What is the Ansoff matrix?

What is the Ansoff matrix?

The Ansoff matrix is another useful tool in planning the company’s operations strategy. It can be used to analyze ideas that have the potential to generate large profits. It focuses on four possible directions for product development and business expansion.

4 elements of the Ansoff matrix

1. Market penetration

It involves increasing sales of already existing products or services to increase your market share.

2. Market development

Once the product is mature, the company should focus on introducing it to new markets. This means that the product remains the same, but we are targeting a different type of consumer.

3. Product development

It assumes introducing a new product/service into an existing market.

4. Diversification

In this model, you are introducing a new product into a previously unknown market area. Different strategies involve different degrees of risk – the least safe is diversification due to a lack of experience and information about the new market. On the other hand, penetration into already-known economic relationships can be considered the safest.

How can you use the Ansoff matrix in your company?

Depending on the taken direction, there are many ways to implement a given strategy.

Market penetration

• Try to attract new customers by developing a new marketing campaign, changing or expanding communication channels,
• Offer attractive sales promotions and discounts,
• Introduce a loyalty program, highlighting the benefits of using it,
• You can partner with another company on the basis of a strategic alliance,
• You can also use the BCG matrix to determine which products are worth investing in,
• This is a good course of action if you are just testing the waters in a particular market. As it becomes saturated, you should make changes to your chosen plan,
• There may be risks and threats like competitors within the sector undercutting prices, unfavorable economic conditions, or regulations that may restrict your business in some way.

Product development

• Invest in research and development to create new products and learn about consumer needs,
• Introduce different variations of an existing product,
• Offer additional goods or services to facilitate the use of the main product,
• Ensure high quality of offered goods and customer service,
• Introducing the above changes requires a lot of money to finance technological support.

Market development

• Target your message to different audiences. Conduct market segmentation to understand the demographics, needs, and lifestyles of your audience, Differentiate sales channels,
• Perform a PEST analysis to see what external factors represent opportunities and threats,
• You can expand the scope of activity in the domestic or foreign market – in this case, the challenge may be different requirements for labeling and packaging of offered goods, to which you need to adapt,
• A possible threat is related to the uncertainty of the success of the changes made, due to the unpredictability of the business environment,
• It may take a long time and a lot of money to achieve the desired results, which may not necessarily be successful.

Diversification

• First, check whether you have enough capital to create a new product category – otherwise, the risk of failure is high,
• It is a good solution if the market becomes saturated,
• Open additional distribution channels to attract customers.

The Ansoff matrix − examples

Here is a look at how some of the world’s best-known companies have used each of these solutions in their management strategies.Netflix − market penetration

The company used penetration pricing, a strategy of offering a product or service at a lower price for a limited time. At the end of the trial period, the discount is removed, but consumers who are satisfied with the service are willing to pay the higher price.

Apple − product development

Apple has used the developed operating system to expand its line of offered products. As a result, it is possible to synchronize all the brand’s devices with each other – iPod, iWatch, iPhone, etc.

Spotify − market development

Spotify’s success is based on its geographic expansion, which it has successfully achieved by entering foreign markets. In the case of Asian countries, the company has adjusted fees to the average income of the population. It has also introduced the option to pay for services in cash in the Philippines and Indonesia, where the use of credit cards is rare.

Disney − diversification

Originally involved in the production and promotion of animated films, Disney has expanded its offerings to include a wide variety of product categories – theme parks, a streaming platform, and consumer products such as toys and accessories associated with well-known cartoon characters.

Pros and cons of the Ansoff matrix

Pros

• Simplifying the analysis to four elements allows you to focus on specific aspects that realistically affect business success,
• A well-developed strategic plan based on the matrix and the determination to put it into practice provides a good opportunity for growth.

Cons

• By simplifying the analysis, risks and external factors can be overlooked,
• It may prove inaccurate if the study is limited to only one tool – you will achieve the best results by combining several methods.

Summary

The Ansoff model presented here is a useful tool you can use to find ways to generate more profits and expand your market share. The key to using it effectively is to identify your current and potential markets and implement it effectively in your management strategy.

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