July 13, 2021
WHAT IS IT?
Ansoff matrix, also called product/market expansion grid, is a marketing planning model that helps a business determine its product and market strategy. It serves as a tool to device revenue growth strategies and analyzes the risks associated with these strategies.
Ansoff matrix shows four business strategies that firms can use:
• Market Penetration – Focuses on increasing the market share of existing products in existing markets. Again, this is the least risky among the four strategies.
• Product Development – Focuses on introducing new products in existing markets
• Market Development – Focuses on developing new markets for existing products
• Diversification – Focuses on entering new markets with new products. The riskiest among the four strategies.
WHY DO IT?
Ansoff’s product/market growth matrix offers four strategies you can use to grow your business. These strategies are often called “strategies for diversification.” Ansoff matrix also helps you identify the risks associated with each of the strategies. The idea is that each time you move to a new quadrant, the risk associated with that strategy increases. For years now, the Ansoff matrix has served as a simple strategic framework for business leaders and marketers to evaluate risks associated with their business growth strategies.
HOW TO DO IT?
Step 1: Examine your options
Let’s take Coca-Cola as an example to examine different strategies.
Market Penetration: In this quadrant, you are trying to sell more of your existing products to your current customers. This could be achieved using promotions through discounts or loyalty programs. For example, for Coca-Cola, this could mean a holiday special edition of coke promoted through topical ads.
Product Development: Here, you are trying to sell new products to your existing customers. These new products also could be variants of your existing products or repackaged products. A good example of this would be various flavours that Coca-Cola launched over the years, including Cherry Coke and orange vanilla.
Market Development: Market development entails targeting new markets or new areas of existing markets. That is, you are trying to sell more of your existing products to different customers. For example, you may target different geographical markets, different marketing channels, or different demographics to achieve this. Coca-Cola launching Coke Zero to cater to the male demographic, alongside the already existing Diet Coke, which serves the female demographic, is a classic example of market development.
Diversification: In this quadrant, you are trying to sell completely different products to different customers. Diversification can be related to – production of a new category of goods that complements your product portfolio or can be unrelated – entry into a different industry altogether. For example, Coca-Cola acquiring Glaceau, a vitamin water brand, can be considered related diversification. And Coke’s official merchandise, including glasses and T-shirts, can be viewed as unrelated diversification.
Step 2: Analyse risks
Conduct risk analysis on the different strategies offered by the Ansoff model and prioritize the options based on the risk impact. It is important to identify which strategies can be implemented in the short term and saved for later, based on the risks associated with them.
Step 3: Choose the best option for implementation
After a thorough evaluation of each of the strategies, you will be fully equipped to choose the best strategy for your company’s growth. Decision matrix analysis might be useful in evaluating the strategies and determining the best choice for implementation.
Lastly, please note that even though we mentioned products in this article, the same strategies apply to services. So you are all set now to embark upon your business growth journey!