Ansoff Growth Matrix - Marketing and Management Models

 Ansoff Growth Matrix

Helen Strong

Ansoff Growth Matrix: Purpose

As one of the best-known and relatively simple models, this is also one of the most powerful tools in determining what growth strategy should be followed by an organization. The matrix should be applied when a company considers its options for the development of a growth strategy. Typically, this would take place when the company has experienced a period of difficult trading, or when competitive activity has eroded the market share.

Ansoff Growth Matrix: Structure and Description

The matrix is constructed from consideration of the nature of the organization’s products (existing and potential new products), and of their current served markets (Figure 3.1).

The model works from the assumption that increased sales can come from:

1. An increase in sales of an existing product
2. Introduction of a new product
3. Encouraging greater consumption within an existing market
4. Finding a new market

When one considers these factors in a matrix, the growth strategies emerge naturally from the different combinations. In other words, if a company is trying to increase sales in an existing market using its existing products, the only way this can happen is if it is able to convince the users in that market to use more of the product, or to convince more people in the market to become users of the product, namely, a penetration strategy.

Figure 3.1 Ansoff matrix

Using similar reasoning, with an existing product and a new market the task at hand is market development. If the company wants to introduce a new product into an existing market, then the growth strategy depends on product development. Finally, if the company is introducing a new product into a totally new market, then the strategy is one of diversification.

This seems pretty straightforward. But what are the information needs attached to each strategy?

Ansoff: Strategic Considerations

If a growth strategy is being considered, it is likely that the organization is considering a major thrust into the market. Hence, before embarking on any of these strategies, the management needs to ensure that it has all the necessary information to make an informed decision.

Research and development may have provided a new product, or a product extension that demands a new strategy. Alternatively, after embarking on the activity outlined below, the management may come to the conclusion that a new product is required.

To apply the Ansoff model, one needs to first conduct:

• Situational analysisG
• Marketing auditG

Armed with this information, the management can then apply their minds to interpreting the implications of the data, and then set about selecting the most appropriate growth strategy (or combination of strategies).

Ansoff: Implementation

Market Penetration

In this instance, the activities that need to be considered revolve about finding ways of increasing the level of consumption by existing consumers. For example, you need to think about:

• Suggesting different ways in which the product can be consumed
• Providing alternative uses for the product
• Promoting additional consumption occasions
• Combining the product with another one in such a way as to increase consumption
• Changing the size of the packaging to encourage more consumption (if it is in the house, it will get eaten)
• Banding packs together to promote sales
• Encouraging trial of the product, knowing this converts to use

Product Development

Leading organizations implement a deliberate practice of innovation. They examine themselves and their environment, trawling through the seas of development to find new problems to solve and better ways of operating.

New products occur either through serendipity; a technical breakthrough; realization of a different use for an existing substance; requirements for services in growing markets (for example, computer nerds to support technology); or via recognition of emerging consumer needs. Innovation happens when there is change either of knowledge or habits.

Regardless of where it arises, new products need to be tested in the market to see whether they will provide a viable source of income. The questions that need to be asked include:

• What does the product do? How does it work?
• Who is likely to use it? How many will they use?
• What are the benefits for the consumer?
• Are there any issues with the product?
• What criteria will consumers use in the buying decision?
• What are the likely buying habits?
• Will the product replace anything else?
• How will we position it? Will consumers understand and like the concept?
• What are the features of the marketing mix?
• What will they pay for it?

Apart from all the information above, launch strategies need to identify:

• How to get distribution?
• What activity will attract early adopters to try the product?
• How to generate awareness and trial?
• How to expand the market through repurchase and incorporation of the product into the consumers’ shopping basket?

Market Development

The situational analysis and marketing audit may have revealed that there are untapped markets in the form of types of consumers or perhaps geographical areas that could be developed. Here a thorough understanding of the new consumers needs to be established. All the questions asked above (in Product Development), about the utility of the product and the consumers’ attitudes, are relevant. Essentially, for a new market the existing product is a new product.

If the new geographical area constitutes a new country, then the investigation is going to be more complicated. Marketing will need to consider the influence of a different culture on consumer habits, preferences, and attitudes. Naturally, different trading conditions, financial systems, tax implications, and other legal regulations will all impact on the organization’s assessment of the advisability of expanding into an unknown market. That is, information about the ease of doing business will be required in addition to all the marketing information required from a situational analysisG

The investigations should probably be carried out by local service providers who are closer to the new country’s business environment, its market, and its needs.

Diversification

This fourth growth strategy is the most challenging and riskiest of all, possibly requiring project management to keep the new activity under control.

Diversification could be by means of internally generated changes, or through mergers and acquisitions. Perhaps the company has seen the benefit of vertical or horizontal integration of its products and services. For example, a concrete manufacturer may want to ensure constant use of its product and have more control over supply to a lucrative market. It will acquire a precast concrete wall and paving company to absorb the primary product.

With diversification, the company needs to be sure that the development and launch costs of the new product are going to be recovered in a reasonable time. In this situation, market metrics take on prime priority.

Prior to the launch, for development of an appropriate approach, all the information required under new product development and new markets should be gathered. Marketing is challenged to formulate new strategies for what is an unknown and untested market. Performance tracking of sales, consumer awareness, trial purchase, and repurchase is imperative. Distribution channels need to be monitored. If possible, competitive activity should be anticipated and kept under close observation.

Mergers and acquisitions have their own issues, needing adept change management to ensure that the cultures of the two companies are successfully integrated, and that key skills are not lost due to the disruptive nature of such a merger. Information about key drivers of the new business and its success factors needs to be provided for good decisions.

Ansoff: Conclusions

Conceptually, the model is intuitive; however, it is essential that the information is given the respect it deserves. Environmental, product, and consumer information has to be gathered and interpreted to ensure successful growth strategies.

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