Marketing Strategy Matrix

The Ansoff marketing matrix is a tool used to define the market position of a product. It’s particularly useful to evaluate the profitability of entering into new markets. This post explains, how you can use this powerful tool to support your strategic decision-making.

The Ansoff Matrix is a strategic planning tool that helps you evaluate your business idea or product. It does not tell you whether a business opportunity is good or bad, but it does help you figure out which opportunities you should pursue and which ones to avoid. It’s usually used in the development phase of a product but I like to use it all the time because no matter how successful your business is, you should always look for ways to improve it. The thing about the Ansoff Matrix is that it makes your job easier, allowing you to focus on high potential areas while cutting down on the amount of time spent on lesser opportunities.

What Is the Ansoff Matrix?

The Ansoff Matrix was developed by H. Igor Ansoff and first published in the Harvard Business Review in 1957, in an article titled “Strategies for Diversification.” [1] It has given generations of marketers and business leaders a quick and simple way to think about the risks of growth.

Also known as the Corporate Ansoff Matrix and the Product/Market Expansion Grid, the Matrix (see figure 1, below) shows four strategies you can use to grow your business. It also helps you analyze the risks associated with each one. The idea is that each time you move into a new quadrant (horizontally or vertically), risk increases.

Figure 1: The Ansoff Matrix

Ansoff Matrix Diagram

The Four Quadrants of the Ansoff Matrix

Let’s examine each quadrant of the Matrix in more detail.

  • Market Penetration (lower left quadrant). This is the safest of the four options. Here, you focus on expanding sales of your existing product in your existing market: you know the product works, and the market holds few surprises for you.
  • Product Development (lower right quadrant). This area is slightly more risky, because you’re introducing a new product into your existing market.
  • Market Development (upper left quadrant). Here, you’re putting an existing product into an entirely new market. You can do this by finding a new use for the product, or by adding new features or benefits to it.
  • Diversification (upper right quadrant). This is the riskiest of the four options, because you’re introducing a new, unproven product into an entirely new market that you may not fully understand.

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager, H. Igor Ansoff, and was published in the Harvard Business Review in 1957. The Ansoff Matrix has helped many marketers and executives better understand the risks inherent in growing their business.

The four strategies of the Ansoff Matrix are:

  1. Market Penetration: This focuses on increasing sales of existing products to an existing market.
  2. Product Development: Focuses on introducing new products to an existing market.
  3. Market Development: This strategy focuses on entering a new market using existing products.
  4. Diversification: Focuses on entering a new market with the introduction of new products.

Of the four strategies, market penetration is the least risky, while diversification is the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing market. In other words, a firm is aiming to increase its market share with a market penetration strategy.

The market penetration strategy can be executed in a number of ways:

  1. Decreasing prices to attract new customers
  2. Increasing promotion and distribution efforts
  3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and employ a market penetration strategy by offering introductory prices and increasing their promotion and distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the existing market. The move typically involves extensive research and development and expansion of the company’s product range. The product development strategy is employed when firms have a strong understanding of their current market and are able to provide innovative solutions to meet the needs of the existing market.

This strategy, too, may be implemented in a number of ways:

  1. Investing in R&D to develop new products to cater to the existing market
  2. Acquiring a competitor’s product and merging resources to create a new product that better meets the need of the existing market
  3. Forming strategic partnerships with other firms to gain access to each partner’s distribution channels or brand

For example, automotive companies are creating electric cars to meet the changing needs of their existing market. Current market consumers in the automobile market are becoming more environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with its existing product(s). In this context, expanding into new markets may mean expanding into new geographic regions, customer segments, etc. The market development strategy is most successful if (1) the firm owns proprietary technology that it can leverage into new markets, (2) potential consumers in the new market are profitable (i.e., they possess disposable income), and (3) consumer behavior in the new markets does not deviate too far from that of consumers in the existing markets.

The market development strategy may involve one of the following approaches:

  1. Catering to a different customer segment
  2. Entering into a new domestic market (expanding regionally)
  3. Entering into a foreign market (expanding internationally)

For example, sporting goods companies such as Nike and Adidas recently entered the Chinese market for expansion. The two firms are offering roughly the same products to a new demographic.

The Ansoff Matrix: Diversification

In a diversification strategy, the firm enters a new market with a new product. Although such a strategy is the riskiest, as both market and product development are required, the risk can be mitigated somewhat through related diversification. Also, the diversification strategy may offer the greatest potential for increased revenues, as it opens up an entirely new revenue stream for the company – accesses consumer spending dollars in a market that the company did not previously have any access to.

There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy.

2. Unrelated diversification: There are no potential synergies to be realized between the existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones is pursuing an unrelated diversification strategy.

How to use the Ansoff growth matrix

To get started with using the matrix, you’ll need to think about the level of risk you’re comfortable with. Are you more interested in entering new markets, developing new products, or increasing your brand’s reach?

Here are a few strategies that come with each portion of the grid.

1. Market penetration

With the market penetration strategy, a company aims to increase market share by amplifying existing products in existing markets. A few tactics to use here could include:

  • Changing your store’s opening hours
  • Showcasing your product portfolio on social media
  • Running promotions to attract new customers
  • Reducing order processing times

All of these activities help keep existing customers interested while growing your client base within the existing market for growth.

One Ansoff matrix example would be an established global soda brand spending money on partnerships and promotions to grow its customer base in existing markets.

2. Market development

For this section of the Ansoff growth strategy matrix, think about whether your market research has uncovered demand for your existing products in new markets. Here are a few typical growth strategies:

  • Entering a new regional market
  • Entering a new international market
  • Expanding marketing to a new customer segment

This type of Ansoff matrix strategy is most successful for businesses that already have the right technology for expansion. They should also have assessed consumer behavior within the target markets to ensure existing products are a good fit.

A good Ansoff matrix example, in this case, would be a well-known sportswear company entering the Chinese market for the first time while offering the same products.

3. Product development

Is your company better off focusing on new product development for your existing market? Market research is again the key to uncovering whether your customer base needs new products. Think about new features, improvements in quality, and streamlined packaging. Here are a few additional strategies:

  • Forming partnerships with other companies to boost development
  • Develop new products with research and development
  • Make existing products eco-friendlier and more sustainable

An example of this type of growth strategy is a smartphone provider launching a new flagship version of their best-selling model every few years. The existing product is simply updated with new technology to drive growth.

4. Diversification

Finally, diversification involves the highest level of risk in the Ansoff strategic opportunity matrix. Before you leap into this type of strategic planning, think about your business’s research, development, and technical expertise. You’ll need to use both market and product development skills, but this higher risk can lead to greater rewards because diversification opens up a new revenue stream.

  • Related diversification uses a strategy of creating new, but related products. For example, a knitwear company specializing in sweaters might start selling cashmere accessories for a different customer segment.
  • Unrelated diversification pivots completely from existing products and markets. If the same knitwear company decided to start selling cold-pressed juice, this would be much riskier as it’s a completely different product type.

Limitations of Ansoff Matrix

The primary advantage of this type of grid is that it gives businesses a useful structure for outlining growth options, in order of risk. However, there are also limitations of the Ansoff matrix. For example, once you’ve successfully entered multiple unrelated markets with new products, you’ve jumped past the boundaries of diversification and will need a new framework.

Additional marketing models to consider at this stage would include options like the BCG growth-share matrix to further sustainable development.

Conclusion

An Ansoff matrix helps you visualize the various options available for expansion for a business. Each axis represents the number of product or service categories that are modified to create unique products and services.

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