Business entities that have flourished and succeeded in their ventures are the ones that well understand the risks of becoming stagnant. A unique aspect of all these successful businesses is that they are constantly trying to better their performance by adopting newer strategies that promise to deliver. So, where does the Ansoff Matrix fit into the puzzle? This is exactly what we will focus on in this brief write-up.
Role of Ansoff growth Matrix in your business
When you are trying to work out strategies to better your productivity and get the best returns from your marketing efforts and investments, you plan to adopt several options. These options might include stuff like creating new products and services, making inroads into newer vistas or markets, and increasing your efforts to connect better with your target audience.
The Ansoff Matrix analysis tool will help you to weigh the pros and cons of situations that might arise with every strategy you try to implement.
The Ansoff Growth Matrix is a tool that will help you to assess the amount of risk that you are susceptible to for each approach that you intend to take. So, let us understand the tool better.
What is Ansoff Matrix?
Developed by H. Igor Ansoff and came to be known for the first time in the Harvard Business Review 1957, in “Strategies for Diversification”, it can help you to ascertain the extent of risk of growths.
Also known as Product/Market Expansion Grid, according to the Matrix, there are four strategies that you can make use of for growth. And the best part is that it not only offers the ideas of the four strategies but will also let you know the risks that are associated with each strategy that you go ahead with.
The four strategies as per the Market growth Matrix include the following-
- Market Penetration
- Market Development
- Product Development
Let us understand each strategy in brief in the paragraphs that follow.
1. Market Penetration
This is the first strategy as per the product growth Matrix. This is a strategy in which you try to win over new markets but with the help of the products that you already have. The main aim of the strategy is to improve your stake in the market or rather increase your market share. It involves the lowest risk in the Ansoff product-market Matrix.
The formula for calculating market penetration is as follows-
Market penetration= (number of own customers/number of potential customers in the market)*100.
The degree of market penetration is inversely proportional to the remaining growth potential.
2. Market Development
Market Development is a strategy when you can develop newer markets with the products that you already have. As far as the new markets are concerned, it can be developing markets in other countries or reaching out to consumers belonging to various other target groups.
It also means that you have to make just minor changes that you must implement for your products and services that you are already offering. This allows you to adapt well to the new target groups that you are trying to connect with.
3. Product development
Also known as product modification, it is a strategy wherein you introduce a new product in a market that is already existing and you sell the products to your existing customers. One of the biggest advantages of product development is that you are dealing with the same customers and operating in a market that is not unknown to you.
Diversification is a strategy that is employed mostly by new business entities or start-ups. In this companies that once used to sell a different type of product diversify to offer new types of products to new markets.
It is said that perhaps this is one of the strategies that mostly pay off. However, this is also the same strategy that involves the greatest risk. Diversification can be of the following types-
This is a diversification strategy when a company will strive to further commit to efforts for sales orientation when it is known as forwarding integration. Alternatively, the company can focus on its commitment to strengthening efforts for the manufacturing process when it is known as backward integration.
This is a type of diversification wherein you develop new products which are related to the products that you were already offering to your consumers.
In this type of diversification process, you are expanding into a new market and will have no relevance to your existing nature of business.
The best way to use the tool is by following steps-
Analyze your strategy options
You are well versed with your business and also its potential. Analyze which option will work best for your type of business. Also with the type of clients, you are already catering to.
Carry out a risk analysis
For a better understanding of the risks, conduct a Risk Analysis of each of the 4 options.
Select the best option
After carrying out the risk analysis and analyzing the different strategies, by now you must be confident about the one that will work to your advantage.
Not all businesses will get the same result from the Ansoff Growth Matrix. This is because the solutions or strategies will vary for businesses belonging to different sectors. Also, the nature of products and services that you offer will determine the right options that you must choose for the best results and consequently an optimum ROI or return on investment.