Ansoff's Matrix

Ansoff’s Matrix is a tool that helps organizations to determine what practical plan to adopt to achieve the specific goals that they have in mind. The Ansoff Matrix was first introduced in 1957 in the Harvard Business Review by a Russian American called Igor Ansoff, and has since helped countless businesspeople narrow down their options for successful future strategies. The Matrix or Market Expansion Grid (otherwise known), by providing four major ways in which businesses can grow, is a simple way of pondering company escalation.

The Matrix in its essence shows us the risks involved in moving from one quadrant to another.  The top left quadrant relates to a growth within an existing market using existing products, hence, we call this strategy Market Penetration. Out of the four possible options it has the lowest risk associated with it. Market penetration involves selling more of the same products within an existing market. This can be done by increasing advertising, introducing Loyalty Schemes, changing pricing or bringing in special offer promotions, increasing sales team and by acquiring a competitor. E.g. if a coffee seller like Starbucks wants to increase its market share, it will adopt market penetration activities as a safe method for growth.    

  

Moving a quadrant in the y-axis to new markets but existing products is a moderately risky option. This strategy within the matrix is referred to as Market Development. New markets can be found by moving to new geographical areas or by using the internet as a resource. Market research and further segmentation of markets can help identify new customer bases. E.g. Tommy Hilfiger can access a new market by targeting an older age demographic by changing advertising tactics.

Another moderately risky option is, Product development. This move in the x-axis of the matrix refers to the development of a new product for an existing market. A company may choose to do this if it senses the need of existing customers for a new product which the company can reasonably provide. Product development can be achieved by either extending the existing product or offering variations of it. Furthermore, related products can be developed which compliment already existing products. Improvement in customer service and human resource can also be regarded as product development. E.g. the introduction by Apple Inc. Of iTunes was product development within an existing market. This has massively helped them provide a complimentary service to existing customers.

The final and most risky move within the Ansoff Matrix is that of Diversification. By diversifying, a company is exposing itself to two levels of risk; the first of entering a totally new market and the second of developing a new product for this market. Existing expertise cannot be used and there is little chance of achieving economies of scale. However, by diversifying, a company is no longer susceptible to complete disaster if one venture were to fail and if successful the profits generated would also be double.  A good example of diversification is Virgin Group, which moved from music production to travel and mobile phones successfully.