14 julio, 2024

Ansoff matrix: what it is, the four quadrants, how to do it, examples

What is the Ansoff matrix?

The Ansoff matrix is a strategic planning tool that helps senior managers and marketers strategize for future growth. It was developed by the Russian-American Igor Ansoff and published in the Harvard Business Review in 1957, in an article titled “Strategies for diversification”.

Ansoff suggested that there were only two effective approaches to developing a growth strategy: renewing what sells (product development) and who it sells 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 going to grow in the long term, it can’t 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 the Ansoff Matrix is ​​used to analyze the potential risks of each option and help design the most appropriate plan for the situation.

The four quadrants of the Ansoff matrix

Ansoff’s matrix shows four strategies that can be used to grow and helps analyze the risks associated with each. Ansoff describes four growth alternatives:

Market penetration

It is in the lower left quadrant, it is the safest of the four options. The product is known to work and the already known market has few surprises to offer.

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 accomplished by selling more products through more aggressive promotion and distribution to established customers, or by finding new customers within existing markets.

Product development

It is located in the lower right quadrant. It is a bit more risky, because you want 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.

For 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.

market development

It’s in the upper left quadrant. An existing product is being placed in a completely new market.

In this strategy the company tries to expand into new markets (geographical, countries, etc.) using its existing products. This strategy is more likely to be successful when:

You have 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 they already have experience.
Buyers in the new market are very profitable.

Diversification

It’s in the upper right quadrant. It’s the riskiest of the four options, because you’re introducing a new, untested product to a whole new market that may not be fully understood.

In diversification, a company tries to increase its market share by introducing new products into new markets.

It is the most daring strategy because it requires both product and market development. Diversification can be related or unrelated.

Related diversification

There is a relationship and therefore a potential synergy between the company and the new product/market.

unrelated diversification

The organization moves into a market or industry with which it has no experience. This is considered a high risk strategy.

How to do it?

To explain how to make the Ansoff matrix we will give an example with the company ABC:

Step 1: Analyze the options

Market penetration

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 them more.
Reduce the price of products.
Make small improvements to the products.
Present customers with a loyalty scheme.
Relaunch price or other special offer promotions.
Increase the activities of the sales force.
Buy a competitor company (particularly valid in already mature markets).

Product development

Other different products are sold to the same people, so you can:

Expand the product by producing different variants of it or by 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 access to the company’s distribution channels or brand.

market development

New markets or new areas of the current market are sought as a target. 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 final consumers.
Use new and different sales channels, such as direct sales or online, if you are currently selling through agents or intermediaries.
Use market segmentation to target other groups of people, perhaps with different age profiles, gender, or demographics of regular customers.

Diversification

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.

Step 2: Manage the risks

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 that are likely to be faced.

Step 3: choose the best option

You may have an idea of ​​which option is right for your business. You can make sure it really is the best one with one last step: using a decision analysis matrix to evaluate the different factors in each option and make the best choice.

examples

Ansoff Matrix for Coca-Cola

Ansoff Matrix for Inditex

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