If something published in the 1950s is still in use today to plan growth strategies, you can be assured of its usefulness. Published in the Harvard Business Review in 1957 by Igor Ansoff, in an article titled “Strategies for Diversification”, the Product-Market matrix was revolutionary for its time and effective nearly seven decades later. Popularly referred to as the Ansoff matrix, it is a core business tool that is taught in MBA programs, discussed often in financial planning, and is central to marketing growth considerations for companies.
In this blog post, products can be used interchangeably with services depending on the nature of your offerings. In order to make the text concise, you will find only “products” in the text, but you can assume this to be “products and services” at all times. Additionally, “markets” don’t conform to geographical regions alone, it could be different customer segments based on customer personas too!
The Ansoff Matrix
You can see that the matrix is a simple 2×2 with existing and new products on the horizontal axis. You also have existing and new markets on the vertical axis.
The 4 quadrants created in the Ansoff matrix cover different strategies a brand or business can undertake for growth. If you want to focus on increasing market share or sales of an existing product in an existing market, you would opt for the Market Penetration strategy. You can introduce new products into an existing market for Product Development. You can also take your existing products to launch in new territories or markets with a Market Development strategy. And lastly, Diversification of your business means entering new markets with new products.
You may note there are always risks associated with different strategies. These have been marked on the outside of the matrix with arrows. Diversification usually involves the largest risk and market penetration the lowest.
Let’s take a more detailed look at each of the quadrants and understand different ways to implement each strategy. You can find tactics and specific examples under each topic as well:
Market Penetration
In order to increase the market share of your existing products in an existing market, you can change tactics by applying new approaches with a fresh look at your 7P Marketing Mix. These are a few examples:
- Lower prices to increase the volume
- Launch promotions
- Increase distribution
- Acquire competitors in the same market
For specific examples:
Uber purchased Careem which was the Middle East’s leading vehicle-for-hire solution. Aggressive distribution of Coca-Cola with account management ensures that it protects its market share in each of its markets worldwide. Many fashion retail brands employ price-cutting to capitalize on “season-ending” sales that match financial reporting quarters to meet or exceed goals.
Product Development
To launch new products into the market you’re already operating in, you will need to expand your offerings after conducting thorough market research. You stand to benefit from running a SWOT analysis to identify your strengths and weaknesses. And then leverage it to find opportunities that would benefit your prospective customers most. Here are a few:
- Strategic partnerships with new technology or production vendors
- Further investment into internal R&D based on market research
- Introduce suggestions and add-ons that complement your existing product line.
For specific examples:
Google continuously develops new products that employ the latest technology advances that they offer to those already in the ecosystem. Booking.com launched the “taxi-booking” option for customers who booked hotels, which serves their existing customer base extremely well. Amazon does this best by suggesting to customers what they could also buy as they “Add to cart”.
Market Development
You can run an extensive marketing environment analysis to identify how your existing products can enter a new market or segment. There might be changes to the positioning required due to new market characteristics, so revisiting your marketing mix is essential. Some examples:
- New customer personas that you can target with fresh promotions
- Expand into new geographical markets by going digital or expanding distribution
- Partnerships with new distributors and agents to launch in the market
- Upselling existing customers
For specific examples:
The limited and special edition sneakers from most footwear brands send their customer base into a near frenzy, especially when it comes to distinctive features. With the advent of Zomato and other food-delivery apps, so many restaurants could expand the reach of their products by increasing the delivery radius.
Diversification
Despite being a higher-risk strategy, diversification can open new revenue streams for your business. It’s a mix of applying existing skills and capabilities along with a detailed assessment of new markets and segments. Some ideas for this:
- Launch related products that make sense to your core product line
- Leverage the power of your brand to enter new product/market segments
- Utilize strategic assets to become self-reliant instead of using vendors and third-parties
For specific examples:
There’s one success story here that you obviously know of: Apple Inc. For instance, You know how quickly the company adapted from iPhones, to launch related products like the Apple Watch, and Air Pods, and now expanded to Apple TV+ for content and they are even in the development of an Apple car!
Now that you’re able to differentiate between the 4 primary strategies for business growth, it’s time to look at how to best implement these
How to utilize the Ansoff Matrix
The easiest method for you to apply the Ansoff matrix was suggested by MindTools in a 3-step approach:
You can begin by assessing your options. Here is where you run different analyses such as environmental analysis or SWOT, and then also research your customer personas or segments, and marketing mix. Once you have a lay of the land, you can run risk analysis and quantify the uncertainties to gauge your top strategies. And lastly, use a decision matrix analysis that can finalize which direction your business must take.
Conclusion
The Ansoff Matrix is a strategic planning tool that provides a framework to help you. Whether you’re an executive, senior manager, or a marketer and need to devise strategies for future growth. You have to discern which strategic options are most applicable and profitable for you and make choices to take advantage of opportunities. Do not forget to assess the right options with appropriate risk analyses while using the Ansoff matrix and it can really help you grow your brand or business exponentially!
