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What Is the Ansoff Matrix?
The Ansoff Matrix is used to help businesses identify where they can grow within their business. It shows ways a company can grow their sales by looking at different opportunities to grow. The model was developed by business strategist Igor Ansoff and looks at four growth strategies: market penetration, market development, product development and diversification.
However, it is important to choose the right strategy to help your business grow. Without a solid plan in place to grow your business you could end up wasting valuable resources. Using this model can help you easily see how each opportunity compares so you can make a decision on what option would be more suitable.
Understanding the Four Ansoff Strategies
This model looks at products (old/new) and markets (old/new). There are 4 possible growth strategies.
1. Market Penetration
The market penetration strategy looks at growing sales of current products by targeting your current customers. This is generally the least risky option as you know your products well, your customers and your competitors.
You can improve market penetration by:
- Offering discounted prices and exclusive offers.
- Improving customer service.
- Increasing marketing efforts.
- Offering loyalty programmes to increase repeat sales.
- Taking customers away from competitors.
You could offer a loyalty card in your coffee shop offering rewards once the customer has made multiple purchases. This will encourage the current customers to purchase more helping them to increase sales without entering a new market.
2. Market Development
This strategy looks at expanding by offering current products/services to new markets. You will not need to produce new items but instead target different customers, areas and segments.
Common methods include:
- Entering new cities/countries.
- Targeting different age ranges and customer segments.
- Selling products in new distribution channels.
- Selling on online market places.
For example, if you’re a clothing brand selling your products in just one country you could choose to expand internationally. The products are still the same but you are expanding to reach new customers.
However, before entering any new markets you should research what your customers want, who your competitors are in that area, what the prices are like and any legal requirements.
3. Product Development
This involves creating new products or improving current products. It is a great tool to use if you know the customers you serve and wish to provide them with products to fit their changing needs.
This can include:
- New features in current products.
- Different variations.
- Quality improvements.
- Complementary products.
- Customer insight to create new products.
For example, if you’re a mobile phone company you could provide a new model of smartphone with improved battery life and camera features. This would target the current market they serve but offer new products.
This can require a large amount of investment due to research, designing, testing and producing. Ensure your new products are solving real issues your customers face.
4. Diversification
This involves entering a new market with a new product. This is generally the riskiest option as you will have little experience with both a new product and market.
However it can help offer new revenue streams and less reliance on your current products.
There are 2 common options:
- Related diversification – Entering a new market with related products.
- Unrelated diversification – Entering an entirely new industry.
For example, if you’re a sports shoe manufacturer you might decide to offer fitness equipment to a new customer niche. This means you’re able to expand your offer.
Before diversifying you should analyse the market, resources, competition and financial risks.
Why Is the Ansoff Matrix Important?
This model will help business owners/managers make informed decisions around growing their business. They will be able to look at the different options rather than guesses.
Important advantages include:
- Helps identify which strategies to use to help increase sales.
- Easily see how risky it is with each strategy.
- Helps make informed decisions around whether to continue to provide current products, target new markets or provide new products.
- Encourages you to look at new opportunities.
How Can I Implement this Model?
The steps are simple!
- Understand your current position.
- Identify which strategy would be the best option (increase sales, new markets, new products or diversify).
- Look at any risks involved. How much money will be needed? Who are the competitors and will there be enough demand from customers?
- Select a strategy to match your objectives and resources.
- Monitor your sales, customer feedback, costs and other metrics to see if your strategy is working.
Final Thoughts
This is a helpful model to use to help your business grow. It provides 4 options to help you look at new opportunities and make strategic decisions. From increasing sales in your current markets to entering a whole new industry.
There is not one strategy that will work for all businesses. The right strategy will depend on your customers, market and finances, plus where you want your business to go in the long term. Looking at each strategy carefully will help you create a more realistic growth plan and make you more informed decisions.