The Ansoff matrix is an excellent tool to help business leaders and stakeholders plan their business growth.
Every company aims at its business growth, mainly through financial gains.
This is a common goal for all companies, no matter what size, shape, or industry they belong to.
Business leaders want to get ahead of their competition and make the most of their time.
In fact, today’s businesses are now figuring out modern ways to achieve sustainable growth and deeper market penetration and build a wider customer base without relying entirely on traditional methods.
So, if you also wish to go beyond the usual way and grow your organization, then Ansoff Matrix can be a valuable tool for you.
Let’s discuss the Ansoff Matrix, its examples and benefits, and how to create it.
What is an Ansoff Matrix?
The Ansoff Matrix is a planning tool that organizations of any size can use to make strategies and plans to grow their business.
This tool provides a solid and sensible framework through which an organization’s senior managers, executives, marketers, and analysts devise different strategies to grow their business while analyzing the risk associated with each strategy.
Also known as Product-Market Expansion Grid, The Ansoff matrix is a widely popular tool that tells you about various risks every time you move your strategy to a new quadrant among the four strategic quadrants – market penetration, market development, diversification, and product development.
Talking about its history, the Ansoff matrix was developed by H. Igor Ansoff in 1957, and it was first published in Harvard Business Review. Since then, many business leaders and market analysts have used this tool because the matrix helps them conceptualize the four possible ways to grow their business.
To effectively organize your market strategies for existing products or a new product in the existing market, you can combine Ansoff Matrix with other tools like SWOT or PESTEL.
The Ansoff Matrix: The Four Growth Strategies
Ansoff Matrix is a highly effective yet simple business tool that outlines four strategies that will give your organization the opportunity for growth:
🔹 Market penetration
🔹 Market development
🔹 Product development
These factors form the four quadrants of the Ansoff Matrix, where you can move into each quadrant horizontally or vertically. The Markets state the Y-axis, whereas the Products give you the X-axis.
The risk of your growth increases whenever you move into a new quadrant; thus, diversification is the riskiest area, whereas market penetration has the least amount of risks. Each quadrant of the matrix signifies a growth strategy and helps you evaluate your future move accordingly.
Now, let’s learn about all of these quadrants in detail.
Market penetration signifies increasing or growing the existing product sales in the existing market. It is the least risky growth strategy and the highest possibility of growth because you already have a good grasp of the existing market.
Here, you will have to figure out plans and strategies to make your product more successful, useful, and reachable in the consumer market.
Instead of marketing new products, you will have to modify or change your strategy for your existing products or services. This can help you attract new customers, increase your retention rate, and eventually ramp up sales. The best way to get better market penetration is by:
- Lowering the price of services or products
- Running a lot of promotions to cover a large consumer base
- Streamlining the product distribution process
- Increasing marketing efforts
- Offering better commissions to distributors
- Taking over small to midsize competitors in the market
Despite the business size, you can utilize this strategy, and if you plan it efficiently, it can lead to high sales figures.
After proper assessment, if you find that the strategy of market penetration isn’t giving you the desired result or growth you want, moving to the next quadrant can be useful. This quadrant is called the market development quadrant. It is slightly less risky as you will have to move your existing product into a new market.
You and your team won’t have to do a lot of product development or market research for this strategy. The market development strategy can be implemented in various ways, and it involves:
- Promoting the existing product to a new customer base or new area
- Introducing the product into the local market of different demographics
- Selling the product on new platforms to attract customers of different age groups
- Opening your stores in various new locations
- Moving the production into foreign markets
When you properly implement the strategy, it can help you get a considerable market presence in the new area. Although it could be tricky and time-consuming to build a logistic chain and promote a product in a new market, you won’t have to work on your product as it is already in demand in your market.
In comparison to market development, the product development strategy is slightly riskier as it involves introducing a new product to the existing customer base.
With this new strategy, you can renew the interest of your existing customer base and increase the rate of repeat customers. In addition, your customers won’t move to your competitors to get other products.
You will have to utilize brand loyalty for this strategy, and the best way you can approach it is by:
- Creating an effective research and development (R&D) team that will help your business find a new and better product for existing customers.
- Introducing a service type option for the existing product. The most common type of service is the subscription model.
- Producing and marketing products of other firms
- Partnering with another brand and using its value to offer a package deal of products to your existing customer.
It is an excellent option if you want to grow your company’s value and expand the existing market’s coverage. However, this strategy should be applied only if you have a good market presence and immense brand loyalty.
Diversification is the riskiest strategy among the four growth strategies in the Ansoff Matrix since it requires you to enter a new market with a new product.
It would be best to apply diversification only when other quadrants are exhausted or not applicable.
Here, you will have to start from scratch as you will be branching out with new products in the market. However, it is an advantageous strategy that could enhance your overall revenue and market presence if everything goes fine.
So, when you decide to implement this strategy, you can either go for related diversification or unrelated diversification.
- In related diversification, you can create a product(s) that has similarities in any sense with your existing product. It makes marketing the new product more effortless for you because, due to similarity, you can use the existing knowledge and distribution chain for the new item.
- In unrelated diversification, you will have to create a line of products that has no similarity with your existing product lineup. Management often implements this strategy when they want to reduce their dependence on a specific lineup of products.
Benefits of Using the Ansoff Matrix
The Ansoff Matrix is one of the popular business tools among businesses. It offers the following benefits:
#1. Easy to Understand
When you think of the Ansoff Matrix, it might seem like a complex business tool, but in reality, it is pretty simple and easy to understand. Even if you don’t have considerable business knowledge, you can still utilize this matrix to make strategic growth plans for your company.
