Breaking Down the Ansoff Matrix

Have you and your team gotten to the point where it’s time to grow and expand your business? If your marketing or operations team have not presented you with a Product/Market Expansion Grid, then you might be headed down an expensive, high risk path towards failure.

In a 1957 article published by the Harvard Business Review, Mr. Igor Ansoff – a Russian-American mathematician — presented a body of work entitled “Strategies for Diversification”. He introduced the Product/Market Expansion Grid to demonstrate how an enterprise could successfully maximize their marketing ROI and reduce risk before they entered a product into a market. The Product/Market Expansion Grid (aka The Ansoff Matrix) was divided into four key growth strategies:
-Market Penetration
-Market Development
-Product Development
-Diversification

The determining factor for selecting a strategy was based upon whether a company wanted to enter an existing or new market with an existing or new product.

Market Penetration
This strategy sells your existing products or services into your existing markets to gain a higher market share. Plus, it comes with the lowest amount of risk. If a new apartment complex, school or mall was constructed near your business, an increase in marketing activities (social media, flyers, discounts, and sales) would potentially increase purchases of your existing products by new and existing customers.

Market Development
This strategy takes a “what’s old is now new” approach towards increasing the sale of existing products in a new market. It comes with a moderate amount of risk. Viagra was originally sold as a blood pressure medication. A particularly noticeable side effect soon became an enjoyable trend, so Viagra was repackaged and repurposed as a recreational drug. Also, instead of just being sold to patients suffering from a chronic illness, it was now the drug of choice for men suffering from erectile dysfunction.

Product Development
This higher risk strategy sells new and improved products to an existing market. Product development is an opportunity where marketers use results from focus groups and R&D trends to promote how customers will value an amazing experience with a new and improved product. Even though a version of a product was released three months ago, a newer version promises to be faster, stronger, and much better.

Diversification
This strategy is used to develop new products for new markets and comes with the highest risk of all. Perhaps prior successes might justify why companies adopt the “If we build it, they will come” mindset. Unfortunately, blind launches of new products into new markets often fail. Diversification is a strategy where companies must honestly assess their risks, be clear on their expectations, growth margins, and financial gains (short term and long term), and make sure the risk does not outweigh the reward.

The Ansoff Matrix provides four different paths a company can take to pursue growth opportunities for their business. Regardless of your strategy, Ansoff’s philosophy is still tried true when he said, “A simultaneous pursuit of market penetration, market development, and product development is usually a sign of a progressive, well-run business and may be essential to survival in the face of economic competition.”