THE ANSOFF MATRIX The Ansoff Matrix (Product/Market Expansion Grid) was invented by H. Igor Ansoff.

It has given generations of marketers, business leaders and entrepreneurs a quick and simple way of thinking about business growth. The matrix helps entrepreneurs with insights on how to grow their business through existing or new products or in existing or new markets. In this way Ansoff was helping entrepreneurs/ managers to assess the differing degrees of risk associated with moving their ventures forward.

Successful entrepreneurs and managers spend a lot of time thinking about how they can increase profits. They will have many ideas about things they could do, including developing new products, opening up new markets and new channels, and launching new marketing campaigns. This is where they can use a strategic approach, such as the Ansoff Matrix, to screen their options, so that they can choose the ones that best suit their situations.

The Ansoff Matrix (Product/Market Expansion Grid)

The matrix shows four ways that businesses can grow, and helps entrepreneurs think about the risks associated with each option. The Matrix essentially shows the risk that a particular strategy will expose entrepreneurs to. Each time one moves into a new quadrant (horizontally or vertically downwards) risk is increased

The grid suggests four alternative marketing strategies which hinge on whether products are new or existing. It also focuses on whether a market is new or existing. Within each strategy there is a differing level of risk

MARKET PENETRATION Is when companies enter markets with their existing goods or services. It involves increasing market share within existing market segments. This can be achieved by selling more products/services to established customers or by finding new customers within existing markets.

The underlying assumption is that there is still untapped demand or competitive advantage that can be further exploited without either changing the product or looking beyond existing market segments. Can be done by taking part of or a entire competitor’s market share. Market penetration is considered a low risk method to grow the business

This strategy usually involves use of other elements in the marketing mix, such as an increase in promotional effort, more aggressive pricing policies or more extensive distribution. Entrepreneurs can penetrate the market by finding new customers for your product or by getting current customers to use more of their products.

Action to take Advertise, to encourage more people within your existing market to buy your product(s), or to use more of it. Introduce a loyalty scheme. Launch price or other special offer promotions. Increase your sales force activities. Buy a competitor company (particularly in mature markets).  

Why Market Penetration To maintain or grow the market share of the current product range Become the dominant player in the growth markets Drive out competitors Increase the usage of a company's products by its current customers

PRODUCT DEVELOPMENT Entrepreneurs and managers develop new products in existing markets. An organization that already has a market for its products might try and follow a strategy of developing additional products, aimed at its current market. Even if the new products are need not be new to the market, they remain new to the business.

Product development involves thinking about how new products can meet customer needs more closely and outperform competitors products . It assumes that an innovation will be accepted by the organization's existing customer group.

Product development can be radical, with the introduction of an entirely new product; or moderate, involving only the modification of existing products in some way such as performance, presentation or quality. Many prestige car manufacturers offer a range of merchandise targeted at car owners so that you can buy replica models, clothing and pens.

Action to take Extend your product by producing different variants or packaging existing products it in new ways. Develop related products or services (for example, a domestic plumbing company might add a tiling service – after all, if customers who want a new kitchen plumbed in are quite likely to need tiling as well!)

In a service industry, shorten your time to market, or improve customer service or quality.

MARKET DEVELOPMENT This takes place when companies take existing products into new markets. An organization's current product can be changed improved and marketed to the existing market. The product can also be targeted to another customer segment. Either way, both strategies can lead to additional earnings for the business.

Here, the entrepreneur is targeting new markets, or new areas of the market. He is trying to sell more of the same things to different people. This strategy assumes that existing markets are fully exploited or that new markets can be developed concurrently with existing markets.

New markets may be defined geographically (e. g New markets may be defined geographically (e.g. potential export areas), or by customer grouping (e.g. a different age or social group) or other parameters (e.g. purchasing patterns, industrial classification or sectors).

Action to take Target different geographical markets at home or abroad. Use different sales channels, such as online or direct sales if you are currently selling through the trade. Target different groups of people, perhaps with different age groups, genders or demographic profiles from your normal customers.

DIVERSIFICATION It develops new products and offers them to new markets. As it represents a departure from an organization's existing product and market involvement, it is the strategy of highest risk. When companies have no previous industry nor market experience this strategy is called unrelated diversification.

Related diversification describes how companies stay in a market with which they have some familiarity. Brand new products may also be created in an attempt to leverage the company's brand name. Ansoff pointed out that a diversification strategy stands apart from the other three strategies.

The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities.

The notion of diversification depends on the subjective interpretation of new market and new product, which should reflect the perceptions of customers rather than managers. Products tend to create or stimulate new markets; new markets promote product innovation.

Diversification goal According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification.

One The nature of the strategic objective: Diversification may be defensive or offensive. Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs.

Two It involves the expected outcomes of diversification: Management may expect great economic value (growth, profitability) or first and foremost great coherence and complementary to their current activities (exploitation of know-how, more efficient use of available resources and capacities).

In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion.

Risks Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires the most careful investigation. Going into an unknown market with an unfamiliar product offering means lack of experience in the new skills and techniques required. Therefore, the company puts itself in a great uncertainty.

Diversification might necessitate significant expanding of human and financial resources, which may detract focus, commitment, and sustained investments in the core industries. Therefore, a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth. In order to measure the chances of success, different tests can be done:

Attractiveness test: the industry that has been chosen has to be either attractive or capable of being made attractive. Cost-of-entry test: the cost of entry must not capitalize all future profits. Better-off test: the new unit must either gain competitive advantage from its link with the corporation or vice versa.

The Corporate Ansoff Matrix From a business perspective, the low risk option is to stay with your existing product in your existing market: you know the product works, and the market holds few surprises for you. However, you expose yourself to a whole new level of risk by either moving into a new market with an existing product, or developing a new product for an existing market.

The new market may turn out to have radically different needs and dynamics than you thought, and the new product may just not be commercially successful. And by moving two quadrants and targeting a new market with a new product, you increase your risk to yet another level.

Considerations One will need to know if it is in growth, decline or entering recession. In order to make a worthwhile analysis it is also important to consider other factors, such as the condition of the market. Competition levels and amount of resources available need also to be taken into account.

If any of you lack wisdom, let him ask of God… James 1:5 If any of you lack wisdom, let him ask of God…