Digital Transformation – How to succeed with strategy31. July 2018
The Ansoff Product Market Growth Matrix is a very useful tool for developing market launch strategies. The matrix for product and market context provides decision makers, entrepreneurs and marketers a framework for developing their company's growth strategies.
This allows you to make go-to-market decisions to expand your business through the possible product / market combinations.
Historical facts of the Ansoff Matrix
The Ansoff Matrix was developed by Igor Ansoff and was originally published in the 1957 Harvard Business Review in his article "Strategies for Diversification". The strategy tool has since then been taught at universities for business students and used in companies worldwide.
Ansoff suggested that effectively there are only two approaches to developing a growth strategy; by varying what is sold (product growth) and to whom it is sold (market growth). In combination with the Ansoff matrix described above, it offers four strategic options, each with a different level of risk.
1. Market penetration: Existing market and existing products
The first and most widely used growth strategy for companies in the Ansoff Matrix is the strategy of market penetration. It is about winning new market shares with an existing product. The company is trying to sell even more of its products to existing, new and customer competitors.
The aim of this strategy is to increase market share. The market penetration has a relatively low risk, but also small growth opportunities.
The so-called market penetration rate is used to estimate the potential and is calculated as follows:
Market penetration = (number of own customers / number of potential customers in the market) * 100
The lower the degree of market penetration, the greater the remaining growth potential for a company with the market penetration strategy.
2. Market development: new market, existing products
The next strategy is to develop new markets with existing products. The new markets can be new countries and new target groups. Market development usually involves only minor changes to the product or products in order to adapt to the new markets.
3. Product development or product modification: Existing market, new products
Product development as a strategy takes place when a new product is introduced to an existing market with existing customers. This may be the case when replacing existing products or expanding the product range.
The advantage of product development is that customers and the market are already known to the company.
4. Diversification / Innovation: new market, new products
The last of the four strategies is mostly used by startups and start-up companies. Companies offer completely new products in new markets. Diversification thus offers the greatest potential for growth, but also the greatest risks to failure.
The diversification strategy is broken down into horizontal, vertical and lateral diversification according to the degree of risk appetite:
Horizontal diversification is the development of a new product which is still factually related to the previously offered product range.
With vertical diversification, a company deepens its commitment to sales-oriented actions (through so-called forward integration) and or the actual manufacturing process of its products (through backward integration).
In the lateral diversification strategy, companies are expanding into completely new markets, which have no material connection with the existing business.
Extended Ansoff Matrix (9-field matrix)
Ansoff's original product market matrix is a good foundation. However, she omits some possible intermediate areas. Therefore, the so-called extended or 9-field matrix is frequently used, which has the following additional fields:
• Market expansion
• Product modification or extension
• Limited diversification
• Partial diversification
In the market expansion
, the company sells existing products in new geographic markets with the same target groups.
The product modification
or extension closes the gap between market penetration and product development. Existing products are sold here with slight modifications in existing markets.
With limited diversification
, the company either markets customized products to new markets or new types of customers.
The partial diversification
is the effect the development of completely new products for new markets or distribution of modified products for completely new target groups and markets.
Where do you want to run your business? Whether to new target groups, markets or with new products, the Ansoff Matrix serves as an excellent tool for your growth strategy.
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