Ansoff matrix was invented by Russian-American mathematician Igor Ansoff in 1957 and is used to develop strategic options for businesses. It is one of the most commonly used tools for this type of analysis due to its simplicity and ease of use.

The ANSOFF Matrix Strategy is a diagram template for business growth concepts. ANSOFF is a product-market growth framework that assists with the development of strategic plans. This approach describes 4 alternatives for organizational growth in existing or new markets. The PowerPoint templates of ANSOFF growth matrix are helpful for strategic planning presentations of growth.

 

A business can grow in terms of employees, customer base, international coverage, profits, but growth is most often determined in terms of revenues. There are different ways of growing a business. Igor Ansoff identified four strategies for growth and summarized them in the so called Ansoff Matrix. The Ansoff Matrix (also known as the Product/Market Expansion Grid) allows managers to quickly summarize these potential growth strategies and compare them to the risk associated with each one. The idea is that each time you move into a new quadrant (horizontally or vertically), risk increases. 

 

The 4 quadrants that go through your product or service

1. Market penetration – bottom left
2. Product development – bottom right
3. Market development – top left
4. Diversification – top right

Some business success stories happen overnight. More often, a company that seemingly comes “out of the blue” to disrupt a product space or industry has strategized their way to the top, using tools to establish their market penetration strategy. Of course, growth always comes with risk, and any decision that has a long-term impact on an organization requires a thorough evaluation of both what’s possible—and what’s at stake.

For any company looking to move beyond “business as usual,” the Ansoff matrix is an invaluable tool to help analyze and manage risk and strategize growth opportunities. Here’s a deep-dive into what this effective strategic tool can do for your business.

 

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has helped many marketers and executives better understand the risks inherent in growing their business.

 The four strategies of the Ansoff Matrix are:

1. Market Penetration: This focuses on increasing sales of existing products to an existing market.
2. Product Development: Focuses on introducing new products to an existing market.
3. Market Development: This strategy focuses on entering a new market using existing products.
4. Diversification: Focuses on entering a new market with the introduction of new products.

 

Of the four strategies, market penetration is the least risky, while diversification is the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing market. In other words, a firm is aiming to increase its market share with a market penetration strategy.

The market penetration strategy can be executed in a number of ways:

1. Decreasing prices to attract new customers
2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

 For example, telecommunication companies all cater to the same market and employ a market penetration strategy by offering introductory prices and increasing their promotion and distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the existing market. The move typically involves extensive research and development and expansion of the company’s product range. The product development strategy is employed when firms have a strong understanding of their current market and are able to provide innovative solutions to meet the needs of the existing market.

This strategy, too, may be implemented in a number of ways:

1. Investing in R&Dto develop new products to cater to the existing market
2. Acquiring a competitor’s product and merging resources to create a new product that better meets the need of the existing market
3. Forming strategic partnerships with other firms to gain access to each partner’s distribution channels or brand

 

For example, automotive companies are creating electric cars to meet the changing needs of their existing market. Current market consumers in the automobile market are becoming more environmentally conscious.

 

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with its existing product(s). In this context, expanding into new markets may mean expanding into new geographic regions, customer segments, etc. The market development strategy is most successful if (1) the firm owns proprietary technology that it can leverage into new markets, (2) potential consumers in the new market are profitable (i.e., they possess disposable income), and (3) consumer behavior in the new markets does not deviate too far from that of consumers in the existing markets.

The market development strategy may involve one of the following approaches:

1. Catering to a different customer segment
2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)

For example, sporting goods companies such as Nike and Adidas recently entered the Chinese market for expansion. The two firms are offering roughly the same products to a new demographic.

 

The Ansoff Matrix: Diversification

In a diversification strategy, the firm enters a new market with a new product. Although such a strategy is the riskiest, as both market and product development are required, the risk can be mitigated somewhat through related diversification. Also, the diversification strategy may offer the greatest potential for increased revenues, as it opens up an entirely new revenue stream for the company – accesses consumer spending dollars in a market that the company did not previously have any access to.

There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy.

2. Unrelated diversification: There are no potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated diversification strategy.

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets. The output from the Ansoff product/market matrix is a series of suggested growth strategies which set the direction for the business strategy. These are described below:

Market penetration

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling
• Secure dominance of growth markets
• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
• Increase usage by existing customers – for example by introducing loyalty schemes

A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.

For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.