Blog 3: Ansoff’s Matrix: Its Importance and Methodology in 4 Easy Steps with Examples
Updated: Jun 3
Ansoff's Matrix, developed by Igor Ansoff, is a strategic planning tool used to determine the direction of a business. The product/market matrix is made up of four quadrants: market penetration, market development, product development, and diversification. Each quadrant represents the risk level of a business decision.
The market penetration quadrant represents low risk and low growth. This would be when the company continues to sell existing products in its current market. You are selling your product or service in the same market, but you want to sell more.
Example: Amazon sells products on its platform to customers all over the world. To increase the customer base and sell more they have come up with discount strategies, coupons, and special offers.
The market development quadrant represents moderate risk and moderate growth. This would be when the company sells existing products in new markets.
Example: Apple used to sell its products like mobile phones and laptops in the west. The company then took over the markets in the Asian countries too. The company was selling existing products in the new markets.
The product development quadrant represents moderate risk and moderate growth. This would be when the company creates new products for its current markets.
Example: The cartoon Network channel has come up with new shows for children like We Baby Bears, Aquaman, Elliott From Earth, The Fungies, etc. They are selling new products for its current markets.
Another example is, that this year Tata Motors has come up with a new range of electric cars for its current markets in India.
Amazon began selling the Kindle, a tablet made for reading and browsing. In 2012, they launched the Kindle Kids' Edition and Fire HD devices with an affordable price point.
The diversification quadrant represents high risk and high growth. This would be when the company creates new products for new markets.
Example: Neuralink company founded in 2016, is a neurotechnology company that develops implantable brain-machine interfaces to connect humans and computers. They are developing a device that would allow a computer to translate a human’s thoughts into action. It’s a new product for a completely new market.
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Where is Ansoff’s matrix used with Example?
You can use the Ansoff matrix in a variety of different contexts, including:
· Strategic management
· Portfolio planning
· Business development
Example: Ansoff's matrix, or Ansoff's product/market expansion grid, is a tool for marketing. It's used to plot out a strategy for the growth of a business through either product development, market development, market penetration, or diversification.
Nike makes raincoats that are specifically designed for use in the rain. Their current market is a suburban population with enough money in their pockets to afford raincoats. The company wants to expand into other markets so it can increase its profits, but they're not sure how to go about it. They decide to use Ansoff's matrix to plot out their options and make an informed decision about how to proceed.
In the top right section of Ansoff's matrix, we find market development: expanding the company into new markets while keeping its current products. This would involve looking around at other people who might want access to quality raincoats and then targeting those people with their marketing strategies. For Nike, this could mean expanding sales in rural areas where there might be more rain than in suburban areas. They will have to come up with proper marketing, strategic management, and business development ideas to reach a larger customer base. Ansoff’s matrix will guide them on the number of stores they should open, the team required to run it, and the fund required for advertising their products.
How to prepare Ansoff’s matrix in 4 steps?
1. To prepare the matrix, start by listing out all the products in your product line (or if you don't have a product line yet, list out all the products you're considering).
2. Then, create two columns: one for market penetration and one for market development. List all the markets your company currently serves under "market penetration."
3. Then list all the markets that you think you might be able to serve under "market development." The cells where these lists intersect will form the basis of your Ansoff's matrix.
4. You'll use this information to fill out each cell in the matrix according to whether they are low or high risk, low or high reward opportunities. You’re ready to get started! Now you have your matrix!
The above analysis of Ansoff's matrix shows that this tool is a useful way to help companies decide how to grow their business. However, it should be noted that there are some limitations associated with this strategy. For example, the matrix is quite straightforward and does not consider the possibility of other factors (such as those outside the company) preventing the company from getting where they want to go. Additionally, it may be difficult for smaller businesses that have fewer resources than larger ones to make all four cells work for them at once. Nevertheless, when used appropriately, Ansoff's matrix can provide a strategic advantage for many organizations who want to figure out how they can best grow their business over time.
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