This article discusses the Ansoff Matrix, a vital strategy tool for businesses. Ansoff Matrix has immense value in helping companies to identify their growth options.
What is it?
The Ansoff Matrix suggests four ways for a company to grow. From the market perspective, the company can either win more market shares in its current market or enter a new market. From the product perspective, the company can either sell more of its existing products or introduce a new product. As a result, the growth options are as follows:
Market Penetration: Focus on increasing sales and market share by introducing existing products into existing markets.
Market Development: Focus on selling existing products into new markets.
Product Development: Focus on introducing new products to a current market.
Diversification: Focus on introducing entirely new products into new markets.
Business executives and managers can adopt one of the options after carefully considering the advantages and disadvantages associated. Then, after adopting the chosen option, the companies can channel their resources into pursuing the option and growing their business.
When do we use it?
We use the Ansoff Matrix to make crucial growth decisions – especially those related to marketing and product development. Some of the use cases include the following:
Providing the CEO with an idea of where to grow and invest resources.
Guiding the marketers in designing and implementing effective marketing campaigns (i.e., whether to focus on existing markets or new markets; on existing products or new products).
Guiding the product developers in researching the consumers and designing new products (i.e., whether to focus on existing markets or new markets; on existing products or new products).
Guiding the sales teams in working out the sales plan and giving them a direction to pursue.
What business questions is it helping us to answer?
The Ansoff Matrix can help you to answer the following questions:
What is the best approach to growth? How to win the markets with your products or services? Do you stick to an existing product rollout or switch things up in your production yard?
When is the right time to switch things up with your product? Do you watch out for a new market trend or wait for demand to ramp up/reduce?
Which line of action will give you leverage for future growth and expansion opportunities?
Is it best to spread your net to a different market segment, or should you continue with the present one?
Which business prospect will present the highest opportunity costs, and which alternative is more profitable?
How do we use it?
Step 1: Assemble the Team
First, assemble a team to gather the relevant data and analyze each option's risks, opportunities, and challenges.
Step 2: Idea Brainstorming to Create the Matrix
Brainstorm the best ideas for each quadrant of the matrix.
Market Penetration
Brainstorm the best ways to enhance further sales and increased impact in your target market using existing products. For example, you may opt to lower prices, introduce promotions and engage in more aggressive marketing campaigns.
Market Development
Brainstorm the best ways to enhance further sales by introducing your product or service to a new audience and making further inroads into the market. For example, open new stores in an entirely different location and explore alternative marketing channels.
Product Development
Brainstorm the best ways to develop a new product or make significant changes to an existing one before introducing it to the market. For example, increase/expand your line of products and services to consolidate your customer base and provide them with options.
Diversification
Brainstorm the best ways to create a new product targeted at a new audience. You can use the knowledge of your existing product to create a similar one or develop an entirely different product that is unfamiliar to your audience.
Once you've created a matrix mapping all these four options, go to the next steps.
Step 3: Analyze and Decide
Examine the components of your matrix and analyze the opportunities, risks, and challenges that come with following each option. Do this by getting relevant customer feedback and engaging knowledgeable industry persons.
Don't forget to quantify the overall impacts.
Settle for the best option after carefully considering all the factors, risks, and prospects involved.
For the chosen option, develop measures to manage risks associated with each strategy.
Practical Example
A dairy products manufacturer aims to develop its next growth strategy using the Ansoff Matrix. It takes the following steps:
First, the company assembles a team and tasks them to populate the Ansoff matrix.
Then, after brainstorming, the team comes out with these ideas:
Introduce product discounts and create jingles in several local languages to help it penetrate a larger audience.
Develop plans to launch its products to an entirely different market in a different location or customer demographic.
Venture into producing confectionery products and roll them out to its existing customer base.
Diversify its product base to include the production of pharmaceuticals or fertilizers and launch these products into urban areas for an entirely different audience.
Afterward, the team analyzes each option's risks and opportunities.
Considering the availability of the resources, the dairy company decides to leverage its strong brand name and customer base by adopting the product development option.
So, it introduces a confectionery line and rolls it out to its traditional markets.
Finally, the company also develops plans to mitigate the associated challenges.
Advantages
It is used by businesses to navigate the risks of future operations. In addition, managers can use this technique to ascertain the prospects and potential problems with future business endeavors.
Managers use it to work out the best options for growth and expansion.
It can help you give your business a clear-cut sense of direction. This way, you know the areas and operations to prioritize and the ones that can wait.
It can be used to examine the feasibility of alternatives and to check the opportunity cost of each one.
It is straightforward to use and understand.
Disadvantages
Data collection might be challenging, with either too little or too many data.
It does not compensate for the difficulty in predicting the impact of unforeseen circumstances.
It can not be used in isolation to make critical decisions on your business's strategic direction.
It might be challenging to implement if there is no consensus on crucial decisions among relevant stakeholders.
A number of the critical elements of your market research and business position might not be accounted for using this strategy.
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