Ansoff Matrix: Key Business Growth Strategies

The Ansoff Growth Strategies provides a framework for understanding company growth and planning. This growth strategy organizer is based on the Ansoff Growth Matrix, a crucial concept in strategic growth planning which has been around for decades.

The tool is for companies trying to decide which strategy to pursue and how to achieve it.

This article discusses the Ansoff Growth Strategies and suggests how successful companies use these strategies to drive innovation and improve their businesses.

What is the Ansoff Matrix?

The Ansoff Matrix is a management tool designed to help decision-makers identify and prioritize desirable opportunities for expansion. The matrix is a two-by-two framework used by organizations to plan and evaluate growth initiatives. It evaluates the attributes of a firm’s current market, competitive position, and financial metrics to determine the degree of investment required for profitable growth.

The Ansoff Matrix is a tool stakeholders use to assess and evaluate different business growth strategies, including the risk associated with each. These growth strategies include market penetration, market development, product development, and diversification.

Ansoff Growth Strategies

The Ansoff Matrix looks at a firm’s current stage in the market and determines its most logical next step. The four growth strategies within the Ansoff Matrix are discussed below.

1. Market Penetration Strategy

• Offering discount sales on large orders.
• Decreasing prices of existing products to attract new customers and retain existing ones.
• Increasing promotional and marketing strategies.
• Streamlining and refining distribution processes.
• Improving products to attract more customers.
• Merging with or acquiring a competitor in the same market.

2. Market development

The second segment of the Ansoff Matrix – market development, occurs when an organization introduces its existing products to a new market. It includes the expansion of business to other demographic regions.

This strategy is less risky than others but riskier than the market penetration strategy. It has a higher chance of success since it doesn’t require significant product development. Instead, it allows the management team to leverage existing products in a slightly different market.

Market development approaches include:

• Expansion of business to a different demographic region.
• Getting into a new local market (regional expansion)
• International expansion, i.e., entering foreign markets.

3. Product development.

The third quadrant of the Ansoff Matrix is product development. A business employs a product development strategy when it attempts to create a new product for its existing market. The risk associated with this strategy can be likened to that of the market development strategy. This strategy allows customers to choose from an expanded product line.

Product development approaches include:

• Carrying out market research on customers’ needs and developing a new product(s) to meet these needs.
• Acquiring the rights to produce and sell another company’s product.
• Branding a product produced by another company.
• Partnering with another firm to produce a new product.

4. Diversification

The final and the riskiest quadrant in the Ansoff Matrix is diversification. An organization employs diversification when it creates new products or services for new markets. The high risk associated with this strategy is because it involves the introduction of an untested product into an unfamiliar market.

However, this strategy can be successful with proper planning and market research. Adequate diversification will provide new profit avenues for the business and reduce its reliance on a single market/product.

Two types of diversification exist.

• Related diversification: Occurs when a company’s new products or services are similar to or complement its existing offerings. For instance, a company that makes cell phones may decide to create a device that automatically powers the phone when it’s close to it.
• Unrelated diversification: Involves the introduction of new products that are outside the company’s recognized specialty. For example, if a company is known for making exercise books but then decides to start producing leather shoes.

Conclusion

The Ansoff Growth Matrix is a growth-oriented tool for companies to evaluate their products and services in their current or planned markets. The matrix is a two-by-two framework that considers four different growth strategies.

• Market Penetration: Increasing sales of existing products in an existing market.
• Market Development: Introducing existing products into new markets.
• Product Development: Introducing new products to an existing market.
• Diversification: Introducing new products into new markets