What is the Ansoff Matrix?
My favorite definition is:
"The Ansoff growth matrix assists organizations to map strategic product market growth"
Sample diagram
About the Ansoff Matrix
The Ansoff Matrix also known as the Ansoff product and market growth
matrix is a marketing planning tool which usually aids a business in
determining its product and market growth. This is usually determined by
focusing on whether the products are new or existing and whether the
market is new or existing.
The model was invented by H. Igor Ansoff. Ansoff was primarily
a mathematician with an expert insight into business management. It is
believed that the concept of strategic management is widely attributed
to the great man.
The Ansoff Matrix has four alternatives of marketing strategies; Market
Penetration, product development, market development and
diversification.
Market Penetration
When we look at market penetration, it usually covers products that are
existence and that are also existent in an existing market. In this
strategy, there can be further exploitation of the products without
necessarily changing the product or the outlook of the product. This
will be possible through the use of promotional methods, putting various
pricing policies that may attract more clientele, or one can make the
distribution more extensive.
In Market Penetration, the risk involved in its marketing strategies is
usually the least since the products are already familiar to the
consumers and so is the established market. Another way in which market
penetration can be increased is by coming up with various initiatives
that will encourage increased usage of the product. A good example is
the usage of toothpaste. Research has shown that the toothbrush head
influences the amount of toothpaste that one will use. Thus if the head
of the toothbrush is bigger it will mean that more toothpaste will be
used thus promoting the usage of the toothpaste and eventually leading
to more purchase of the toothpaste.
Product Development
In product development growth strategy, new products are introduced into
existing markets. Product development can differ from the introduction
of a new product in an existing market or it can involve the
modification of an existing product. By modifying the product one would
probably change its outlook or presentation, increase the products
performance or quality. By doing so, it can appeal more to the already
existing market. A good example is car manufacturers who offer a range
of car parts so as to target the car owners in purchasing a replica of
the models, clothing and pens.
Market Development
The third marketing strategy is Market Development. It may also be known
as Market Extension. In this strategy, the business sells its existing
products to new markets. This can be made possible through further
market segmentation to aid in identifying a new clientele base. This
strategy assumes that the existing markets have been fully exploited
thus the need to venture into new markets. There are various approaches
to this strategy, which include: New geographical markets, new
distribution channels, new product packaging, and different pricing
policies. In New geographical markets, the business can expound by
exporting their products to other new countries. It would also mean
setting up other branches of the business in other areas that the
business had not ventured yet. Various businesses have adopted the
franchise method as a way of setting up other branches in new markets.
A good example is Guinness. This beer had originally been made to be
sold in countries that have a colder climate, but now it is also being
sold in African countries. The other method is via new distribution
channels. This would entail selling the products via e-commerce or mail
order. Selling through e-commerce will capture a larger clientele base
since we are in a digital era where most people access the internet
often. In New Product packaging, it means repacking the product in
another method or dimension. That way it may attract a different
customer base. In Different pricing policies, the business could change
its prices so as to attract a different customer base or so create a new
market segment. Market Development is a far much risky strategy as
compared to Market Penetration. This is so as it is targeting a new
market and one may not quit tell how the out come may be.
Diversification
The last strategy is Diversification. This growth strategy involves an
organization marketing or selling new products to new markets at the
same time. It is the most risky strategy among the others as it involves
two unknowns, new products being created and the business does not know
the development problems that may occur in the process. There is also
the fact that there is a new market being targeted, which will bring the
problem of having unknown characteristics. For a business to take a step
into diversification, they need to have their facts right regarding what
it expects to gain from the strategy and have a clear assessment of the
risks involved.
There are two types of diversification. There is related diversification
and unrelated diversification. In related diversification, this means
that the business remains in the same industry in which it is familiar
with. For example, a cake manufacturer diversifies into a fresh juice
manufacturer. This diversification is in the same industry which is the
food industry. In unrelated diversification, there are usually no
previous industry relations or market experiences. One can diversify
from a food industry to a mechanical industry for instance.
A good example of the unrelated diversification is Richard Branson. He
took advantage of the virgin brand and diversified into various fields
such as entertainment, air and rail travel foods etc. Another example is
the easy jet which has diversified into car rentals, gyms, fast foods
and hotels. Though diversification may be risky, with an equal balance
between risk and reward, then the strategy can be highly rewarding.
Another advantage of diversification is that in case one business
suffers from adverse circumstances the other line of businesses may not
be affected.
Analysis Paralysis
Some schools of thought believe that the use of strategic management
tools such as the Ansoff Matrix can result in an overuse of analysis. In
fact, Ansoff himself thought about this and it was he who first
mentioned the now famous phrase "paralysis by analysis". Make sure that
you do not fall victim to procrastination caused by excessive planning.