Ansoff Model

Also called: Ansoff product-market matrix

The Ansoff Model is a marketing model used to understand an organization's growth strategies. It is a visual representation of a company's strategic policy responding to key developments in the market or a target market. Based on the Ansoff product-market matrix, a company's growth strategy is determined. The underlying idea here is to relate two key strategies (product/portfolio and competition/market) to each other. This combination forms an important basis for the strategic development of a company within a market. Here a distinction is made between four growth directions namely: market penetration, market development, product development and diversification.

Shaping the Ansoff product-market matrix

The Ansoff product-market matrix consists of two axes. The horizontal axis visualizes the product offering, distinguishing between an existing offering (on the left side of the axis) and a new offering on the right side. The vertical axis visualizes which market is being approached and specifically whether it is chosen to approach a new market (at the bottom of the axis) or an existing market. This existing market is shown at the top of the vertical axis.

Application of the Ansoff model

The Ansoff model is frequently used in formulating a marketing plan. The model can be used in shaping a strategic plan for both a new organization and existing businesses. It distinguishes between the four growth directions below, which are categorized along the dimensions of product and market:

• In the case of a market penetration growth strategy (the top left position in the matrix), existing products are sold in an existing market. Here, increasing the current market share is often the main objective. This objective can be achieved by drawing customers away from competitors or by striving to get current sides to buy more products. Market penetration is a very appropriate growth strategy if economies of scale can be realized by increasing production. In addition, market penetration is certainly a consideration for companies that have a small market share.
• If market development is chosen (the bottom left position in the matrix), the choice is made to enter new markets with the current product offering. Realizing additional sales with the current products is the objective to ultimately realize more profits. This is possible if little to no changes need to be made to the offering. In this context, good research is especially important to determine the usefulness and cost of tapping into a new customer segment and in doing so, determine the best way to do so.
• When choosing product development growth strategy (the top right position in the matrix)the growth strategy focuses on selling new products to existing customers. This may involve cross selling tactics to generate more sales from the existing customer base but may also choose to introduce new products to replace obsolete products to better meet customer needs. This strategy focuses on customer loyalty. Indeed, it prevents the current customer base from becoming interested in buying products from competitors. Innovation, daring to invest and making the best use of CRM applications is important in following this strategy.
• When the decision is made to use the diversification growth strategy (the position at the bottom right of the matrix), the choice is made to offer a new product in a market new to the company. Although this is the most difficult strategy for a company and certainly involves some risks, this choice can be very successful. It requires a perfect combination of factors such as innovation, research, development and sales. The diversification growth strategy is a good strategy for companies that have a successful portfolio but operate in a mature market. In this case, new products are launched in new markets with an eye to the future.