The Ansoff matrix is a strategic planning tool that helps senior managers and marketers create strategies for future growth. It was developed by the Russian-American Igor Ansoff and published in the Harvard Business Review in 1957, in an article entitled "Strategies for diversification".
Ansoff suggested that there were only two effective approaches to developing a growth strategy: renewing what is being sold (product development) and who it is being sold to (market development). When these approaches are combined as a matrix, they offer four strategic options, each with a different level of risk..
Successful leaders understand that if the company is to grow in the long term, it cannot continue to “do business as usual”, even when things are going well..
There are numerous options available, such as developing new products or opening new markets, but how do you know which one will work best for a company??
This is when a perspective such as that of the Ansoff matrix is used, to analyze the potential risks of each option and help design the most appropriate plan for the situation..
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The Ansoff matrix shows four strategies that can be used to grow and helps analyze the risks associated with each. Ansoff describes four growth alternatives:
It is in the lower left quadrant, it is the safest of the four options. The product is known to work and the already familiar market has few surprises to give..
In this strategy, the company focuses on expanding its sales volume using existing products in the current market. In other words, it tries to increase its market share within existing market segments..
This can be achieved by selling more products through more aggressive promotion and distribution to established customers, or by finding new customers within existing markets..
It is in the lower right quadrant. It is a bit more risky, because it seeks to introduce a new product in the existing market.
In this strategy, the company focuses on creating new products, aimed at its existing markets, in order to achieve growth..
To do this, the following question must be answered: how can the product portfolio be expanded by modifying or creating products?
This involves extending the range of products available in the company's existing markets..
It's in the upper left quadrant. You are placing an existing product in a whole new market.
In this strategy, the company tries to expand into new markets (geographic, countries, etc.) using its existing products. This strategy is more likely to be successful when:
- It has a unique product technology, which can be used in the new market.
- The company benefits from economies of scale if production is increased.
- The new market is not very different from the current one, with which you already have experience.
- Buyers in the new market are very profitable.
It's in the upper right quadrant. It is the riskiest of the four options, because a new and untested product is presented in a completely new market that may not be fully understood..
In diversification, a company tries to increase its market share by introducing new products in new markets..
It is the most daring strategy because it requires both product and market development. Diversification can be related or unrelated.
There is a relationship and, therefore, a potential synergy between the company and the new product / market.
The organization moves into a market or industry with which it has no experience. This is considered a high risk strategy.
It is easy for ABC company to use the Ansoff matrix to weigh the risks associated with a series of strategic options..
You try to sell more of the same products in the same market. Therefore, you can:
- Develop a new marketing strategy to encourage more people to choose the company's products or to use it more.
- Lower the price of products.
- Make small improvements to the products.
- Present customers with a loyalty scheme.
- Relaunch price or other special offer promotions.
- Increase sales force activities.
- Buy a competitor company (particularly valid in mature markets).
Other different products are sold to the same people, so you can:
- Expand the product by producing different variants of it or repackaging existing products.
- Develop products or services related to the main product.
- Invest in research and development of new products.
- Acquire the rights to be able to produce the product of another company.
- Buy the generic product and "brand" it as your own.
- Jointly develop a product owned by another company, which needs to access the company's distribution channels or brand.
The objective is new markets or new areas of the current market. You try to sell other people more of the same things. Here you can:
- Target different geographic markets locally or abroad. Perform a PEST analysis to identify opportunities and threats in the new market.
- Find industrial buyers of a product that was previously only sold to end consumers.
- Use new and different sales channels, such as direct or online sales, if you are currently selling through agents or intermediaries.
- Use market segmentation to target other groups of people, perhaps with different age, gender, or demographic profiles of repeat customers.
This strategy is quite risky: there is often little scope to use existing experience or to achieve economies of scale. You are trying to sell completely different products to new customers.
Beyond the opportunity to expand the business, the main advantage of diversification is that, if one company suffers adverse circumstances, the other may not be affected..
Conduct a risk analysis to better understand the hazards associated with each option. If there are many hazards, prioritize them using a Risk Probability Chart.
Then create a contingency plan for the risks you are likely to face.
You may have an idea of which option is right for your business. You can ensure that you really are the best with one last step: use a decision analysis matrix to evaluate the different factors in each option and make the best choice..
An example of an Ansoff matrix for Coca-Cola can be seen:
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