Organizations need to frequently find new ways to enhance their sales volumes and profits as well as reach new customers. There are several strategic options available for an organization to achieve this, such as opening up to new markets, developing new products, or improving the existing ones. However, choosing the most suitable strategy can be challenging. The Ansoff Matrix helps businesses and marketers evaluate the possible dangers associated with each of the strategies and create the appropriate plan for improvement.
Ansoff Matrix - FAQ
The four Ansoff Matrix growth strategies are; market penetration strategy, product development strategy, market development strategy and diversification strategy.
The Matrix is best used in the market planning development phase. Organizations use it to determine the most suitable strategy. It also informs about the best techniques to implement in the marketing process.
The Ansoff Matrix omits some factors about an organization’s position in the market, such as competition. Similarly, the matrix focuses on evaluating risks but fails to consider rewards.
Using the Ansoff Matrix is simple. It takes the following three steps: First, analyze your options using the Corporate Ansoff Matrix Worksheet. Then conduct a risk analysis to point out the dangers of each option. Finally, pick the most suitable strategic option.
Ansoff Matrix: Definition
Igor Ansoff established the Ansoff Matrix and initially published it in the 1957 Harvard Business Review. The matrix gives a practical and straightforward approach to product and market development strategy. It explores growth opportunities via existing and new products as well as new and existing markets. It outlines four sectors of potential growth whose levels of risk vary. Those areas are; market penetration, product development, market development, and diversification.
Understanding the Ansoff Matrix
Ansoff proposed that the two most important factors when developing a growth strategy are; product growth and market growth. The four strategies of the Ansoff Matrix are:
The market penetration strategy is the first and most used of the Ansoff Matrix strategies. Its basic aim is to expand the market share. This strategy entails attracting new markets with an already existing product. At this level, the company strives to increase its product sales to both new, existing and competitors’ customers. Despite its relatively low risk, the market strategy also has minimal growth opportunities.
Product development occurs when a new product is presented to markets and customers that are already in place. For instance, when substituting existing products or expanding the variety of products. Here you might choose to extend your product by producing different types or repackaging the existing ones. Alternatively, you can develop related products or services. In the service industry, you might choose to improve the service quality or shorten your time in the market.
The Market development strategy involves venturing into new markets (new geographical boundaries, new target groups) with existing products. A few changes might apply to make the product more adaptable to the new markets. You can employ market Segmentation to target various people with different demographic characteristics different from your usual customers. Equally, you can utilize other sales avenues such as online sales and direct sales if you are currently using intermediaries.
This growth strategy is where companies bring new products into new markets. It is common among start-ups. Given its nature, this strategy has the maximum potential for growth and the highest risk of failure.
This strategy has three variants depending on the degree of risk; horizontal diversification, vertical diversification, and lateral diversification. Horizontal diversification involves a new product with some factual similarities to previously offered products. Lateral diversification is when an organization moves into entirely new markets with no relation to its existing business. On the other hand, a vertical diversification strategy is where an organization gets more involved in sales-oriented actions or the actual manufacturing of its products.
Implementing the Ansoff Matrix
Using the Ansoff Matrix to assess the risks associated with various strategies is a simple procedure but can be time-consuming. It is advisable to complete at least a SWOT analysis and an external analysis such as Porter’s Five Forces and PESTEL Analysis before embarking on the Matrix. Given the significance of the business impact that these decisions have, one must use the correct analysis. Below are the three steps to follow when implementing the procedure:
Analyzing the business
Once you download the Corporate Ansoff Matrix Worksheet, go through each of the quadrants and point out some strategies your business can adopt. Consulting the results of your SWOT analysis on your business’s strengths and opportunities can help develop appropriate strategic options in each quadrant.
To have a clear picture of the potential risks of each of your strategic options, you must conduct a risk analysis. A Risk Impact/Probability Chart can help prioritize your strategic options if they are many. After determining the potential risk, develop a contingency plan addressing the risks you.
Pick the Best Strategic Option
Here, you already know which option will work best for your business. You can ascertain this by using the Decision Matrix Analysis to evaluate various strategic options and choose the best.
Using a Nine-Box Ansoff Matrix
The nine-box Ansoff matrix is an extended version of the normal four-box matrix. It gives marketers an increased degree of sophistication by adding a twist to the concept. It has an addition of “modified products” and “expanded markets.”
Modified products come between existing and new ones, whereas expanded markets are placed between existing markets and new ones. Therefore, it shows the distinction between product extension and product development and the difference between market expansion and entry into absolutely new markets.
Ansoff Matrix: Example
Starbucks Corporation, an American coffeehouse chain and coffee company, is an example of companies that have used the Ansoff Matrix to develop its growth strategy, as shown below:
Market penetration: Here, the aim is to increase sales of their current coffee products in the current market. Starbucks has assumed a new strategy of writing consumers’ names on coffee cups to improve the connection with customers.
Product Development: The objective of this growth strategy is expanding Starbucks’ product range. Starbucks has implemented this by introducing Starbucks VIA Ready brew for its customers.
Market Development: Here, the business aims at expanding into new markets with the current products. Starbucks operates globally and is continuously expanding to new markets. Its recent expansion saw it open operations in the Middle and the Far East regions of Kuwait and China.
Diversification: The aim here is to introduce new products to new markets. To implement this strategy, Starbucks should diversify itself in the food industry. It can start offering breakfast, lunch, and dinner meals alongside its coffee.
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In a Nutshell
- Ansoff Matrix was developed by Igor Ansoff in 1957 and it gives a simplified approach to growth by businesses.
- The Matrix has four growth strategies; market penetration, product development, market development and diversification.
- Using the Ansoff Matrix takes three steps; Analyzing the business, managing risks and selecting the suitable strategy.