In order to adapt to a constantly evolving market, businesses must forge new growth strategies to survive. Yet how can you choose a strategy most likely to yield positive returns? One analytical tool to use is the Ansoff growth matrix. Here’s a closer look at the Ansoff matrix strategy for businesses.
What is Ansoff’s matrix?
The Ansoff matrix is a model used to identify revenue-producing opportunities for business. Sometimes called the product/market matrix, it’s designed to help companies plan new growth strategies. With a strong emphasis on growth, the Ansoff strategic opportunity matrix is one of marketing’s most popular models.
Using the grid below, companies can assess risk by looking at new markets in comparison to new products and services.
As you can see, there are four main growth strategies in the grid:
Market Penetration: increase sales of existing products to existing markets
Product Development: introduce new products to an existing market
Market Development: enter a new market with existing products
Diversification: enter a new market with new products
Different combinations of strategies involve varying levels of risk. Market penetration is considered the least risky, because you’re working with a known market and existing products. Diversification is the riskiest growth strategy in the grid, involving a leap into the unknown with new markets and new products.
Ansoff’s matrix was developed by a business manager and mathematician named H. Igor Ansoff in 1957, first published in the Harvard Business Review.
How to use the Ansoff growth matrix
To get started with using the matrix, you’ll need to think about the level of risk you’re comfortable with. Are you more interested in entering new markets, developing new products, or increasing your brand’s reach?
Here are a few strategies that come with each portion of the grid.
1. Market penetration
With the market penetration strategy, a company aims to increase market share by amplifying existing products in existing markets. A few tactics to use here could include:
Changing your store’s opening hours
Showcasing your product portfolio on social media
Running promotions to attract new customers
Reducing order processing times
All of these activities help keep existing customers interested while growing your client base within the existing market for growth.
One Ansoff matrix example would be an established global soda brand spending money on partnerships and promotions to grow its customer base in existing markets.
2. Market development
For this section of the Ansoff growth strategy matrix, think about whether your market research has uncovered demand for your existing products in new markets. Here are a few typical growth strategies:
Entering a new regional market
Entering a new international market
Expanding marketing to a new customer segment
This type of Ansoff matrix strategy is most successful for businesses that already have the right technology for expansion. They should also have assessed consumer behavior within the target markets to ensure existing products are a good fit.
A good Ansoff matrix example in this case would be a well-known sportswear company entering the Chinese market for the first time while offering the same products.
3. Product development
Is your company better off focusing on new product development for your existing market? Market research is again the key to uncovering whether your customer base needs new products. Think about new features, improvements in quality, and streamlined packaging. Here are a few additional strategies:
Forming partnerships with other companies to boost development
Develop new products with research and development
Make existing products eco-friendlier and more sustainable
An example of this type of growth strategy is a smartphone provider launching a new flagship version of their best-selling model every few years. The existing product is simply updated with new technology to drive growth.
Finally, diversification involves the highest level of risk in the Ansoff strategic opportunity matrix. Before you leap into this type of strategic planning, think about your business’s research, development, and technical expertise. You’ll need to use both market and product development skills, but this higher risk can lead to greater rewards because diversification opens up a new revenue stream.
Related diversification uses a strategy of creating new, but related products. For example, a knitwear company specializing in sweaters might start selling cashmere accessories for a different customer segment.
Unrelated diversification pivots completely from existing products and markets. If the same knitwear company decided to start selling cold-pressed juice, this would be much riskier as it’s a completely different product type.
Limitations of Ansoff Matrix
The primary advantage of this type of grid is that it gives businesses a useful structure for outlining growth options, in order of risk. However, there are also limitations of the Ansoff matrix. For example, once you’ve successfully entered multiple unrelated markets with new products, you’ve jumped past the boundaries of diversification and will need a new framework.
Additional marketing models to consider at this stage would include options like the BCG growth-share matrix to further sustain development.
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