The Ansoff Matrix was developed by Igor Ansoff and initially published in the Harvard Business Review. It is a core business strategy tool, taught in business schools to MBA students and utilised throughout businesses globally.
Ansoff suggested that there were effectively only two approaches to developing a growth strategy; through varying what is sold (product growth) and who it is sold to (market growth). When combined with the Ansoff Matrix detailed above, it delivers four strategic options, each with a differing level of risk. Let’s now look at these in turn.
The lowest risk strategy is for a company to sell its existing products into existing markets as it knows its customers, has established channels and so on. This strategy Ansoff termed ‘Market Penetration’. This is only possible where markets are still growing, or where organisations are prepared to use other elements of the marketing mix (such as price discounting and additional promotional activity) to penetrate the market at the expense of competitors.
The second strategic option in the Ansoff Matrix is to develop new products for existing markets (customers), through a ‘Product Development’ strategy. Here the ‘Product’ and ‘Promotion’ elements of the marketing mix will change (as a minimum), so the risk is higher than market penetration. The success of this strategy is dependent on the organisation being able to effectively conduct research and insight into their customer and market needs as well as their own internal capabilities and competencies for driving innovation.
The third strategic option involves taking existing products into new markets using a ‘Market Development’ strategy. This is also considered to be risker than market penetration as it can be difficult to understand the complexities of new markets. Key changes in the marketing mix are likely to be ‘Place’, with consideration of new channels and routes to market, as well as ‘Promotion’, through promoting to new target segments.
The final strategy in the Ansoff Matrix is ‘Diversification’, which is developing new products for new markets. This is seen as the riskiest strategy of all four, as the organisation is moving into an unfamiliar market. However, this risk can be mitigated by undertaking ‘related’ diversification and it could have the potential to gain the highest returns.
The Ansoff Matrix is used in the strategy stage of the marketing planning process. It is used to identify which overarching strategy the business should use and then informs which tactics should be used in the marketing activity. Sometimes an organisation will adopt two strategies to reach different markets.
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