What is Ansoff Matrix?

Igor Ansoff, developed the Ansoff matrix, to portray different growth strategies (other than increasing market share) to corporates. This strategy focuses on a business' present and potential products, and markets(customers). By considering growth opportunities, through existing products and new products, in existing markets and new markets, there emerge four product-market combinations.

Market Penetration

This is a strategy which arises when a business tries to grow in existing markets, using existing products. This happens when the business tries to increase its market share and dominance in the markets that it operates in. This can happen in various ways which includes promoting existing customers to use more of the product, driving out the competition through aggressive promotional strategies. Penetration strategy is "business as usual" where the business is dealing with products and markets it know well, thereby reducing the need for market research.

Market Development

This strategy is used when a business tries to grow by selling its existing products to new markets. This may be new geographical markets, using new channels of distribution, or even different pricing, and product attributes(like packaging) to create new market segments.

Product Development

Product development refers to a strategy when a business seeks to grow by introducing new products to existing markets. This may require the development of new competencies to complement the development of new products. Ideally a business which is strong with existing customers, than products, can implement this strategy by developing new products which cater to the requirement of such customers.

Diversification

When a business seeks to sell new products to new markets, it is said to be employing a diversification strategy. This is the most risky among the four strategies listed above, as the business moves into new markets and products, of which it has relatively less knowledge. A diversification strategy calls for extensive market research. Though the risk of the strategy may be high, it is often offset by the high returns, or it enables the business to gain a strong foothold in a growing/attractive industry thereby reducing overall business portfolio risk.

This question was asked by one of our readers, Kamalakar Reddy [Image Credit: Pixabay]