The Ansoff Matrix

 

Due to its simplicity and ease of use, the Ansoff Matrix is justifiably one of the most useful and commonly used business strategic tools. It was invented by Igor Ansoff in 1965 and is used to develop strategic options for business growth using two dimensions – products (existing and new) and markets (existing and new).  The Ansoff Matrix offers a combination of four product/market growth options, with varying degrees of risk – Market penetration, product development, market development and diversification.

 

Option 1 – Market Penetration

 

This strategy focuses on increasing the volume of sales of existing products within the existing market, e.g. by persuading existing customers to use more and attracting customers away from the competition. Market penetration is the least risky options as new products are not being developed and no new markets are being entered. Existing products and services can undergo slight changes or modifications and still stay within the market penetration strategy quadrant, as long as the product and market are fundamentally the same. Market penetration is application when the market is not saturated and there is scope within the market for increasing sales.

 

How

  • Persuade existing customers to use more, e.g., loyalty schemes or bulk buying
  • Attract new customers in the same market segments
  • Devise and encourage new applications of use
  • Attract customers away from the competition
  • Restructure the market by driving out competitors
  • Change elements of the marketing mix, e.g., intensify promotion, use price reduction strategies

 

Option 2 – Market Development

 

Market development involves offering current products to new markets, either geographically or in new market segments. Tactics include targeting new market segments, licensing products for use and franchising. Market development is a moderate risk option and involves entering unknown territory but no product development is required. It is most successful in markets that are growing, as there is less rivalry and more demand.

How

  • Target new geographical markets
  • Target new market segments e.g. new customer groups
  • Use new distribution channels e.g. Internet sales, sales agents and export merchant
  • License the product for use by other sellers
  • Rebrand products
  • Franchise the business
  • Set up a joint venture or merge with another company
  • Apply different pricing policies to attract new market segments
  • Find a new use for an existing product by a new market

 

Option 3 Product Development

 

Product development involves developing new products for the existing market. It is a moderate risk option as no new markets are being entered but engaging in product development can be costly and detract from consolidating the existing product range. Businesses that adopt a product development strategy usually develop related products, e.g., Apple developed the iPad. Product development is applicable when the business is in a position to engage in product development, the market is growing, there is a strong brand that a new product can be built upon and the competition has superior products.

How

  • Create new products to meet the changing needs of the existing market
  • Supply new products closely aligned to the current portfolio
  • Provide new services to complement existing products
  • Modify or adapt existing products
  • Extend existing product lines
  • Expand into new product lines
  • Find new uses for products
  • Develop new packaging

 

 

Option 4 Diversification

 

 

Diversification involves developing new products for new markets. It is the most precarious option because of the combined risks associated with developing new products and entering new unknown markets.  Diversification is applicable when existing products and markets offer no growth opportunities, the organisation has the capability and capacity to engage in diversification and there is growth in the new market. Within the diversification quadrant a range options are available and these are based on how different the new product and or market are. There are two main types of diversification:

  1. a) Unrelated – where new products and new markets are completely unrelated. There is generally one form of unrelated diversification – Conglomerate diversification, where a completely new unrelated product is offered to a new unrelated market; this is the highest risk option
  2. b) Related – where new products and markets have some characteristics with existing products and markets. Related diversification strategies can be sub-divided into three different forms – Horizontal diversification (offering new unrelated products to the existing market) Vertical diversification (move backwards or forwards along the value chain and Concentric diversification ( new closely related products are introduced to new markets.)

 

How

 

  • Use brand recognition to enter new market with new products
  • Enter new markets through mergers, takeovers, joint ventures or collaborations
  • License new technologies
  • Distributing or importing products manufactured by another organisation