ansoff-matrix

The Ansoff Matrix In A Nutshell

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

Ansoff matrix in a nutshell

According to the Ansoff matrix, you can evaluate a growth strategy based on whether you’re trying to grow in an existing market with an existing product (market penetration). Whether you will try to grow in a new market with the same product line (market development). Whether you will try to grow by developing new products in the existing market (product development). Or growing by developing new products for new markets (diversification).

Market penetration

In a market penetration scenario, the company grows by leveraging its existing products, thus trying to increase its market share in its current market.

Therefore, the company will either try to sell more to its customers or to expand its customer base. In this scenario, the company is not trying to expand the boundaries of its market, rather increase its presence on that market.

In short, the company grows by leveraging on its products, within its defined market.

Market penetration case study

Since its inception, Google has been able to grow its market share in search, year over year. By simply leveraging on its core product (the search engine) the company has been able to grow consistently to dominate the search market.

Market development

In this scenario, the company grows by leveraging its products to expand in new markets. Thus, the company will try to make its product available in new markets, geographies.

Market development case study

When Facebook started to roll out, in the early years. The company followed a gradual traction model. Where it opened to more and more universities first, in the US. Then moving to other niches and markets, until it opened to anyone.

Product development

In this scenario, a company grows by developing new products for the existing market, for instance, by developing new products that can benefit the same customer base.

Product development case study

As Instagram was expanding its market share in the social media space, it started to experiment with new features that enabled it to gain more traction within the same market, thus growing quickly.

Diversification

In this scenario, a company grows by going beyond its market boundaries and by developing whole new set of products. Based on the degree in which the new product line and the market is adjacent compared to the existing market (related diversification) and a product line or it goes far beyond it (unrelated diversification).

Diversification case study

When Apple launched the iPhone, back in 2007, it risked cannibalizing its most successful product, the iPod. Yet when the iPhone was out, in a few years would create a whole new category (smartphone) much bigger than that of music player devices. Thus, making Apple develop an entirely new market as a consequence of launching a whole new product.

Other companion business strategy frameworks

Usually the Ansoff Matrix is used in conjunction with other strategic frameworks.

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

scenario-planning
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

Read also: Business Strategy, Examples, Case Studies, And Tools

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Read: Business Model Canvas

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"