The Ansoff Matrix first published by Harvard Business Review, helps to screen the options available to an organisation to determine which best suits their current situation.
The Ansoff Matrix as you can see above, shows four ways which in a business can grow whilst also placing emphasis on the risk involved with each growth strategy. This tool enables organisations to determine their product and market growth strategies. The matrix emphasizes that as you move to a new quadrant the risk level increases with it.
This growth strategy involves the organisations focusing on selling existing products into existing markets. The market penetration strategy emphasizes that organisations should focus on the markets and products they are familiar with. This is usually of lesser risk because the organisation has an idea of the information in the market, its competitors etc.
Some of the aims of market penetration include:
- Ensuring that market share is maintained or increased for current products – This may involve using competitive price strategies, Sales promotions, advertising etc.
- Increase the level of usage by existing customers – This strategy may involve implementing loyalty schemes to encourage customers to spend more.
This growth strategy involves introducing a new product into an existing market. This strategy requires the organisation to develop new competencies and modify products to entice people in the market. This type of strategy is particularly important in markets with a lot of competition because it provides the organisation with a competitive advantage with the constant introduction of new products to existing customers.
Some of the approaches of a product development strategy include:
- Customer needs – Understanding the needs of customers and how these change.
- Research & development – In order to introduce new innovative products.
This growth strategy involves selling existing products into new markets. This growth strategy is more risky than market penetration because of the fact the business is focusing on a new market which it may or may not be successful in.
Some of the approaches to this strategy include:
- Geographical markets – Introduce the product in different markets for example, exporting the product to be sold in a new country.
- Product packaging
- Distribution channels – For example, selling products from retail to e-commerce.
This refers to a growth strategy that involves introducing a new product into a new market. This strategy is the most risky from the four because the business is moving into a market in which it has minimum experience. This strategy is usually adopted by large organisations looking to expand their product portfolio and profitability through dispersing their risk in different markets.