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 from whether the market is new or existing, and whether 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 expand its customer base.

In this scenario, the company is not trying to expand the boundaries of its market, but rather to increase its presence in that market.

In short, the company grows by leveraging 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, and 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 a whole new set of products.

Based on the degree to 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.

Is the Ansoff Matrix still useful?

In the Ansoff Matrix, growth is intended as the prioritization of the development of a portfolio of products, based on existing and new markets, and existing and new customers.

This perspective is also very relevant today.

Indeed, to build a viable business model, over time, a company needs to look into its core business but also beyond it.

This is the logic of using market expansion as a strategy for having the business thrive in the long term.

market-expansion-strategy
Companies can move toward market expansion in a tech-driven business world by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.

This connects to the framework of disruptive innovation, and what Clayton M. Christensen labeled Innovator’s Dilemma.

disruptive-innovation
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

In short, a property business strategy must also include a future vision, where the company needs to move beyond what current customers want.

Otherwise, the company will fail in the long run due to its focus on profitable customers.

This is the paradox or dilemma. In short, as Clayton M. Christensen highlighted, the right short-term strategy often leads to long-term failure.

As executives are incentivized to prioritize current customers and profitable markets, which move the needle for the company’s quarterly profits.

Rather than looking into new markets, which are neither profitable nor big enough in the short period.

Ansoff matrix and the four growth strategies

A proper growth strategy must balance short- and long-term growth.

To prevent short-term optimizations from killing the business in the long run.

marketing-mix
The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.

In a traditional sense, a proper marketing mix is made of four growth levels: price, product, promotion, and place.

Yet, this is the old way to look at growth.

In today’s context, it’s all about demand generation and the ability to build products that customers want, on the one hand, and the audacity to build and create demand for products that customers don’t even know they want yet!

It’s critical therefore, when looking at the value proposition to look at both, the practical side and the demand generation side!

value-proposition
A value proposition is about how you create value for customers. While many entrepreneurial theories draw from customers’ problems and pain points, value can also be created via demand generation, which is about enabling people to identify with your brand, thus generating demand for your products and services.

With these lessons in mind, we want to use the Ansoff Matrix.

And in case, the Ansoff Matrix is not enough, we can use some alternatives.

Alternatives to the Ansoff Matrix

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

Or other strategic frameworks can be used as alternatives to the Ansoff Matrix.

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 alsoBusiness Strategy, Examples, Case Studies, And Tools

The Ansoff Matrix helps you expand your product growth strategy by leveraging four key strategies: product development (expand new products for existing markets), market penetration (expand existing products for existing markets), diversification (expand by creating new products for new markets), and market development (leverage on existing products to develop new markets).

The Ansoff Matrix is really a prioritization tool for your growth strategy, which enables you to understand whether it makes sense to leverage existing products and markets to grow the business or to leverage on new products and markets to do the same.

Other Strategy Frameworks

Blitzscaling

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, prioritizes speed over efficiency, and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps drive change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used to identify new business opportunities or take advantage of existing business opportunities to grow your business in the marketplace.

Digital Marketing Circle

digital-marketing-channels
digital channel is a marketing channel, part of a distribution strategy, helping an organization reach its potential customers via electronic means. Several digital marketing channels are usually divided into organic and paid channels. Some organic channels are SEO, SMO, and email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Porter’s Generic Strategies

porters-generic-strategies
In his book, “Competitive Advantage,” in 1985, Porter conceptualized the concept of competitive advantage by looking at two key aspects. Industry attractiveness and the company’s strategic positioning. According to Porter, the latter can be achieved via cost leadership, differentiation, or focus.

Porter’s Diamond Model

porters-diamond-model
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, and related and supporting industries.

Porter’s Four Corners Analysis 

four-corners-analysis
American academic Michael Porter developed the Four Corners Analysis help a business understand its particular competitive landscape. The analysis is a form of competitive intelligence where a business determines its future strategy by assessing its competitors’ strategy, looking at four elements: drivers, current strategymanagement assumptions, and capabilities.

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