Ansoff Matrix

To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that
focused on the firm's present and potential products and markets (customers). By
considering ways to grow via existing products and new products, and in existing markets
and new markets, there are four possible product-market combinations. Ansoff's matrix is
shown below:
Ansoff Matrix
Existing Products New Products
Market Product
Existing Markets
Penetration Development
Market
New Markets Diversification
Development

Ansoff's matrix provides four different growth strategies:

• Market Penetration - the firm seeks to achieve growth with existing products in
their current market segments, aiming to increase its market share.

• Market Development - the firm seeks growth by targeting its existing products to
new market segments.

• Product Development - the firms develops new products targeted to its existing
market segments.

• Diversification - the firm grows by diversifying into new businesses by developing

new products for new markets.
Selecting a Product-Market Growth Strategy
The market penetration strategy is the least risky since it leverages
many of the firm's existing resources and capabilities. In a growing
market, simply maintaining market share will result in growth, and
there may exist opportunities to increase market share if competitors
reach capacity limits. However, market penetration has limits, and
once the market approaches saturation another strategy must be
pursued if the firm is to continue to grow.

Market development options include the pursuit of additional market

segments or geographical regions. The development of new markets
for the product may be a good strategy if the firm's core competencies
are related more to the specific product than to its experience with a
specific market segment. Because the firm is expanding into a new
market, a market development strategy typically has more risk than a
market penetration strategy.

A product development strategy may be appropriate if the firm's strengths are related to
its specific customers rather than to the specific product itself. In this situation, it can
leverage its strengths by developing a new product targeted to its existing customers.
Similar to the case of new market development, new product development carries more
risk than simply attempting to increase market share.
Diversification is the most risky of the four growth strategies since it
requires both product and market development and may be outside
the core competencies of the firm. In fact, this quadrant of the matrix
has been referred to by some as the "suicide cell". However,
diversification may be a reasonable choice if the high risk is
compensated by the chance of a high rate of return. Other advantages
of diversification include the potential to gain a foothold in an
attractive industry and the reduction of overall business portfolio risk.

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Ansoff's Product/Market Matrix

Ansoff Matrix and risk:

The greater the degree of newness the greater the risk

Hence:

Market Penetration: Lesser risk involved

Market Development: Moderate Risk

Product Development: Moderate Risk

Diversification : High risk because both product and market are new and
unknown

Market Penetration
Here we market our existing products to our existing customers. This means
increasing our revenue by, for example, promoting the product, repositioning the
brand, and so on. However, the product is not altered and we do not seek any new
customers.
Strategies:-
To maintain or increase share of the current market with current products.

To secure dominance of a growth market or restructure a mature market

by driving out competition.

Selling same products to the same people

If market is saturated – it is difficult to achieve growth through increased

market penetration.

In stagnating market – increase in sales is only possible by grabbing

market share from rivals.

Competion will be intense in such markets.

Risks are low – prospects of success are also low unless there is strong
growth in the market.

How is increase market penetration achieved?

• -Increase usage by existing customers

• -Attract customers away from rivals

• -Gain market share at the expense of the rivals

• -Encourage increase in frequency of use

• -Devise and encourage new applications

• -Encourage non buyers to buy

Use market penetration when:

• The market is non saturated

• There is growth in the market

• Competitors share in market is falling

• Increased volumes leads to economies of scale

• There is scope for selling more to existing customers

Market Development
Here we market our existing product range in a new market. This means that the
product remains the same, but it is marketed to a new audience. Exporting the
product, or marketing it in a new region, are examples of market development.

This involves:
 • -Selling same product to different people

• -Entering new markets or segments with existing products

• -Gaining new customers, new markets

• -Entering overseas market

Market development requires changes in marketing stretegy:

• -New distribution channels

• -Different pricing policy

• -New promotional strategy to attract new customers

Use market development when:

• -untapped markets are beckoning

• -the firm has excess capacity

• -there are attractive channels to access new market

Market development involves moderate risk

-there is lack of familiarity with customers but at least the product is

familiar

Product Development
This is a new product to be marketed to our existing customers. Here we develop and
innovate new product offerings to replace existing ones. Such products are then
marketed to our existing customers. This often happens with the auto markets where
existing models are updated or replaced and then marketed to existing customers.

This is the development of new products for the existing market

New products come in the form of:

• New products to replace current products

• New innovative products

• Product improvements

• Product line extensions

• New product to complement existing products

• Product at a different quality level to existing products

It is used when:

• The Firm has strong R&D capabilities

• The market is growing

• There is a rapid change

• The firm can build on existing brands

• Competitors have better products

New product development is costly and there are moderate risks

associated with this strategy.

Diversification
This is where we market completely new products to new customers. There are two
types of diversification, namely related and unrelated diversification. Related
diversification means that we remain in a market or industry with which we are
familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the
food industry). Unrelated diversification is where we have no previous industry nor
market experience. For example a soup manufacturer invests in the rail business.
Ansoff's matrix is one of the most well know frameworks for deciding upon strategies
for growth.
-New product sold to new market

-New product for new customer

It is a risky strategy because it involves two unknowns

New product and new markets should be selected which offer the prospect
for growth which the existing product market mix does not

One problem is to identify real life examples of firms developing new

products for genuinely new group of customers

Diversification is further subdivided in to Related and Unrelated

diversification:

Related Diversification:

Market and product share some commonality with existing products

It builds on assets or activities which the firm has developed

It involves harnessing existing product market knowledge

Examples: Banks developing insurance products

Horizontal Diversification: When products are introduced in current

markets
Vertical Diversification: When an organization decides to move into its
suppliers or customers business to secure supply or to firm up the use of
products in end products

Concentric Diversification: When new products closely related to current

products are introduced in new markets

Unrelated Diversification:

Also known as Conglomerate Diversification: When completely new

technology unrelated products are introduced into new market

-Growth in products and markets that are completely new

-Development beyond the present history in to products and markets

which bear little relation to the present product market mix

-No commonality with existing products and markets

It represents a departure from existing products and markets it does

represent considerable risk

Uses of the Ansoff Matrix:

Framework to explore directions for strategic growth

Most commonly used model for analyzing the possible strategic direction
that a business should take

It not only identifies and analyses the different growth opportunities but
also encourages planners to consider both expected returns and risks

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