The Ansoff Matrix - marketing models business models

Marketing Models Explained

In our second article in this series of explainers for marketing and business models we turn our attention to the Ansoff Matrix.

 

The Ansoff Matrix

This model was developed in the late 1950s by a US-based Russian Professor, H. Igor Ansoff. He was a mathematician, researcher and expert in strategic business management. This particular model is still used widely today and is a staple of management and MBA courses.

The model helps businesses focus on the four key options for growth going from the safest (top left quadrant in the illustration used here) to most riskiest (bottom right quadrant). It tells a business to look at four strategies and use some combination of some or all of them to help them grow over whatever timeframe they’re considering.

The first dimension to set out on the horizontal axis are your products or services moving from things you currently do to new ones. The second dimension on the vertical axis is your customers / markets or audience again going from your current ones to new ones. So, that gives us four potential strategies to investigate in order to grow the business – a Market Penetration strategy (the safest), a Product Development strategy, a Market Development strategy and a Diversification strategy (the riskiest one).

 

Market Penetration Strategy
In essence, how to sell more of what you do to your current customer base, the audience that you know the best. This is the easiest strategy to adopt as it involves an audience you already know well and a product or service you already produce. When exploring this look at things such as:

• Reducing the time between re-orders

• Increasing the average order value

• Increase or change your opening hours

• Increasing consumption rates of your product

Many online businesses, for example, offer up additional related products to shoppers in order to increase cart values.

 

Product Development Strategy
How to develop your existing products or services to offer new ones or vacations on existing ones, often to your current customer base. First of all, think through your product or strategy line carefully by asking yourself these four questions in this order:

• How can I improve or augment the current product / service offer?

• What do market conditions suggest I do?

• Do I have customer feedback to help me?

• What opportunities exist for research and development?

Even though this is a riskier strategy than market penetration there are still scales of risk within it. So, before thinking about offering something totally new first consider if your product can be made cheaper or locally (reducing shipping costs), can you improve its quality or change the packaging? There are a lot of things that you can do to improve your current offer before you add to it with totally new products.

 

Market Development Strategy
How to move into new markets with existing products or services. So, even though your keeping your current product or service offer you’re now considering moving into new markets. As these are outside of your direct control, this is for me somewhat riskier than a product development strategy.

A new market doesn’t necessarily mean a new geographic location, it could be a new audience as defined by some combination of age, gender, income, education, household size, business type and so on. Or you could consider life stages – new parents, retirees, new businesses under 3 years old, etc. A different business sector perhaps – manufacturing, retail, services or business size. Finally, there may be new audiences that seek a different mix of benefits from your offer from those your current audience wants.

 

Diversification Strategy
How to move into new markets with new products or services. This is the riskiest as your necessarily dealing with new markets and new products or services, both of which you have poor or very limited direct experience with. This strategy isn’t solely about buying or starting another business or a multi-site operation, you could diversify by investing up or down your current value or supply chain. For example, look at your warehouse or shipping suppliers or the retailers that sell what you do, if you’re a step or two removed from the final consumer.

 

One thing to remember about these strategies is that they’re not necessarily meant to be taken as an either or approach. Younger businesses may want to focus on only adopting one or two strategies, most probably market penetration followed by product development. More mature businesses could consider some mix of all four. We’ve worked with a number of businesses in the Salisbury and wider Wiltshire and Hampshire areas using this very model. So if you’d like help in developing some growth strategies give us a call, we’re here to help.

For further info on how we use SOSTAC click on the link or, for more detailed explanations on models and for training, please check out Smart Insights who are responsible for the illustration accompanying this article.