The Ansoff Matrix also described as the Product/Market Expansion Lattice, is a tool that firms use to assess and plan their expansion strategy. The matrix displays four approaches that can help a firm grow and evaluates the risks associated with each option.
Even when things start happening well, successful leaders comprehend that if their organization is to grow in the long run, they cannot maintain a “business as usual” mindset. They must find new ways to boost profits and reach out to new customers. Several options are available, such as developing new products or entering new markets, but how do you decide which is ideal for your business?
This is where a method like the Ansoff Matrix may help you think about the potential dangers of each option and develop the best plan for your circumstance.
The Ansoff Matrix: An Overview
The matrix/grid was designed by H. Igor Ansoff, was an implemented mathematician and business manager. He was published in the Harvard Business Review in 1957. The Ansoff Matrix has assisted many marketers and executives in better understanding the risks associated with business growth.
The four Ansoff Matrix strategies/stages are as follows:
- Market Penetration: is concerned with increasing sales of existing products in an existing market.
- Product Development: It is concerned with the introduction of new products into an existing market.
- Market Development: The goal of this strategy is to enter a new market with existing products.
- Diversification: It is the process of entering a new market by introducing new products.
What exactly is the Ansoff Model?
The Ansoff Model, also known as the Ansoff matrix due to its grid format, assists marketers in identifying opportunities to grow revenue for a business by developing new products and services or “tapping into” new markets. As a result, it is often recognized as the ‘Product-Market Matrix’ instead of the Ansoff Matrix.
The Ansoff Model is one of the most prominent marketing concepts due to its emphasis on growth. It is used to evaluate opportunities for enterprises to boost sales by providing possible pairings for new markets (i.e., customer categories and geographical regions) versus products and services.
1. Market penetration:
The first and most common business strategy for corporates in the Ansoff Matrix is market penetration. It is all about capturing a new market share with a current product. The company is attempting to sell more products to existing, new, and customer competitors.
This strategy’s goal is to increase market share. Market penetration has a low risk but also limited growth opportunities.
The so-called market penetration rate, computed as follows, is used to determine potential: Market penetration = (the number of existing customers/numbers of potential customers in the market) multiplied by 100. The bigger the underlying growth potential for a firm with a market penetration strategy, the lesser the levels of market penetration.
2. Market expansion: new markets, current items
The following strategy is to expand into new markets with existing products. New markets might include new nations as well as new target groups. To adapt to new markets, market development usually entails only minimal changes to the product or goods.
3. Product creation or product modification:
When a new product is launched to an existing market with current customers, product development as a strategy takes place. When replacing existing products or increasing the product line, this may be the case. The benefit of product development is that the organization already knows its customers and the market.
Also Read, The 4 Basic Types of Market Structures
4. Diversification and innovation include new markets and products.
The final of the four techniques is most commonly adopted by startups and startup businesses. Companies offer whole new products in entirely new markets. Diversification consequently provides the greatest opportunity for success but also the greatest danger of failure.
According to the degree of risk appetite, the diversification approach is divided into horizontal, vertical, and lateral diversification:
Horizontal diversification refers to creating a new product that is factually related to the typically possible product line.
Vertical diversification enhances a company’s commitment to sales-oriented operations (through forwarding integration) and/or the actual production process of its products (through backward integration).
Companies that use the lateral diversification method grow into wholly new areas with no material link to the existing business.
Ansoff Matrix Extend (9-field matrix)
Ansoff’s initial product-market matrix is an excellent starting point. She does, however, leave out several possible intermediary areas. As a result, the so-called expanded or 9-field matrix, which has the following additional fields, is widely used:
• Market expansion
• Product modification or extension
• Limited diversification
• Partial diversification
The corporation offers current items in new geographic territories to the same target groups in market expansion.
The modification or extension of a product bridges the gap between market penetration and product development. Existing items with minor alterations are sold in existing markets.
The corporation distributes customized items to new markets while having insufficient diversification.
The consequence of partial diversification is producing entirely new items for entirely new markets or distributing modified products to entirely new target groups.