The Ansoff Matrix Helps Organizations To Grow
by Tom Wright, on Nov 23, 2017 11:09:24 PM
The Ansoff Matrix (also known as the Product / Market Expansion Grid) is a strategic framework designed for organizations who want to move beyond 'business as usual'. It's designed to help you figure out which of four strategic directions you should take to successfully grow your business. The Ansoff Matrix was created by Igor Ansoff in 1957, and the matrix is as relevant today as it was over 50 years ago. That's the sign of a strategic framework that must have gotten something right!
We've written extensively on strategic frameworks businesses can use. Check out some of our other articles below:
- Value Disciplines Model & Your Competitive Advantage
- The Benefits of Applying The Stakeholder Theory
- Maslow's Hierarchy As a Business Framework
- Unlocking the Power of the Balanced Scorecard
- Using the VRIO Framework to Create Sustained Competitive Advantage
- McKinsey's Three Horizons of Growth Can Help You to Innovate
We're going to explore why the Ansoff Matrix is so useful, and how to implement it effectively for your organization. Let's start by taking a look at the matrix and the four key quadrants that it encompasses:
The Ansoff Matrix - Four Quadrants for Growth
The Ansoff Matrix- Market Development
This is all about selling more of your current product or service to a different or expanded group of people. In other words, finding new groups of people to sell your product to. They will have the same needs as your existing customers, but perhaps aren't aware that your product could help them.
Examples of strategies that would fit into this part of the matrix would be international (geographic) expansion, or use of new sales channels such as online.
A great example of market development...
Coconut Water had been on sale in health stores for decades. More recently, several large manufacturers decided to change how they marketed the product. They enlisted sports stars and celebrities, positioning Coconut Water as the healthy alternative to sports drinks such as Gatorade. Within a year, Coconut Water had grabbed nearly 6% of the global juice market, from nowhere.
The Ansoff Matrix- Market Penetration
Market penetration entails trying to sell your current product to the same people, but in larger quantities. For example, you may be more aggressive with your marketing but in the same target groups. You may also offer incentives for people to buy more of your product in exchange for a discount.
A great example of market penetration...
Have you ever wondered how and why Coca Cola is associated with Christmas? The answer is because they decided to implement an aggressive strategy of market penetration. They invested heavily in marketing to create a positive association between the two. The target of the marketing effort being existing customers who already loved Coke, and already loved Christmas. By linking the two, Coca Cola created a 13% revenue increase linked directly to Christmas sales.
The Ansoff Matrix- Product Development
This is all about developing new products to sell to your current customer base. For example, makers of sports shoes have aggressively developed products such as sports clothing to sell to the same group of people who were originally just buying shoes.
A great example of product development...
McDonald's seems to have done a pretty good job of weathering the changes in consumer taste over the years. They've done this by supplementing their mainstream fast-food products with new additions. The strategy was to appease customers who've grown tired of high-fat junk food (but love the convenience/low cost that McDonald's offers). A great example is the McSalad, a completely different product from burgers and fries. The Mcsalad debuted on the Maccas menu to stop an increasingly health-conscious customer base from going elsewhere.
The Ansoff Matrix- Diversification
Diversification is arguably the riskiest of all 4 components. This quadrant involves selling new products to new markets. The risk is clear in that you’ll likely have little knowledge of either the product or the market. However, the possible gains in diversifying are often large.
A great example of diversification...
Long ago, Apple was a brand that only appealed to serious graphic designers, and a certain type of tech geek. Then came the iPod (and eventually the iPhone). These products were actually very different from anything that had come before (from Apple or anyone else). They were designed from day 1 to appeal to a totally different customer-base than had previously been buying Apple products. This is probably the single best executed example of new product + new customer the world has seen.
How to Implement The Ansoff Matrix
OK, so now we know what the Ansoff Matrix is all about, and how powerful it can be in helping organizations to grow their business. Let's take a look at how exactly to implement it.
Start by identifying your strengths...
It's no secret that for the most part, playing to your strengths is a good starting point. There are a range of tools you can use to help identify your strengths as an organization, from SWOT to the more advanced SCOPE analysis techniques - so we won't cover that here. Ultimately, it's about asking yourself critical questions such as:
What makes me different from my competitors?
Why do people buy from me instead of others?
What am I proudest of about my company?
Answering those questions should give you some insight as to which part of the Ansoff Matrix to attack first. For example:
Companies who's product is just average, but are great at making their marketing campaigns stand out, should probably be looking at market penetration or even development. Companies who have a proven track record of creating solid products (though haven't always been on point with their marketing strategy), are better suited to implement a product development or diversification strategy.
Now determine your risk appetite...
OK, so just because you're good at something, doesn't mean you should stick to doing only that. In-fact, the right move may be to push yourself a little harder - either because you see a big opportunity, or even a big looming threat to your current industry.
The more risk appetite you have, the further away from your strengths you might want to push yourself. Generally speaking, the risk factors of the Ansoff Matrix look like this:
Figure out where you want or need to sit on that spectrum and use that to influence your decision as to which quadrant to attack.
Finally, make a plan...
Now that you've chosen which part of the Ansoff Matrix you want to attack, it's time to make a plan. Start by creating a succinct vision statement that captures what you're trying to achieve. If you were Apple and were about to pursue the diversification strategy, you might have had a vision statement somewhere along the lines of:
"To capture the hearts, minds (and wallets) of a new generation of computer geek, through innovative technology that increases their access to pop culture staples such as music and movies."
(OK, so I made that up on the spot - it's not an actual Apple vision statement, but you get the idea!)
Once you've got your vision, the rest of your strategic plan should be much easier to create. We've create a detailed guide on how to do just that here - and you'll definitely want to check out our own strategic platform Cascade when you get to this part of the journey.
Don't be afraid to try creating plans for a few different quadrants of the Ansoff Matrix to see which one suits you best!
This piece, is part of a series that covers 5 of the best strategy frameworks out there. Be sure to have a read of the guide, as you may find that one of the other frameworks will fit a little better with your organization at this stage.