Ansoff Matrix

H.Igor Ansoff created the Ansoff Matrix, which was initially published in 1957 in the Harvard Business Review article “Strategies for Diversification.” It has provided a quick and easy approach for generations of marketers and business leaders to think about the risks of growth.

How does the Ansoff Matrix work?

The Matrix (see figure), also known as the Corporate Ansoff Matrix and the Product/Market Expansion Grid, depicts four strategies for expanding your business. It also assists you in determining the dangers associated with each. The concept is that risk grows as you travel into a new quadrant (horizontally or vertically).

Fig: The Ansoff Matrix’s Four Quadrants

Let’s take a closer look at each Matrix quadrant.

1. Market Penetration (lower left quadrant)

This is the most secure of the four choices. You concentrate on increasing sales of your existing product in your existing market since you know it works and there are few surprises in the market.

The firm uses its products in the existing market as part of a market penetration plan. In other words, a market penetration strategy aims to expand a company’s market share.

There are several approaches to carrying out the market penetration strategy:

• Price reductions to attract new customers
• Acquiring a competitor in the same industry
• Increasing attempts to promote and distribute

Telecommunication businesses, for example, serve the same industry and use a market penetration strategy to increase their promotion and distribution efforts while offering introductory discounts.

2.Market Development (upper left quadrant)

You’re introducing an existing product to an entirely new market. You can accomplish this by giving the product a new purpose or introducing new features or benefits.

In a market development plan, the company uses its existing product to penetrate new market (s). Growing into new markets in this context could entail expanding into new geographic regions, client categories, etc. The market development strategy is most successful if:

1. The company has proprietary technology that it can leverage into new markets
2. Potential new market consumers are profitable (i.e., they have disposable income)
3. Consumer behaviour in new markets is similar to that of existing markets.

One of the following ways could be used in the market development strategy:

• A separate customer category is catered to
• Introducing yourself to a new domestic market (expanding regionally)
• Developing a foreign market (expanding internationally)

3. Product Development (lower right quadrant)

This area is slightly riskier because you’re introducing a new product into an existing market.

A product development plan is when a company creates a new product to meet the needs of an existing market. The move usually entails a lot of research and development as well as expanding the company’s product line. When companies have a deep awareness of their present market and can produce innovative solutions to suit those needs, they use the product development strategy.

This method, too, can be carried out in a variety of ways:

• Investing in R&D to create new products to meet the needs of the current market
• Acquiring a competitor’s product and combining resources to create a new product that better satisfies the market’s needs
• forming strategic alliances with other companies to obtain access to their distribution networks or brands

4.Diversification (upper right quadrant)

As you’re releasing a new, unproven product into a whole new market that you may not fully comprehend, this is the riskiest of the four possibilities.

The company introduces a new product into a new market in a diversification plan. Although this method is the riskiest because it requires both market and product development, the risk can be minimised to some extent by diversification. Additionally, the diversification strategy may have the greatest potential for increasing revenues because it opens up an altogether new revenue stream for the organisation – it allows the company to access consumer spending dollars in a market to which it previously had no access.

A company can use one of two types of diversification:

1. Related diversification: There are synergies between the present business and the new product/market that can be realised.

2. Diversification unrelated to the existing business: There are no possible synergies between the existing and new businesses.

Conclusion

The Ansoff Matrix, also known as the Product/Market Expansion Grid, is a tool that companies use to evaluate and plan their expansion strategy. The matrix depicts four techniques for assisting a company’s growth and the risks connected with each strategy.