The Ansoff Matrix for Business Growth

Ansoff Matrix is a strategic planning tool used by companies to analyze and plan their product and market growth strategy.

It allows firms to consider ways to grow through existing products in existing markets or new products in new markets.

It consists of four options, each of which is a combination of –

  1. An existing product and an existing market
  2. A new product and an existing market
  3. An existing product and a new market
  4. A new product and a new market.

The matrix can help firms analyze each option and decide on the most suitable growth strategy.

It is often referred to as the product-market growth matrix.

It is used by firms to identify and assess opportunities in relation to their current and potential products and markets.

The Ansoff Matrix has four boxes which are market penetration, product development, market development, and diversification.

Market Penetration. This box refers to existing products in existing markets.

Companies in this box look at increased sales of existing products to existing customers as well as explore new methods of selling or pricing that can drive more sales.

Product Development. This box refers to identifying new products or services for existing markets.

Companies in this box focus on creating new products or services that are tailored for their current set of customers.

This may involve product line extensions and customization through technologies such as personalization and customization.

Market Development. This box refers to the launching of the company’s current products or services into new markets or customer segments.

Companies in this box are looking to expand their product-market reach and enter into new geographic regions, consumer segments or channels.

Diversification. This box refers to completely new product-markets combinations where the company is entering completely new markets with completely new products or services.

Companies in this box are typically looking to venture into completely different business areas in order to diversify their operations, revenues and also reduce overall business risks by spreading them across markets and industries.

How Ansoff Matrix Can Be Used

An example of Ansoff Matrix would be a company that produces board games.

They may use the matrix like this:

Market Penetration: Release more versions of existing board games in existing markets with slight modifications to the game to appeal to new audiences.

Product Development: Release a completely new board game but still target existing markets.

Market Development: Release existing board games in new markets or regions that have not been targeted previously.

Diversification: Develop completely new board games or develop new products or services to target a different type of customer or market.

Coca Cola’s Use of Ansoff Matrix

Let us look at how Coca Cola used the Ansoff Matrix for business growth –

Market Penetration – offering existing products to existing markets.

Example: Coca-Cola running a promotional campaign in an existing market (e.g. Canada) to increase sales of their existing products.

Market Development – offering existing products to new markets.

Example: Coca-Cola introducing its iconic ‘Coke’ brand into a new market (e.g ASEAN countries).

Product Development – offering new products to existing markets.

Example: Coca-Cola launching ‘Coke Zero’, a low-calorie version of Coke, in its existing markets (e.g US).

Diversification – offering new products to new markets.

Example: Coca-Cola launching sports drinks in a new market (e.g China).

Advantage and Disadvantages

Here are the advantages and disadvantages of the Ansoff Matrix –

Advantages

It provides a useful structure for planning business growth as it categorizes potential strategies for businesses to use.

It can be used to identify which markets or products a business can expand into, or seek to diversify into.

Potential opportunities are identified so that the business can choose which best-fits the company’s strategic goals.

Disadvantages

It is limited in its ability to assess risk, requiring additional research and analysis to understand the risks associated with each given strategy.

It is difficult to predict the success of each strategy, as it relies heavily on assumptions and projections.

This can lead to false assumptions and inaccurate decisions that could have a negative effect on the business’s overall financial performance.

Implementing change can be difficult due to resistance from employees, customers and other stakeholders.

This can limit the potential for success of a given strategy, regardless of the promise it may have initially offered.

Fostering Diversification and Innovation

Ansoff Matrix can foster diversification and innovation in a business by helping to identify ways a business can expand beyond its traditional way of doing things.

For example, a company might use the Matrix to decide whether to continue marketing the same products in their existing markets, or explore new markets or create new products to meet the demand in those markets.

This can encourage experimentation and risk-taking, creating an environment of creativity and innovation, as well as diversification.

It also allows businesses to analyze the competitive landscape and identify opportunities for growth.

Additionally, it can help to ensure that strategic decisions are made with both short-term and long-term goals in mind, thus helping businesses remain competitive in a constantly changing environment.