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What Is It?

The Ansoff Matrix is a strategic planning tool that provides a framework to help executives, senior managers etc. to devise strategies for growth. The Russian American individual named Igor Ansoff came up with the concept.

Ansoffs Matrix
It helps businesses frame their product-based market entry strategies. The matrix classifies products based on existing and new products. It further classifies markets into existing markets and new markets. One of the main purposes of using Ansoff Growth Matrix by a firm is to mitigate its product positioning and market entry-based risks.
Successful leaders understand that if their organization is to grow in the long term, they can’t stick with a “business as usual” mindset, even when things are going well. They need to find new ways to increase profits and reach new customers.

The four types of strategies and their associated risks are also discussed along with an example of each strategy.

Market Penetration

Market penetration strategy, according to Ansoff, carries the lowest risk in comparison to the other strategies. This strategy is termed to be the least risky because of its use by a firm to advertise existing products and lure its existing customers to buy more products/services from them.
The emphasis is on increasing market share through more marketing promotions, more effective marketing and by strengthening the offer by creating more customer value.

Market Development

The market development strategy is significantly riskier in comparison to the Market Penetration Strategy. If a firm wants to acquire new customers and increase its market share, it will need to adopt the market development strategy. In this strategy, a firm does not sell new products to its new customers but just sells them its existing ones.
The strength of this option from the Ansoff Growth matrix is that it puts the pressure on the marketing and sales functions of the business and leaves the operations/supply side to concentrate on what it does best.
It also requires knowing which markets to avoid either because they are too difficult, too different or risk competitive reaction.

Product Development

Most firms do not try to build new products and sell them in the existing markets unless the credibility of a firm is established with its existing customers.

This type of strategy is used generally by the firms that are well established in the market.  They enjoy a significant market share in comparison to the new entrants in the market. If a new entrant adopts this strategy, then it takes a higher risk approach.  It is highly likely to experience fall in the market share of its existing products by selling new ones.

New products in the product development option of the Ansoff Growth Matrix don’t need to be “bleeding edge” new developments to the world although they can be

Diversification

This is the most risky strategy of all strategies in the Ansoff Matrix. The reason behind its higher risk is because of the risk it carries to diversify the market share. This is due to development of new products and entry into new markets. The expenses in adopting this strategy are high. This is mainly due to the investment required in developing new products and the additional advertising budget needed to sell them to both new and existing markets.

Diversification is the most risky growth strategy in Ansoff’s growth matrix. Especially, if it requires the development of new resources and capabilities. It has even been referred to as the “suicide cell”.

The Ansoff Growth matrix is useful for helping you to focus finding the need and the starving market. With a hungry market, business is comparatively easy. But, it gets much more difficult if no one has an urgent need or desire for what you sell.

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