Igor Ansoff developed a matrix over 50 years ago that is still commonly used today by businesses and education institutes to help make decisions and pick a strategy. That’s obviously a good matrix!
Let's find out some more...
The Ansoff Matrix is a strategic planning framework to help businesses develop and decide upon strategies for their growth. It’s designed to effectively provide four strategic options and highlight the levels of risk associated to those for the business.
It works as a 2x2, housing four generic strategies that can be applied to your business, highlighting a default risk level for each one. It’s also known as the Product/Marketing Expansion Grid.
There are a number of advantages for Ansoff Matrix including:
As with every framework, there are some limitations to Ansoff Matrix such as:
The four strategies in an Ansoff Matrix are:
The Market Penetration strategy is about focusing on your existing business, your current product or service, and your current segmentation. If you’re picking this strategy then you’re objective is market share growth.
Some considerations may include:
This approach sometimes is viewed as just doing “more of the same”, which is perhaps unfair. If you’ve got a successful niche and there’s significant growth in your market, then it’s a sensible decision to continue to focus and reap the rewards.
The Market Development strategy is taking your existing products or services into new marketplaces, both geographic or customers. For example, you might want to move from the UK and begin selling to the US, or you might decide that your product or service would be fantastic for a completely different type of customer.
The growth potential of this strategy is significant, but it requires you to pick the right market to enter and history is littered with examples of companies not getting it right.
Some considerations include:
The Product Development strategy is the one often associated with Innovation, even though Innovation can sit in many places in your strategy – see 4Ps of Innovation. It’s where a business decides to develop new products or services targeting the existing customer market.
This strategy has a mix of growth by new business and growth by upselling existing customers, and the advantage that if done successfully means cross selling can occur between the products. A good example of this is SalesForce with their CRM and then their sister product FinancialForce.
Arguably the trickiest of all four is the diversification strategy – this is where a business moves into a new market and creates a new product or service, at the same time! There’s more to get right with this strategy but many examples of success. Wrigley started off selling soap, only moving into chewing gum when a free promotion proved gum was more popular than soap.
There are many failures too. Did you know Cosmopolitan (magazine) launched a brand of Yogurt?
Some considerations to ask yourself on this strategy choice…
The framework suggests the following:
Crucially though, the framework doesn’t take into account the detail of your situation. For example, it may be for you Market Development has quick wins with low risk, while your current market may be saturated with little growth.
Ultimately use the risk levels as a guide around generic difficulty, rather than specific risk.
The Ansoff Framework isn’t like SWOT, PESTLE, etc – it’s much more a guide to discussion. You don’t complete the framework, you use it to debate potential strategies and list them out. So in that sense, no preparation is required.
However, you’ll get significantly more out of the framework is you circulate it round in advance and have some thoughts about…
The Ansoff Matrix was created by H. Igor Ansoff in 1957 as part of a research paper he published called Strategies for Diversification.
Every time a strategy or direction is evaluated, it’s worth keeping Ansoff Matrix in mind as a broad way to classify your behaviour, and a manner to suggest alternatives.