My favorite definition is:
“The Ansoff growth matrix assists organizations to map strategic product market growth”
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.
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.
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.
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.
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.
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.