written by | September 26, 2022

Ansoff Matrix - Definition, Theory, Examples, Uses

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Any company that wishes to develop and experience success in the future will probably need to broaden its strategy by concentrating on growth models. Although the Ansoff Matrix also lists additional strategies, many businesses can increase their revenue by broadening their product offerings or expanding into new areas. This matrix aids companies in assessing risk and comprehending the benefits of their growth strategy.

An excellent resource for creating a market launch strategy is the Ansoff Matrix for product market growth. The matrix for product and market context offers entrepreneurs, decision-makers, and marketers a platform for creating business growth strategies.

You can make go-to-market decisions to extend your firm through potential product market combinations if you have an understanding of the market, clients, and their demands.

Did you know? H. Igor Ansoff created the Ansoff Matrix, which was first presented in a 1957 essay titled "Strategies for Diversification" in the Harvard Business Review.   It has provided thousands of business leaders and marketers with a quick and easy tool to consider the threats to growth.

What is Ansoff Matrix?

The Ansoff matrix is a framework that aids in choosing the future course that the company should pursue while taking into account the risks and rewards connected to each of the following strategies: market penetration, product development, market development, and diversification. These 4 strategies are essentially what the Ansoff Matrix offers a corporation to investigate. 

Ansoff matrix provides strategies that businesses can apply for business development and future business scope based on market and product circumstances.

Also Read: What Is Business Development - Complete Guide on Business Development Strategy for Successful Business

Theory of Ansoff Matrix

Since its inception, the idea has aided firms in identifying growth possibilities and evaluating the risks involved with development and growth. They can then create backup plans while taking into account potential long-term problems. Additionally, the mix of current and future product offerings enables businesses to create distinctive marketing strategies like market penetration, product development, market development, and diversification, collectively known as the Ansoff Growth Matrix.

The Ansoff Matrix's four growth strategies are as follows:

Market Penetration 

The first sector of the Ansoff Matrix represents the market penetration strategy, which also has the lowest risk of the four growth alternatives. It occurs when a company makes an effort to expand its offers in a market where it already has an established presence. By discovering new clients within the same industry or selling more of its products to an existing clientele base, market penetration aims to improve an organization's market position. Although the strategies used by an organization can differ, more dynamic promotion is typically used by businesses to achieve this goal. A company may do the following to penetrate the market:

  • Increasing their marketing initiatives

  • Lowering their prices
  • Having sales and promotions to attract new clients
  • Combining forces with or acquiring a rival company in the same industry
  • Enhancing products to increase customer attractiveness
  • Improving their distribution method

Market Development 

The second quadrant, known as market development, is when a business uses its current products and tries to expand into new markets. If a business is local, this could mean expanding to other cities, states, or countries. It is a market development growth strategy whenever an organisation expands from its present market into a new one where it does not yet exist, regardless of the nature of the new market.

While this strategy carries a little higher level of risk than market penetration growth, it is more likely to succeed if the company can increase output without adversely impacting financial affairs or distribution, the market they are attempting to enter is comparable to the one they are already successful in, and their products are distinctive enough to stand out in the fresh market. As the market grows, a company might:

  • Create various consumer categories for the business
  • Engage in international markets
  • Increase the company's customer base to encompass a different segment of the market that wasn't previously served, like going from B2C to B2B.

Product Development

When a business develops new products for its existing market, it falls under the third category of the Ansoff Matrix, product development. The risk involved in a product development growth plan is comparable to that of an approach to market development. The company will have a wider selection of products for clients to pick from with the help of this plan. A company may:

  • Join forces with another business to improve distribution or to offer a new product.
  • Purchase a company's rights to make and market its product.
  • Spend budget funds on market research and product development to make products that will improve the lives of its clients.

Diversification

Diversification is the fourth and last component of the Ansoff Matrix, and it presents the greatest danger to companies. A corporation wishes to expand into new markets by using new products, services, or other offers. This is the biggest gamble since it includes an unproven product in a sector of the market you are unfamiliar with.

