Ansoff Matrix

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The Ansoff Matrix was first presented in 1957 by Igor Ansoff in an article for the Harvard Business Review. It was presented as a strategic planning tool to help business leaders identify growth strategies by focusing on product and market options. The matrix is broken into quadrants that aid small business owners and entrepreneurs evaluate potential growth strategies to assess risk, market conditions, and resource capabilities. This style of thinking can lead to more informed decisions about where to allocate resources to maximize growth and profitability.

The Ansoff Matrix is commonly used in conjunction with other strategic tools including SWOT analysis, PESTEL analysis, and Porter’s Five Forces framework.

Market Penetration

This strategy consists of increasing sales of existing products in existing markets. By focusing on existing products and markets, companies can avoid the risks associated with developing new products or attempting to enter new markets where their product may not be well received. As a result, this is the least risky of the four growth strategies identified by the Ansoff matrix.

Successfully executing a market penetration strategy means increasing market share. Some ways to do this include:

  • Improve product quality to distinguish your brand from competitors.

  • Offer more competitive pricing to generate more sales. Be sure to understand the sales volume increase required to offset the drop in pricing so you can monitor the results and make corrective actions if necessary.

  • Build stronger customer relationships by offering loyalty programs, consistently engaging with customers, and delivering phenomenal customer experiences.

  • Increase brand visibility through investments in marketing and advertising to expand reach and awareness in the current markets

  • Establish strategic partnerships with other companies that serve the same markets with complementary products or services

Market Development

The market development strategy involves increasing sales of existing products in new markets. Getting new markets to adopt an existing product or service requires time and investment in market research, marketing, and strategic planning. As a result, this strategy is usually more risky than market penetration but still less risky than developing new products. New markets could include customers in new geographies, demographic segments, or industries.

Some strategies for successfully developing new markets include:

  • Conduct market research to understand the new target market. Research the competitive landscape, consumer preferences, legal requirements, and other potential barriers to entry.

  • Identify customer segments in the new markets that appear highly receptive to the products and services to be introduced; customize the offerings to target these segments specifically.

  • Establish strategic partnerships with local businesses that may be able to offer valuable insights and access to their customer base.

  • Utilize e-commerce and digital applications to expand into new markets at a lower cost than establishing a physical presence.

Product Development

The third quadrant is Product Development. This strategy focuses on creating new products or services to sell in existing markets. Developing new products requires research, innovation, testing, marketing, and other expenses. The high costs and the potential for customers not responding to the new product make this strategy more risky than the market penetration and market development strategies.

Small business owners can take the following steps to give their company the best chance at successful new product development:

  • Utilize market research, customer feedback, and market testing and take a customer-centric approach, ensuring the product meets current customer needs and preferences.

  • Include members from various departments in product development to incorporate different expertise and perspectives in the development process.

  • Conduct a competitive analysis to see if other companies have a product or service designed to fill similar customer needs - learn from what they’ve done and improve on it.

  • Develop a cohesive launch strategy that includes targeted marketing campaigns, promotional events, strategic partnerships, and incentives for early adopters.

  • Deliver outstanding customer service post-launch.

Diversification

Diversification is the riskiest of the four strategies identified and involves developing a new product or service and introducing it to new markets. The uncertainty and significant investments associated with successfully developing, launching, and scaling a new product in unexplored markets compound the risks associated with product development and market development into one strategy.

There are two approaches to diversification and each can reward companies with significant growth beyond the other strategies in the matrix. Related diversification is introducing new products related to existing products while unrelated diversification involves new products unrelated to existing offerings. Examples are below:

Related Diversification:

A bike shop owner currently sells and repairs bicycles. In an effort to grow, the owner expands their product offerings to include other outdoor sports equipment. This strategy introduces new products and targets outdoor sports enthusiasts (new market) in addition to cyclists.

Unrelated Diversification:

The owner of a flower shop wants to expand the business, but can’t find good opportunities in the floral industry. After some research, the owner opens a vintage clothing store next to the existing flower shop to spur growth. The vintage clothing is unrelated to the flower shop and may need to attract a different demographic than the flower shop. There is minimal overlap between the businesses and the owner would need to learn an entirely new industry.

Keys to successfully executing a diversification strategy include:

  • Have a detailed strategic plan complete with market research, an operating plan, and a financial plan. The strategic plan should align with the company’s overall strategy, even if unrelated diversification is the chosen path.

  • Utilize the Strategy Choice Cascade framework to identify the capabilities and management systems required to make the diversification strategy a success.

  • Leverage existing capabilities including brand reputation, existing expertise and skills, relationships with industry partners.

  • Utilize a phased approach incorporating several iterations of product testing, market feedback, and improvements.

  • Understand the risks associated with a diversification strategy and have contingency plans in place to mitigate the impact of roadblocks and hurdles.

If your business is struggling to identify growth strategies, our team can help. Schedule a discovery session today to understand how our affordable expertise can assist your business. Whether you have the occasional question or require more comprehensive guidance, we offer a range of options to meet your needs.

Other Strategy Templates

Business Model Canvas | PESTEL Analysis | Porter’s Five Forces | Strategy Choice Cascade | SWOT Analysis