Ansoff matrix of growth

 Background

The Russian American scientist and mathematician Igor Ansoff is known as the founder of strategic management. He was called "Father of Strategic Management" and is famous for his theory of growth. 

The Ansoff Matrix is a strategic planning tool that provides a framework to help managers to assess the differing degrees of risk associated with moving their organization forward. Ansoff’s theory of growth is interesting as most companies have targets for annual growth.

Ansoff’s product market growth matrix suggests that a business’ attempts to grow depends on whether it markets new or existing products in new or existing markets.

Ansoff’s Matrix has two axes: one on the product and one on the market. 

The axes are furthermore divided into new products or existing products and new markets or existing markets.

Ansoff thereby describes four growth strategies: Market penetration, product development, market development and diversification. Let us look at each strategy.

The market penetration strategy is increasing market share within existing market segments. This can be achieved by selling more products and services to established customers or by finding new customers within existing markets.

With this strategy the company aims at:

•Increasing market share

•Increasing product share

•Increasing quantity used

This is the most frequently used strategy and can be achieved by:

•More aggressive promotion

•Increase promotion

•Find new applications

•Give special offers - for example, buy two for the price of one. This is often seen in products like sweets and chocolate.

The market development strategy entails finding new markets for existing products. 

The company tries to expand into new markets using its existing offerings and products. Market research and further segmentation of markets help to identify new group of customers.

This can be in same geographical area, to new areas or regions of the country and to foreign countries.  

Market development can be achieved by:

•Finding new segments, for instance industrial buyers for a good that was previously sold only to the households.

•New areas or regions of the country

•New geographical markets, for example exporting the product to a new country

•Different pricing policies to attract different customers or create new market segments

This strategy is more likely to be successful where the new market is not too different from the one the company has experience of.

Market development is a more risky strategy than market penetration because of the targeting of new markets.

In the product development strategy, a company develops new products and services for existing markets. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors. 

Product development strategy can be accomplished by:

•Investment in research and development of additional products.

•Improving existing products by using incremental innovation such as product improvements and product line-extensions.

•Get the rights to produce another company’s product.

•Detailed insights into customer needs (and how they change)

•Being first to market

Diversification strategy concerns the development of new products for new markets and is the riskiest strategy. The more the organization moves away from its core business the more uncertainties are created. However, diversification can help to spread risk if existing activities are threatened.

Criticism of the model

Ansoff growth strategies have several advantages for the business.

It forces market planners and management to think about the expected risks of moving in a certain direction and focuses the business.

Among the disadvantages are, that the model does not take into account the activities of external competitors and there is a risk of paralysis by analysis. 

In Harvard Business Review, there has been articles over many year, with a  debate between Ansoff and Henry Mintzberg over their differing views of strategy. Ansoff has often been criticized by Mintzberg, who disliked the idea of strategy being built from planning which is supported by analytical techniques.