What is Ansoff Matrix?
H. Igor Ansoff, a Russian American, was a mathematician and specialized in business management. He is also widely attributed to be the pioneer of Strategic Management. Igor Ansoff invented the Ansoff Martix in late 1950s. Ansoff Matrix is a strategic planning tool that helps business to determine and define their product growth strategy using existing or new products in existing or new markets. Every business has a need to grow their revenue. The same is achieved by penetrating existing markets, building & selling new products and diversifying into new markets. For years, Ansoff Matrix (also known as Product Market Growth Strategy or Product Market Expansion Grid) has been used by Product Managers, Business Leaders and Marketers to determine alternative growth strategies.
Defining your growth strategy:
There are multiple inputs needed to arrive at your Product Growth Strategy. Some of these inputs are Primary and Secondary Market Research data, technology trends, market conditions, existing product performance, customer connects and availability & maturity of different sales channels. As a Product Manager or Business Leader, this matrix helps you to evaluate your options, understand the risk involved in each option and choose the option that gives you the best return with acceptable risk.
In Ansoff Matrix, there are four growth strategies by cross matching between existing or new products with existing or new markets. These growth strategies are:
1. Market Penetration – Increasing market share by increasing sales of existing products.
2. Market Development – Driving new sales in new markets for the existing products.
3. Product Expansion – Developing and selling new products in existing markets because of changing market needs.
4. Diversification – Diversify into new markets by developing new products.
Understanding your growth strategy:
1. Market Penetration:
a. Growth by selling more of existing products to the same targeted group (e.g. new portfolios within your existing client adopting your product) or selling your existing products to new clients within your targeted group.
b. Achieved by increased advertising, ramping up sales, better pricing than competitors, broadening customer connects, specific marketing campaigns and special promotions.
c. Risk Level is Low since more sales is done by leveraging existing products and organization capabilities without any specific product investments. In a growing market, maintaining market share will result in additional revenue.
d. Watch out for market saturation for either your product or similar products.
2. Market Development:
a. Growth by selling your existing products to new target groups or markets or geographies.
b. Achieved by creating new sales/marketing teams for the targeted markets, instituting or adding new channels to reach new markets, different pricing models to make it within the reach of your new market and targeted advertising to go after specific clientele.
c. Risk Level is Moderate since it is expansion into new markets and due to the need to increase familiarity of your existing products with a new client base.
d. Watch out to ensure that the focus of your organization’s expertise and core competencies is on your product rather than specific market segments.
3. Product Expansion:
a. Growth by building and selling new products to existing markets or client base.
b. Achieved by investing in your customer relationships, deepening customer connects, partnering in your client’s strategic decisions or market movements, developing product variants or spin offs as per customer needs and providing packaged offerings or services as extension to your products.
c. Risk Level is Moderate since there is a deeper need to better understand your existing clients vis-a-vis their changing or future requirements and invest to aid related product development.
d. Watch out to ensure that the focus of your organization’s expertise and core competencies is on existing market segments or clients.
4. Diversification:
a. Growth by diversifying your business by building and selling new products to new markets or client base at the same time.
b. Achieved by clear risk assessment and management, improving sales/marketing, adding new channels, better pricing models to reach new markets, better packaging and better advertising.
c. Risk Level is Extremely High since it requires expertise on both products and markets. But as they say, if successful, potential of high returns is very much possible and diversification ensures that market conditions affecting one business may not affect another business thereby reducing overall risk.
d. Watch out to ensure that the focus of your organization’s expertise and core competencies is on both products and markets.
So as a Product Manager or Business Leader, the focus comes back to how good is your primary and secondary market research data, how good is your assessment of potential market size & growth for a product, how good are your bets on technology shifts & market conditions and specifically how good is your risk assessment & management for each option. Once you put all this information together, you will be able to define your product growth strategy in a better way.
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