Born in 1918, Harry Igor Ansoff was a Russian-American applied mathematician and business manager. He is known as one of the fathers of strategic management. The Ansoff matrix is a strategic planning tool that provides a framework for businesses to look at the direction of future growth.
It’s a very simple model, looking at products (existing and new) and markets (existing and new). The four directions of growth are:
Market penetration is simply aiming to sell more of your existing products and services into the markets (customer bases) you’re already targeting. So, you’re just trying to get a bigger share of your current market. Whilst this can be achieved organically, another way to do it is through acquiring a competitor who is selling the same stuff to the same people you’re targeting!
Product development involves launching new products or services for your existing markets. So, you’d be targeting the same customers as you currently do (that will include your own existing customers), but giving them something else. The benefit of this is that your current customers already know you; they trust you, as they already buy from you. So, when you launch another product or service, you’re capitalising on the strength of your existing relationship and brand. Product development, again, could be organic in that you use your own, in-house resources to develop and launch something different. Or it could be that you buy the skills, knowledge and product/service know-how in from outside via an acquisition. And there’s a third way to achieve product development, which is to partner with an existing provider of the ‘new’ product or service in the form of some kind of joint venture or strategic alliance. It might even be possible to ‘white-label’ their offering, allowing you to brand the new product or service as your own.
To understand market development, we have to understand what Ansoff meant by ‘market’. A market is just a defined group of customers, and whilst we tend to think of that definition in terms of geography (e.g. the UK market, the USA market, etc.), it’s not all about location. So, if you’re selling to private consumers (B2C), your market might be defined in terms of age, gender or lifestyle. If you’re B2B, you might define your target market in terms of size of business, industry/sector, and so on. The implication of this is that market development, as a strategy, just involves broadening the appeal of your existing products or services to new groups; new age groups, new business sectors, etc. One danger of this strategy is that, unlike market penetration and product development, you’re now moving outside of your existing target audience. Is your brand ready to appeal to these new ‘types’ of potential customer? If not, do you need to develop a new brand to ‘fit’ their profiles? Or could you buy a brand that already fits?
Finally, the riskiest of Ansoff’s strategies for growth; diversification. This falls into the ‘new products/services’ and ‘new markets’ quadrant of his matrix. New stuff for new types of customers; it sounds like the kind of risk a start-up faces! Diversification is arguably best achieved through acquisition – buying in an entity that’s already succeeding with new the products and services you want to sell to the new target audience. Diversification is not for the faint-hearted and, arguably, fails to harness the existing core competences and reputation that your current business has.
So, there we have it. a quick guide to Ansoff’s matrix – still one of the most powerful, yet simple strategic tools around.
