The Ansoff Matrix is a strategic planning tool that provides a framework to help Business and marketers devise strategies for future growth. It is named after Russian American Igor Ansoff, who came up with the concept.
Ansoff, in his 1957 paper, provided a definition for product-market strategy as "a joint statement of a product line and the corresponding set of missions which the products are designed to fulfill". He describes four growth alternatives: see image below.
In market penetration strategy, the organization tries to grow using its existing offerings (products and services) in existing markets. In other words, it tries to increase its market share in current market scenario.This involves increasing market share within existing market segments. This can be achieved by selling more products or services to established customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.
This can be accomplished by: (i) Price decrease; (ii) Increase in promotion and distribution support; (iii) Acquisition of a rival in the same market; (iv) Modest product refinements
Market development - In market development strategy, a firm tries to expand into new markets (geographies, countries etc.) using its existing offerings.
This can be accomplished by (i) Different customer segments (ii) Industrial buyers for a good that was previously sold only to the households; (iii) New areas or regions about of the country (iv) Foreign markets. This strategy is more likely to be successful where:- (i) The firm has a unique product technology it can leverage in the new market; (ii) It benefits from economies of scale if it increases output; (iii) The new market is not too different from the one it has experience of; (iv) The buyers in the market are intrinsically profitable.
Product development - In product development strategy, a company tries to create new products and services targeted at its existing markets to achieve growth.
This involves extending the product range available to the firm's existing markets. These products may be obtained by: (i) Investment in research and development of additional products; (ii) Acquisition of rights to produce someone else's product; (iii) Buying in the product and "branding" it; (iv) Joint development with ownership of another company who need access to the firm's distribution channels or brands.
Diversification - In diversification an organization tries to grow its market share by introducing new offerings in new markets. It is the most risky strategy because both product and market development is required. (i) Related Diversification - Here there is relationship and, therefore, potential synergy, between the firms in existing business and the new product/market space. (a) Concentric diversification, and (b) Vertical integration. (ii) Unrelated Diversification:
This is otherwise termed conglomerate growth because the resulting corporation is a conglomerate, i.e. a collection of businesses without any relationship to one another. A strategy for company growth through starting up or acquiring businesses outside the company’s current products and markets.
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used by firms to analyze and plan their strategies for growth. The matrix shows four strategies that can be used to help a firm grow and also analyzes the risk associated with each strategy.