In this article we describe the Ansoff Growth Matrix this is a strategic aid in formulating growth strategies for companies.
What is the Ansoff Growth Matrix?
The Ansoff Model or the Ansoff Product-Market Matrix is a strategic aid in formulating growth strategies. By correlating two important strategies (product-portfolio and competition-market), consideration over the strategic development of a company in a market can be done in a logical way. In this way, an entrepreneur can optimally consider over the opportunities for his enterprise and determine the growth model on this basis. Ansoff’s Product-Market Matrix is also often applied in, for example, a marketing plan.
There are various names for the model: Ansoff Model / Ansoff Growth Model / Ansoff Matrix / Ansoff Growth Matrix / Ansoff Theory / Ansoff’s Product-Market Matrix.
How does the Ansoff Growth Matrix look like?
Ansoff distinguishes four directions of growth, divided along the dimensions of product and market (see the table below).
|Ansoff Growth Model|
|Existing products||New products|
|Existing markets||market penetration||product development|
|New markets||market development||diversification|
Market penetration growth strategy: Sales of existing products in existing markets. The purpose of market penetration is often the enlargement of the present market share. For this there are two ways: win clients from the competitor or sell more of the same products to present clients. This can be a good strategy if economies of scale can be achieved by increasing production (production, internal organisation and distribution). With this strategy, the competitor often gets harshly impacted and a counter attack will often come up. Growth by increasing the market share.
Market development growth strategy: Sales of existing products in new markets. The purpose of market development is to proceed selling the current products more via new markets. If there is no need for changes to the product, this can be a very good strategy and can fetch a lot of money. But this is often not the case. In order to be successful with an existing product in a new market, there must be adjustments made that (oftentimes) require huge amounts of money.
Product development growth strategy: Sales of new products to existing clients. There are two possibilities here. First of all, new products can be introduced as substitute of the old existing products. This is a good strategy if the client’s demand can be better addressed. But a choice can also be made for cross-selling. With this, one makes a small adjustment to the product and proceeds to sell this product alongside the existing product. Think of successful products such as cup a soup. Since competitors constantly conduct renewals in their productlines, this is an oft utilised strategy in order to remain up-to-date.
Diversification growth strategy: New product in a new market. A very difficult strategy that can be very successful, but often fails. There is a great deal of risk associated because there is no guarantee for success. This is a good strategy for companies with a successful portfolio but struggle against a mature market. With an eye on the future, new products are launched in new markets hoping to find a successor to the current successful products. In practice, the market penetration and product development growth strategies are the ones often applied. At around 10% of cases, the choice comes down to a diversification or market development growth strategy.
Conclusion on Ansoff Growth Matrix
Ansoff’s Model has long been in existence but it increasingly proves to be valid. It forms a good basis for contemplating over the strategic development of a business. It also forms a good basis for further research and it is very useful within a marketing plan. Therefore, it can be concluded that Ansoff’s Product-Market Matrix is a handy aid in establishing a growth strategy for a business.