An Introduction to the Ansoff Matrix

Otherwise known as the ‘Product-Market Matrix’, the Ansoff Matrix is essential for strategic planning and, therefore, one of the most widely used marketing tools today. The framework primarily studies the viability of moving into new markets and helps executives, senior managers and marketers devise the best possible strategies for future growth. Used correctly, the tool should generate four alternative directions for the development of a business.

Igor Ansoff’s matrix denotes that a business’ attempts to grow revenue depend on whether it markets new or existing products to new or existing markets. The four areas considered in the Matrix are as follows:

Market Penetration

Here, the focus of the business is to sell more existing products or services to existing customers. The objectives are:

• To maintain or increase the market share of current products through a combination of strategies - such as advertising and targeted promotion
• Deter or drive out competitors with the support of a pricing strategy designed to make the market unattractive to others
• Increase customer loyalty through reward schemes and improved customer service

With this strategy, knowledge is everything. The focus is on markets and products that the business knows inside out; information about competitors and customer needs is easily accessible. A market penetration strategy will not, therefore, require much investment in new market research - if any at all.

Market Development

This is the growth strategy in which the business seeks to “tap into” new markets with its existing products and services. A variety of different markets should be considered, such as;

• New geographical markets e.g. exporting the product to a new country
• New distribution channels e.g. moving from retail to e-commerce
• Different pricing strategies to attract different customers, such as for businesses buying in large quantities

Although it can often lead to revenue growth, market development is a riskier strategy than market penetration because it involves a greater degree of uncertainty and financial commitment.

Product Development

The business aims to introduce new products into existing markets and, thereby, expand their product range. This strategy may require the development or recruitment of new skills in order to create modified products which can appeal to existing markets.

This strategy is particularly suitable for businesses that need to broaden their offering in order to remain competitive. The music industry is a good example of a sector which has had to find new ways of delivering products online through subscription models. A successful product development strategy places the marketing emphasis on:

• Research & development
• Detailed insight into customer needs
•  Being first to the market

Diversification

Diversification is the name given to the growth strategy in which a business markets new products or services within new markets.

This is an inherently risky strategy owing to the fact that the business is moving into a territory in which it has little or no experience.

In order for a business to adopt a diversification strategy, it must first have a clear idea about what it expects to gain and an honest assessment of the risks. Despite the obvious deterrents, a marketing strategy of diversification can prove to be highly rewarding.