In a 1957 edition ofHarvard Business Review, Igor Ansoff proposed a model that is useful for working out how to grow a company. He called his article"Strategies for diversification".
It resulted in a tool that is widely used for guiding the strategic growth of a company.
The matrix has four boxes, each presenting growth opportunities:
Selling existing products to existing markets – market penetration. This is a very obvious source of new business which can often be ignored. It should be easier to sell more to existing customers than to acquire new ones.
Selling existing products to new markets – market development.This situation offers opportunities for finding new customers in new geographical markets or in segments that are not yet served.
Selling new products to existing markets – product development.This is a strategy of brand extension. The trust in relationship that exists with the supplier puts it in a strong position to offer new products.
Selling new products to new markets – diversification.This is the most difficult of the growth strategies as it requires a company to find new customers with products it has not produced before. Although seductive, this can be a risky move.
For most companies, the easiest and often the most fertile place to look for growth opportunities is to sell more of the same to existing customers. This means you need to know your share of wallet at each customer so you can assess the potential to sell them more.
The next place to look for growth is to sell your existing products to new customers. What new segments could you attack? Which countries where you do not sell at the present could be attractive markets for your products?
A real benefit of the Ansoff Matrix is its clarity and simplicity in guiding different growth strategies, helping align objectives and resources with specific market and product expansion goals.
It facilitates the assessment of risk associated with different growth strategies. For example, businesses can evaluate the level of risk involved in entering new markets or developing new products compared to focusing on existing markets and products. Note: It is nearly always preferrable to aim in the first instance at existing markets with existing products and to ensure that these opportunities are maxed out.
The matrix encourages businesses to diversify their portfolio by exploring new markets or developing new products. This diversification can help reduce risks associated with reliance on a single market or product. And it prompts businesses to think about their customers and their needs, encouraging a customer-centric approach to growth strategies.
The matrix assumes a recognisable progression through the growth strategies and puts them in boxes. In reality, business growth is often more dynamic and nonlinear. The model may not fully account for the iterative and dynamic nature of strategic decision-making.
The matrix does not explicitly consider market segmentation and market segmentation is at the heart of all good strategies. In reality, different market segments have distinct needs and behaviors and it could be argued that differernt matrices should be developed for each segment, nuanced to take account of opportunities and threat in these important customer groups.
The Ansoff matrix is useful for showing a direction. Additional tools and frameworks will be needed to develop detailed action plans, set prices and develop promotional plans.
Some things to think about:
For most companies, the easiest and often the most fertile place to look for growth is to sell more of the same to existing customers. This means you need to know your share of wallet with each customer, so you can assess the potential to sell them more.
The next place to look for growth is to sell your existing products to new customers. What segments could you attack? Which countries, or geographies where you do not sell at the present could be attractive markets for your products?
It is tempting to want to sell new products into new markets. Before going down this road, you need to be convinced that there are no opportunities worth pursuing with existing products and in existing markets.