#2. Efficient Risk Analysis
Your management team can utilize the Ansoff Matrix to analyze the risk involved when you are going forward with a particular strategy. It makes you aware of the risks and prepares you to face them in the near or distant future. In addition, it comes handy while finding solutions to your problems beforehand.
With Ansoff Matrix, you can find all possible alternative strategies you can apply to steer your company in the right direction. You can choose the path you want by considering your future goals and available resources and moving forward with more confidence.
#4. Appropriate for Both Short and Long Terms
You can use this model for all types of strategic growth plans, both short and long terms. For short-term growth strategies, you can utilize market penetration and market development quadrants. However, for long-term growth strategies, product development and diversification can be more suitable.
#5. Suitable for Everyone
Whether you want to use it for your personal marketing or business growth tool, the Ansoff Matrix model is adaptable for varied usage. Most importantly, the company’s size doesn’t matter, as even a small-scale organization can easily utilize it for planning its future moves.
Steps to Create an Ansoff Matrix
To devise your company’s growth plan, you can make the Ansoff Matrix on your own. You can create this matrix on any medium, whether it is mapping software, whiteboard, paper, or any suitable medium.
However, creating the Ansoff Matrix on a software system is recommended because you can make a lot of customization, use many features, and avail a lot of benefits.
So, when you start creating the Ansoff Matrix, here are some steps to follow:
Creating a Grid
Depending upon which medium you choose, you will first have to create a grid with all four factors – market penetration, market development, product development, and diversification.
This step gets much easier if you use an Ansoff Matrix template from mapping software like EdrawMax, SmartDraw, etc.
Deciding All the Options
Once you have created the grid, the next thing you will have to do is put all the pursuable strategies in each of the quadrants. By discussing with your management team and analysts, you can put all the strategies in the grid that are practical and viable.
Utilize the Risk/Reward Matrix
Now, you will have to utilize a risk/reward matrix template, and there you need to assess all the possible risks. You will have to find all the possible risks and challenges that may arrive with your strategic growth plans.
Create a Contingency Plan
After you have identified and documented all the risks and challenges you might face with all your strategic plans, it is time for you to create a contingency plan. You should be prepared with all the possible solutions to help you tackle the risks effectively.
Decide Your Growth Strategy
After evaluating all the possible growth strategies and risks associated with your plans, try to figure out which growth plan is best for you. Choose your growth strategy based on your business requirements and the best possible outcome you can get out of the strategy.
How to Use the Ansoff Matrix
Using an Ansoff Matrix to create your growth strategy and analyzing all the risks is not tough. Here are the steps to use an Ansoff Matrix the right way:
- Understanding Each of the Quadrants: To start using an Ansoff Matrix, the first thing you have to do is understand all four quadrants of the matrix. You should know what each segment has to offer and the risk associated with it.
- Assessing All the Options: Depending upon your future goal, you should assess all four growth strategies separately. You should think about which growth strategy will be beneficial and how you can implement it.
Suppose you already have a successful product and want to have more coverage, then a market penetration strategy will be ideal for you.
- Checking the Risk Level: There is a risk associated with each of the strategies in the Ansoff Matrix, and you should speculate what the risks are that you may come across. Depending upon the business and market, the risk may vary, so you should properly analyze, recognize, and document them.
- Selecting the Strategy: By now, you must have evaluated all the possible strategies and risks associated with your strategies. Next, choose which strategy will be ideal for you among them.
Before making the final decision, you can also reevaluate your strategy to ensure you are walking down the right path.
Examples of the Ansoff Matrix
Some examples of the Ansoff Matrix are given below to help you get a real-world view of each strategy:
- Market Penetration: When a well-known bakery chain wants to opt for a market penetration strategy, it can do it by introducing combo offers or exciting deals. They can also send baked goods to individuals who subscribe to their newsletters.
- Market Development: A shoe manufacturer famous for making leather shoes in the domestic market wants to become a global player. In this case, the brand can opt for a market development strategy.
- Product Development: A motorcycle manufacturer that sells only high-end motorbikes decides to sell affordable bikes to cater to the increasing market demand. The market will remain the same, but they will have an expanded inventory. They will need to work on new products to meet the demand.
- Diversification: A textile brand that traditionally sells clothes and is doing well in the market decides it will start selling shoes in the market. They may go with diversification. Not only will they have to build a new customer base, but they will also have to take risks with the new product in the market.
Sample Templates for Creating an Ansoff Matrix
Creately diagram editor will help you easily create an Ansoff matrix online and edit it. It also lets you export your results with others in different image formats and makes collaboration effortless.
#2. Visual Paradigm Online
Create your Ansoff matrix with Visual Paradigm easily and bring your PDFs, presentations, charts, etc., to the platform.
Ansoff matrix templates by SmartDraw make the whole process of creation and customization of diagrams way easier. It supports different diagram categories like event planning, engineering, family tree, software design, and more.
The Ansoff Matrix is a valuable tool for many small, medium, or large organizations. It can help you create your growth strategies and plan your future moves with sustainability.
Implementing the Ansoff Matrix can bring many benefits as it tells you about the risks associated with your strategies so you can pick the best one for your business. This can enhance your revenue, customer base, and popularity.
Next, check out Fishbone or Ishikawa diagrams explained.