How can the Ansoff Matrix help you develop a strategy for your company?

Key information:

• The Ansoff Matrix is a tool created by Harry Igor Ansoff in 1957 to help companies choose the best strategy based on market and product analysis.
• Four growth strategies:
  • Market penetration: Increasing market share with existing products.
  • Market development: Introduction of existing products into new markets.
  • Product development: the introduction of new or modified products into the same market.
  • Diversification: Entering new markets with new products.
• The Ansoff Matrix helps companies explore growth opportunities and assess the risks associated with each strategy.
• Ideal strategy: Companies can start with market penetration and gradually move toward diversification to ensure continued growth.

What is the Ansoff Matrix?

In 1957, Harry Igor Ansoff, an American economist and mathematician, developed a model for formulating the optimal strategy for an enterprise based on an evaluation of decision variables. His theory was called the Ansoff matrix. It is mainly based on analyzing the market and the product, examining the relationship of the two factors and, ultimately, selecting the scenario that will best contribute to the company's growth.

What are the company's growth strategies?

The selection of an appropriate strategy for a company should be preceded by an in-depth analysis of the enterprise. It is worth noting the current performance of the market and the products sold in it, and then assess whether any changes should be made in a particular area. To simplify the analysis, H. I. Ansoff presents four possible strategies for enterprise development.

1. market penetration

When choosing this concept, the company remains in the current market, where it offers unchanged products or services. In deciding on this strategy, the company is focusing on increasing the number of existing customers and reaching new groups of consumers within the same market. An important role is played by the intensification of marketing and promotional activities, in order to intensify its market share and thus increase sales.

2. market development

The choice of this strategy occurs when a company no longer has the ability to increase sales intensity in the current market and decides to distribute existing offerings in new markets. This can be understood geographically (e.g. expansion into foreign markets) or as expansion into new market segments. This is a scenario characterized by greater risk than the first strategy, since it requires the company to learn about the needs and requirements of new groups of consumers.

3. product development

In this case, growth occurs through the company's introduction of completely new or heavily revised products while remaining in the same market. This situation assumes that the company, as in scenario two, no longer has the opportunity to intensify sales of its product, but this time decides to innovate in order to meet other needs of the same group of customers.

4 Diversification

This is the most expansive growth strategy, as it involves moving away from the current product and market and entering a new market with a new offering. There are three types of diversification:

• Vertical - means the independence of the company from suppliers of products and materials needed to produce goods by producing them in-house.
• Horizontal - the company produces a new product and introduces it to a new market, but at the same time does not change the production process and the technologies used so far.
• Parallel - the strategy involves a company entering a completely different market from the one it currently operates in with a new product.

5. application of Ansoff matrix

Formulating an enterprise's strategy, using the Ansoff matrix, is a way to find a path to enterprise development. This tool requires a thorough knowledge of the product the company produces, as well as the market in which it operates. In this way, the company looks for growth opportunities without necessarily changing the market segment or product offered. Only after an in-depth analysis of the company is the possibility of expansion and a change in offering or area of operation explored. The Ansoff model also allows, depending on the strategy, to examine the risk of taking action toward a given scenario. This allows the development of an optimal plan of action for the organization.

6. is there an ideal strategy?

It is an undeniable fact that a strategy that currently works for a company will require specific changes over time. This is due to the fact that companies are focused on growth. It is believed that strategic directions should be chosen according to the "Z-rule," which means going through the strategies of market penetration, market development, product development and diversification in sequence. This is a way to allow the company to grow continuously. However, each company is a separate story, and each of the scenarios presented can have a different effect on the organization, depending on what the goal of its strategy is. The Ansoff matrix can be used, for example, to create a marketing strategy (which you can read more about in our previous article).

Summary

The model proposed by Ansoff allows building a company's strategy based on two variables - product and market. The choice of a scenario should be preceded by a thorough analysis of the company. This is an important step, through which it may turn out that your company is at a higher stage of development than you think and needs a change of action plan. A sound strategy is the foundation of any business, which is not worth overlooking, but should be formulated on the basis of proven tools.