Ansoff Matrix: How to Choose the Best Business Development Strategy

Elements of the Ansoff Matrix

Igor Ansoff’s model is based on two types of markets and products.

Market types:

1. Current. The business has its own client base in the market, suppliers, certain advertising experience, understanding of competitors.

2. New. This is an unfamiliar market or segment of buyers. The company does not yet have experience in advertising and interacting with  the target audience , and competitors have not yet been studied.

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Product types:

3. Current. A product that the company is already working with: producing, advertising and selling.

4. New. A product that the business does not yet work with: it does not produce, advertise or sell.

Ansoff Matrix Strategies

Market penetrationThe first strategy is the most harmless way of promoting a product in Ansoff’s model. It means that the company will work on the process of increasing sales of its product in the current market.

The company knows the market and customers well, so it can quickly and effectively implement this strategy. However, this method also depends on the number of competitors, you will have to fight for market share with other players.

For example, a company is developing a mobile game for Russian users. To increase sales in this market, you can launch an advertising campaign among bloggers who are associated with gaming, technology and technology. This option is suitable for attracting active users and increasing revenue.

To succeed in this strategy, you need to invest in advertising, so this strategy is not suitable for everyone. The strategy is a tool that allows you to quickly take a place in your niche, but is not suitable for highly competitive niches.

Market development

The second strategy is a more complex way to increase profits, which requires additional research and investment. The company must find new markets that will be interested in its products and develop them.

A company creating a game for Russian users can launch it in other countries as well. Provided the game is of good quality, has an interesting open world, and has an effective marketing strategy, it is quite easy to attract new users. However, if none of these advantages are present, it may be difficult to implement the strategy.

This strategy has great potential, but the business must have a unique product, item or service, and there should not be high competition in the new market. Otherwise, you will have to put in a lot of effort, and it is not a fact that it will pay off.

Product development

The third strategy is aimed at ensuring that when should you use the full package of online marketing the business remains competitive in its niche. To do this, the company begins to create a new product in the existing market.

Let’s say a company launched a game in Russia and it became popular. Now it can release another game. Another option is to make a film or write a book based on the first game. In theory, the brand has a loyal audience that will be interested in these new products.

New products and services can attract new customers, but they take a lot of time and resources to create.

There are several risks when implementing a development strategy:

• the new product will be liked by a much smaller audience than the previous one – there will be no demand;
• The new product will be liked more than the previous one and users will buy only it.

Diversification

This is the most complex and risky strategy. Companies that use diversification strategies create a new product and develop a new market where they have no experience and reputation.

There are two options for a business diversification strategy:

1. Related. The business creates a new product that relates to the current type of activity. And with it, it develops a new market for itself.
2. Unrelated. The business creates a new product that is not related to the current type of activity. And with it, it develops a new market for itself.

Ansoff Matrix: How to Build and Choose a Strategy

1. Describe the current situationTo understand which marketing development strategy will work for you, you need to describe the company’s existing products and the markets they are sold in. It is important to study the same parameters of competitors and explore potential markets that you can enter.

For example, you sell carpets through an online store. To understand which strategy to choose for business development, you need to make a list like this:

• Existing products: Persian carpets, long and short pile, with animals, viscose, polypropylene, sheepskin.
• New products : carpets in loft style and with movie characters.
• Existing market: online store that delivers goods throughout Russia.
• New market: offline store in Krasnodar, where warehouses are located, or online store in Belarus.

For each competitor, you can make the same description to see the overall picture.

2. Fill in the matrix

Now you can move on to working with the Ansoff matrix. To do this, make a table like the one in the picture below.

Next, in each cell, write down the business development options based on the data we described in the first stage. For example, if we phone number mx need to describe a market penetration strategy, we describe our product and market. Then we think about how we can achieve an increase in sales within the framework of the strategy.

3. Choose a strategy

It is not enough to simply create a matrix. All the strategies described need to be analyzed.

The following criteria can be used to evaluate strategies:

• market growth rate;
• brand recognition;
• frequency of product use;
• barriers to entry into other markets;
• level of competitive advantage in the market.

It is convenient to evaluate the effectiveness of each strategy according to these criteria using a table.

Ansoff Matrix Example: Coca-Cola

Coca-Cola is an example of a company that implemented all the strategies of the Ansoff matrix as it developed.

1. Market penetration strategy. To increase demand for Coca-Cola in the American market, the company’s founder, Asa Candler, used various methods to increase the recognition of the new brand. He distributed the drink for free in pharmacies, sold the rights to bottle and sell the soda, and used celebrities in advertising.
2. Market Development Strategy: When Coke became popular in America, it began to be sold in Cuba, Canada and other countries.
3. Product development strategy . The essence of the strategy: the company modernizes cola from year to year. They change the design of the bottles, release a line of products in tin cans and pour soda in machines. Then completely new drinks like Sprite appear, and modifications: Coca-Cola Plus Coffee, Coca-Cola Vanilla, etc.

Let’s sum it up

1. The Ansoff Matrix is ​​one of the methods that helps to study possible growth strategies of a company. The matrix was developed in 1957 by business manager Igor Ansoff.