Ansoff Matrix: Also named “The growth matrix”. It was invented by researcher Igor Ansoff in 1957, and it is a tool that helps in revealing the opportunities for the fullness of companies at the macro level.
The Ansoff Matrix is a logical method for determining the direction of development of the company’s strategy in the market.
Ansoff invented the following grid to help define objectives (portfolio strategy) which are defined on two scales: Products and Markets. It is named after its inventor, Igor Ansoff
The new market ( Ansoff Matrix) and the intersection of these two dimensions leads to four strategic options for growth:
- Market Penetration: This option involves using existing products in the current fair to gain a larger market share, usually by adopting one of the classic strategies such as cost reduction or differentiation.
- Product Development: This option involves introducing new products developed to existing markets to at least maintain the current market share, especially in industries with rapid technological development.
- Market development: This option involves entering existing products into new markets, and the objective of this option is usually geographic diversification, and this option is suitable for companies that follow a resource approach.
- Diversification: This option includes introducing new products to new markets and new customers, which corresponds to the “disconnection” approach, and companies follow this strategy when they are heading towards growth, especially if the current industry is in the decline stage and unattractive, and one of the ways to diversify is the conclusion of strategic alliances With companies active in target markets.
The Ansoff Matrix deals with the external market scenario of companies as well as the product portfolio that the company has. The matrix is divided into two quarters – the product quarter and the market quarter. The product box on the X-axis is divided into existing products and new products.
The market scenario on the y-axis is divided into existing markets and new markets. Thus the Ansoff Matrix divides the firm on the basis of the products it has—existing products or new products, and also the markets in which it is present—existing markets or new markets.
To make any company-wide decision, you need the right strategic tools. The Ansoff Matrix is one of them. Ansoff Matrix helps a company to identify market growth as well as product growth strategies. The two questions that the Ansoff Matrix can answer are “How can we grow in existing markets” and “What can be modified in the product suite for better growth”.
How do you evaluate the Ansoff matrix?
To assess the appropriateness of these strategies, issues must be considered for each of these:
Market Penetration: Change your store opening hours, reduce order processing times, view your entire product portfolio etc.
Market development: Does your market share research in existing sectors support your potential demand? Can your company support this with existing resources?
Product and development: cheaper manufacturers, improve quality, review packaging, ask customers and influencers for feedback, etc
Diversification: assessing expertise and know-how. Can you move into a new market with a new product offering using the skills in your business? Have a strong management team to support it.
Examples of how to apply the Ansoff Matrix to digital marketing strategy
The Ansoff Matrix is useful for developing online strategies as well, for example, market development strategy
RS Components, a supplier of a range of MRO (Maintenance, Repair, and Operations) items, found a new online market when it launched its site, with 10% of its online sales to individual consumers rather than traditional business customers. It also uses the website to provide additional facilities to customers who place large orders online. UK retailer Argos found that the opposite was true as 10% of the site’s sales were from businesses when their traditional market was consumer-based. EasyJet also has a section of its website for serving business customers.
Product development example
Construction Weekly has diversified into an e-commerce magazine that has new revenue streams. Likewise, music and book publishing companies have found new ways to deliver products through new development and usage models such as subscription and pay-per-use. Retailers can expand their product range and provide new online collection options as well.