Businesses make strategic plans to grow. They use different marketing strategies to penetrate the market. No business enters the market without understanding market trends. It is essential to know the market and listen to customers’ feedback while trying to meet their needs.
The Ansoff Matrix is a tool that helps organizations scale their business. It helps them to enter the market successfully.
This article will help explain the Ansoff Matrix, its strategies, challenges, and benefits.
First, let us understand why the Ansoff Matrix matters so much in business.
The Ansoff Matrix helps businesses use market trends properly with fewer risks. It provides different and easy to implement market growth strategies that growth-oriented businesses can use.
The Four Strategies of the Ansoff Matrix
The Ansoff Matrix has four strategies. Each has different tactics to enter or grow in the market.
These strategies are:
- Market penetration
- Market development
- Product development
- Diversification
#1. Market Penetration
Market penetration is used to increase the sales of existing products. Companies and businesses can use this strategy to expand and attract their customers. This can be done by selling existing products with a different approach.
For example, they can offer promotions or offer bulk discounts, etc. This will increase sales and expand the market share. Market penetration is useful for a business trying to increase its market share.
#2. Market Development
Here, the business tries to enter a new market with its existing products. New markets include new places, different audiences, etc. Market development allows the company to explore other channels of the market. This helps increase their product sales over time.
One example is the sale of smartphones and accessories to older adults in addition to young adults and teens.
#3. Product Development
This strategy is similar to the market development strategy but in reverse. The product development strategy helps launch new offerings to an already existing market. To successfully use this strategy, the businesses must understand the market.
Understanding how they can meet their customers’ needs is important, so businesses can focus on developing a new product that meets these needs. This can be achieved by conducting market research and soliciting customer feedback.
#4. Diversification
Here, businesses enter a new market with new products. This is different from the product development and market development strategies.
This strategy is risky as the market is unfamiliar, and product acceptability is not ensured. For this strategy to be successful, businesses can conduct market research and listen to the needs of their customers before introducing the products into the market.
Importance of the Ansoff Matrix
- Organizations use the Ansoff Matrix to grow and scale their business. It helps organizations understand the market and meet the customers’ requirements.
- With the use of the four basic strategies of the Ansoff Matrix – market penetration, market development, product development, and diversification – businesses can increase their market strength and grow their customer base.
- The Ansoff Matrix strategies create a clear view for businesses and companies. This helps to identify and enhance businesses’ marketing skills. These are useful for reaching their goal in the long term.
- Without the Ansoff Matrix, businesses can take unnecessary risks that may harm their growth. Good implementation of the matrix strategies ensures product and market growth.
How to Make an Ansoff Matrix
The following steps are useful in creating an Ansoff Matrix.
Select a Design Tool
A design tool is required to design the Ansoff Matrix; PowerPoint, GIMP, or Photoshop are good choices. These design programs are easy to use and available everywhere.
Create a Four-Segment Table
The next step is to create a table with four segments. These segments can be designed with different colors for easy differentiation.
Label the Table
The next step is to label the vertical and horizontal lines of the table. The horizontal lines are labeled as “market,” while the vertical lines are labeled as “business products or services.”
Create the Rows and Columns
The rows and columns allow for easy labeling of the product and market types, whether new or old. In this way, the growth level is closely monitored. Incorporate the expansion strategies into the quadrants.
Label the Ansoff Matrix Strategies
Lastly, label the four Ansoff Matrix strategies on the rows and columns. The strategies include product development, market development, market penetration, and diversification. These strategies can be labeled as desired.
How to Use the Ansoff Matrix
The following are some tips to use Ansoff Matrix effectively.
Understand the Matrix
Businesses need to understand the Ansoff Matrix first before they use it. They should understand each strategy and the risks and benefits before choosing a strategy.
Check the Available Options
Organizations should compare the strategies to their business plans and choose the strategies that work perfectly for them. This helps them implement the chosen strategy easily and ensures the business’s growth.
Evaluate the Risk Tolerance
Each strategy in the Ansoff Matrix has its risks and challenges. The market penetration strategy has the lowest level of risk, while the diversification strategy has the highest level of risk. Businesses should understand the risks involved in each strategy before using them.
Work With the Best Option
As a business looking forward to entering the market, they should carefully understand the Ansoff Matrix strategies before choosing the right strategy. Working with the best option should be the goal of a successful business. The Ansoff Matrix can be revisited when businesses expand or change their growth strategy.
Examples of the Ansoff Matrix
Businesses can use the Ansoff Matrix in different ways.
Below are examples of how businesses can apply the Ansoff Matrix.
Ansoff Matrix: Market Penetration Example
A business that sells sim cards introduces more data plans or call tariff plans at an affordable price for its customers. They can also introduce family and friends data plans that allow customers to share their data with their loved ones at the same price.
This helps generate more sales while catering to the same market or customers.
Ansoff Matrix: Market Development Example
In the market development strategy, a company that sells female lingerie and underwear in America partners with other African manufacturers to sell their products.
This helps the American company enter a new market in Africa with the same products.
Ansoff Matrix: Product Development Example
In this strategy, a female clothing company that focuses on selling dresses and workwear for females notices a gap in the market for female casual wear. So, they broaden their product line to include female casual wear for stay-at-home moms and students.
This helps the company sell to the same market but with a new product line.
Ansoff Matrix: Diversification Example
A clothing line that manufactures and sells female clothing and accessories decides to introduce a male clothing brand. This company has now introduced a different product to a new audience. The company has entered a new market with an entirely different product.
Challenges of the Ansoff Matrix
The Ansoff Matrix is an excellent business growth strategy tool, but it comes with a few limitations, such as:
- The Ansoff Matrix does not consider the importance of market competitors in its strategies. The market always has competitors; however, the Ansoff Matrix strategies ignore this completely in their approach.
- The strategies used in the Ansoff Matrix cannot predict the expected future. The outcomes can be good or bad.
- The Ansoff Matrix identifies strategies but lacks a cost-benefit analysis.
Benefits of the Ansoff Matrix
Some benefits of the Ansoff Matrix are:
- The Ansoff Matrix is simple, easy to understand, and use. Businesses trying to enter the market can benefit from the Ansoff Matrix.
- The Ansoff Matrix limits the risks that businesses may face. This should be expected when using any of the Ansoff market strategies.
- With the business plan in check, the Ansoff Matrix helps businesses create alternatives. This is used to support the growth and purpose of the business.
- The Ansoff Matrix ensures businesses apply the strategies at any point in their business growth.
- It is a great communication tool for visual presentations.
Conclusion
The Ansoff Matrix is very useful in planning and business growth. The Ansoff Matrix aims to help businesses to implement their services and products in the available markets. Businesses can use more than one Ansoff Matrix strategy to achieve their objectives.