Ansoff Matrix Explained: Practical Examples, Theory, & Strategy

Ansoff Matrix

You are probably trying to get your head around some questions like “what Ansoff matrix is,” “Ansoff matrix theory,” “Ansoff matrix examples,” “Ansoff matrix strategy.” Well, you’re at the right place cos this post has been designed to clarify all the questions you have in mind on this subject.

 

What is Ansoff Matrix

The Ansoff Matrix theory was developed by Russian-American mathematician and business manager Igor Ansoff. It’s a framework that’s designed to help firms decide their market growth as well as product growth strategies. Clearly this tool is not just handy to big business but also to small businesses and start-ups. Because a big business might want to diversify its products but a start-up might just want to penetrate the market. Having this knowledge, let’s take a look at the breakdown of these strategies.

 

Breakdown of the Ansoff Matrix Strategy

There are 4 quadrants in the matrix, and as a company you can choose from any of the quadrants, the strategy that maximizes your market potential. So, let’s breakdown this Ansoff Matrix Strategy by taking a look at all the components of the framework. The picture below gives a nice summary of the strategies.

Ansoff Matrix

  1. Market penetration in Ansoff matrix:

    This is the least risky in the Ansoff Matrix strategy. It focuses on getting more out of an existing product in an existing market. So, a company tries to sell more of its products in its present market through any of these. Increase in advertisement and distribution support, reduction in price, acquisition of a rival. One prerequisite for this is having a small market share. So, you try to get more hold of the market through this strategy. But if you already have a sizeable chunk of the market, then you may want to select any of the other three.

  2. Product development in Ansoff matrix:

    In this strategy the firm creates more products in it’s existing market to satisfy consumer needs. In this you already have a customer base for a certain product but the product has attained a level of market saturation. So, to solve this you offer consumers another product within the same market. The new product can be actualized by patent acquisition to produce someone else’s product, badging a bought product as your brand, investment in research and development of additional product.

  3. Market development:

    By applying this Ansoff matrix strategy a firm aims at reaching out to a new market segment with their existing products which has gained market penetration in another market segment. For instance, some companies after gaining national market penetration in a given country, they move forward to reach out to consumers in other countries where they’ve not been established. You can actualize this in a local business by moving your product which has gained market penetration in a state/province to other states. However, it’s advisable not to take up this strategy until your products have penetrated at least one market.

  4. Diversification:

    When companies adopt this Ansoff matrix strategy they introduce new products to a new market. Because the company is investing in both a new market and a new product this causes a two quadrant move in the Ansoff matrix. So, this makes this strategy the riskiest. Diversification strategy could be related or unrelated. In related diversification there is relationship and hence potential synergy between the firms. In un-related there is no relationship between the firms. So, un-related diversification can also be called conglomerate growth.

Hence, you can select any of these strategies depending on your position in the market.

 

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Some Ansoff Matrix examples in reality

We are going to list the different Ansoff Matrix examples in reality based on the component of the quadrant they best fit in.

Market penetration

Android is a good example of this. Apple and blackberry dominated the U.S smartphone industry about 12 years ago. But today Android shares almost equal amount of the market with Apple and we can’t find blackberry nowhere.

Product development

Smartphone companies like Apple and Samsung putting out new phone models every few years is an example of product development in the Ansoff Matrix.

Market development

A good example of market development strategy is PayPal. They initially started their service in the US and expanded to other countries. Another example is Apple, after releasing iPod which is an expensive device for music lovers. They released iPod shuffle which is cheaper and targets a market segment of consumers who love music but are less willing to pay a premium price for it.

Diversification

Alphabet incorporation exemplifies this. They started on the internet with google search but gradually moved into different markets, including the oil sector.

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Finally, the Ansoff matrix is good for startups, small business owners and big business owners. So, you need to know you position in the market and select the strategy that will work best for you.