Successful business owners understand that, in the long term, they cannot stick with a single mode of business if their organization is to grow. Even when the market is going well, brands need to look for new ways to increase profits and reach new customers.
The distinct options available are developing new products, or opening up new markets, among others. The critical question is, how will brands know which model will work best for them? This is possible through the Ansoff Matrix.
Ansoff Matrix Defined
The Ansoff Matrix is a tool that is used by organizations to analyze and plan their growth strategies. The results from the Ansoff Matrix give brands the answer to which model will work best for them and where they need to focus their resources. This matrix allows brands to think about the potential risks of each of their options and helps them devise plans that are most suited for them.
The matrix was the brainchild of mathematician and business manager, H. Igor Ansoff and was published in the Harvard Business Review in the year 1957. The Ansoff Matrix depicts four strategies that can be used to grow a business and, at the same time, analyzes the risk associated with each strategy. The four strategies of the Ansoff Matrix. as seen in the image above, are
- Market Penetration
- Product Development
- Market Development
Components of the Ansoff Matrix
This strategy focuses on increasing sales in an existing market. Market penetration can be achieved through decreased prices that attract customers, increased promotional and distribution efforts, or competitor acquisition. Simply maintaining market share results in growth. However, market saturation is a limitation to this strategy.
A strategy involving product development is appropriate for brands whose strengths are related to their specific customers and not a particular product. This strategy comes with a little more risk than market penetration. Brands need to research in-depth about their customers, study the existing market, and measure their capabilities before implementing this strategy.
The market development strategy is most beneficial when a current market has reached its saturation point. This involves the selling of a brand’s products/ services to a new market and the creation of an entirely new customer base. As the brand expands into a new market, a market development strategy is riskier than a market penetration strategy.
As diversification requires product and market development, it may be out of the existing capabilities of a brand. A high rate of return could compensate for the risk of diversification. Diversification provides businesses with the potential to gain a stronghold in an attractive industry and significantly reduces overall business portfolio risk.
Out of the four strategies, market penetration carries the least risk as it leverages the existing resources and capabilities, whereas diversification is the riskiest.
How to Use the Ansoff Matrix in a Digital Marketing Strategy
To better understand the functioning of the Ansoff Matrix in a digital marketing strategy, here are a few case studies.
A maintenance, repair, and operations supplier, RS Components, came across a new online market with the launch of their website. This is the market development strategy of the Ansoff Matrix.
An online trade magazine, Construction Weekly, launched a B2B portal known as ‘Construction Plus,’ which opened up new revenue streams for the company. This is the product development strategy of the Ansoff Matrix.
An Irish budget airline, Ryanair, offered its customers discounts if they booked a car for hire via Hertz car rentals. This is the diversification strategy of the Ansoff Matrix.
Nine-Box Ansoff Growth Matrix
The nine-box Ansoff growth matrix allows brands to gain thorough analysis of their business’ current risks and opportunities. This is correctly used by the more sophisticated marketers, for whom the standard four-box Ansoff Matrix is too simplistic.
This version of the Ansoff enables marketers to view the distinctions between product extension and actual product development and also, the difference between market expansion and genuine new market venturing. One possible drawback of the nine-box Ansoff growth matrix is that the involvement of two different strategies in some grid sections makes it difficult to differentiate a brand’s product/ service or define the ideal market share.
Logo by McDonald’s as seen on the Website.
The fast-food brand has pursued market penetration in the past few years by delving into Latino-themed advertising. The brand is aiming to gain some more customers of Latino origin through such initiatives.
Logo by Subway as seen on the Website.
Another fast-food brand and this time in the product development strategy category. Subway often comes up with unique subs that look to attract more customers.
The Ansoff Matrix provides a simple and effective method of focusing on different options for organization growth. It gets business owners thinking about whether they need to find new customers for existing products, or offer new products to existing customers, or keep existing products to gain a significant market share. Entrepreneurs can leverage the Ansoff Matrix to devise winning strategies for business development and growth.