luna) for $1 million. Ditto provides 3D face modelling for virtual trial service to eyewear retailers to improve their customer experience, and Lenskart has been one of Ditto’s customers since 2016, using its technology on both of its user facing platforms, app and website. These are only some of the diversification strategies that Lenskart adopted to foster and nurture its sales. Let’s see what Lenskart and its team have in store for us next.
Conclusion 👋
That’s it for today guys. This is my first piece of non-technical content, though I won’t be wrong to admit that technology is one of the key factors behind the enormous success of Lenskart. For those of you who are interested in reading more about Lenskart, I have attached some great references for you towards the end of this blog, so do check them out! Lastly, I would like to point out that the statistics presented in this blog are borrowed from multiple references, and hence, some of them may not be true as of today, but even today, no one can deny the success of Lenskart in the eyewear segment.
I really hope that you liked this blog, and if you did, do put your hands together 👏 and if you would like to read more blogs, then #StayTuned. Connect with me on LinkedIn and Twitter.
