Ansoff Matrix or Ansoff Product Market Growth Matrix is a tool that helps businesses decide their product and market growth strategy. It was developed by Igor Ansoff in 1957. It suggests that a business attempts to grow depending upon whether it makes a new or existing products in new or existing market. The output of the matrix is a series of suggested growth strategies that set the direction for the business strategy.
The four business strategies that can be adopted by a business based upon the ANSOFF matrix are –
1. Market penetration – It is a growth strategy where the business focuses on selling existing products into existing markets. It has four main objectives-
♦ Secure dominance of growing markets
♦ Restructure a mature market by driving out competitors
♦ Increasing usage by existing customers – through loyalty programs
♦ Maintain or increase the market share of current product through competitive pricing, advertising and selling promotion
2. Market development – It is a business strategy where the business seeks to sell its existing products into new markets. There are many ways of approaching a new market or markets –
♦ New geographic market-exporting to new countries
♦ New product dimension or packaging
♦ New distribution channel
♦ Create new market segments
♦ Different pricing policies to attract different customers
3. Product development – This is a strategy in Ansoff matrix where a business markets new products in existing markets . It requires development of new competencies and development of modified products which can appeal to existing markets. It involves introduction of a new product to the existing product range in an attempt to increase market share.
4.Diversification – Under this strategy the business markets new products in new markets. It is a risky strategy as the business is moving into markets where it has little or no expertise. For a business to adopt this strategy it must have a clear idea about what it expects to gain from the strategy and a honest assessment of risks. Such a strategy is chosen when the risk can be compensated with a good return on investment.