Diversification comes in two flavours:

Related diversification: Related diversification occurs when a company's new items complement its existing offerings or, at the very least, operate in the same market. For instance, a corporation that manufactures computers might create a gadget that covers computer wires.

Unrelated diversification: It is when a business expands into markets that are outside of its core competencies. For instance, suppose a business has been producing notepads and pencils for ten years before deciding to start generating recyclable water bottles.

Also Read: Types of Business - Different Types of Businesses One Must Know

Ansoff Matrix examples 

Example 1 ( Market Penetration )  

Because fast food restaurants compete in the same market, they share the same clientele. Assume that restaurant A has more clients than restaurant B. In order to draw in new clients, the former may provide a special menu, a lower rate, or even remain open around the clock. Restaurant A would benefit from a bigger market share for its current goods and services.

Example 2 ( Product Development ) 

A maker of electric vehicles announces plans to introduce hybrid vehicles in a city. Furthermore, it is consistent with the local government's commitment to ensuring cost-effective transportation electrification. Additionally, this statement heralds the entry of a new product into the already crowded vehicle industry, paving the way for urban mobility that is environmentally beneficial.

Example 3 ( Market Development ) 

The e-commerce company Nykaa, Inc. has made the decision to open brick-and-mortar outlets in India. Nevertheless, despite the brand's success in the online retail industry, given its physically present market rivals, its difficulties could be seen. Therefore, it can take some time for Nykaa to establish itself within the competitive business using the products it already sells on its website.

Example 4 ( Diversification ) 

In the food industry, a baker has successful businesses. She does, however, intend to launch a textile company that will focus on a completely other market niche. As the baker has no experience with the goods, she will be working with or the market she plans to enter, doing so could be extremely risky.

Uses of Ansoff Matrix

Correct resource allocation is a challenge for businesses with numerous offers that are significant enough to qualify as SBUs (Strategic Business Units). The Ansoff Matrix offers a structure for allocating resources and creating marketing strategies. It makes the business take into account the dangers connected to its growth strategy.

Additionally, when developing a strategy, it is important to carefully consider the company's strengths and limitations in order to match them with the external opportunities and dangers that exist in the market. A business needs to direct its findings from the SWOT analysis into specific strategies and select a business model after it has done so. The Ansoff Matrix aids the business in selecting one of these models. The Ansoff Matrix provides a summary of all potential options and is easy to understand. It works well for businesses that operate across several industries. The business can select the appropriate plan based on its needs and capacity for risk.

Also Read: Learn About Service Businesses to Start Today in India | Khatabook

Conclusion:

Each business has a unique process for evaluating its market position and selecting a business plan for expansion and development. There are several technologies that make it considerably simpler to locate, analyse, and select from alternatives. Marketers utilise the Ansoff Matrix, sometimes referred to as the product/market expansion grid, as a future-focused portfolio analysis tool to develop future growth plans while accounting for associated risks.

A firm cannot completely be free of risk. Choosing the appropriate strategy at the appropriate moment is the answer, and employing a portfolio analytical framework like the Ansoff Matrix makes decision-making much simpler.

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FAQs

Q: How does the Ansoff Matrix function?

Ans:

The Product/Market Expansion Grid, another name for the Ansoff Matrix, enables managers to quickly summarise various prospective expansion plans and assess the risk involved with each one. The theory holds that risk increases every time you move into a different quadrant (horizontally or vertically).

Q: What purpose does Ansoff Matrix serve?

Ans:

The Ansoff Matrix can be used by businesses to examine options for product development or market entry, analyse risks, and decide which course to adopt. It is a tool for strategic decision-making that enables businesses to weigh their options in light of the market and product they are aiming towards.

Q: Which four Ansoff growth strategies are there?

Ans:

Market penetration, product development, market development, and diversification are the four Ansoff growth strategies.

Q: What is the Ansoff Matrix?

Ans:

Businesses can create and implement effective product and marketing strategies with the aid of the Ansoff Matrix. The Product/Market Expansion Grid, another name for this system, contrasts new and existing products on one axis with new and existing markets on the other. As a result, each matrix quadrant proposes a different growth strategy.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.