How to analyze and choose the growth strategy to implement to develop your business? Ansoff’s matrix provides an interesting aid to study the different options.
What is the Ansoff matrix?
It is a decision support tool designed by Igor Ansoff and presented in 1957 in the article “Strategies for Diversification” (Harvard Business Review). It allows the decision-maker and brand strategist to analyze the various possible strategic orientations for the implementation of a growth strategy.
The matrix is based on 2 variables:
- The degree of novelty of the offer
- The degree of knowledge of the markets
Interest of the matrix
Here are the main benefits:
- simple implementation: this tool is easy to build and use. The 2 axes represent relevant criteria for visualizing the different options,
- a speaking communication tool: the visual side makes sharing and exchange more accessible,
- an approach that takes into account the notion of risk in decision-making,
- a tool that encourages strategic thinking.
Limits
The model remains simplistic. The Ansoff Matrix lays the foundation for the big options. However, it is devoid of tools for a complete analysis of the situation and the alternatives.
It is based on 2 axes only. However, other dimensions – such as the skills held, the level of competition… – are important factors to take into account.
Market penetration
This option presents a limited risk-taking with the help of trade advertising. This is a key growth strategy when a company brings its traditional offering to existing markets. It seeks to expand its customer base and intensify its sales to its current customers. The company generally has a good knowledge of its competitive environment.
In B to B, the sales force is a pillar for carrying out such a strategy. Indeed, it is a question of conquering market shares by developing its presence among existing accounts and prospecting to expand its portfolio. Commercial promotions and an aggressive pricing policy are also ways to grow in this context by jostling the competition. To consolidate its bases, customer loyalty is a major issue.
Examples of actions:
- densify its sales network: more sales representatives, distributors
- carry out promotional actions
- review its pricing policy for increased competitiveness
- reposition your brand
This is a starting position for most companies entering into a process of seeking strategic opportunities.
The risks:
if the company does not have enough potential to develop, the situation could well weaken it. For example, the entry of a powerful new competitor into a mature market would reduce everyone’s share of the pie with direct consequences on the profitability of incumbent players.
the search for growth on a constant scope risk sharpening rivalry between competitors. The consequences: price war, overbidding in the marketing budget (communication, promotion, etc.) to be visible… Again, profitability is undermined.
the focus on a reduced scope makes the company sensitive to short-term variations in its market.
This strategy can, depending on the case, turn out to be much riskier than it seems.
Market development
This option consists of selling its existing product and service offer in new markets. It can be an expansion into new geographical areas, but also a development of its offer for new uses or towards a new customer segment. For example, targeting professionals when the current market is focused on individuals.
The trigger for this strategy often arises from the identification of needs in other markets that can be satisfied with the ranges of products and services in the portfolio.
Financial resources are needed to reach these new markets, including:
- marketing studies to identify key success factors and qualify opportunities,
- a reorganization of commercial resources (distribution channels, sales force, etc.),
- effective communication to make themselves known.
The risks
- the lack of knowledge of the market generates great uncertainty regarding penetration forecasts,
- the reaction of competitors in place can compromise the success of the project,
- underestimating all the operational and organizational costs to support such a strategy (see above),
- to divest from customers in the traditional market with the consequent weakening of its market share.
Product development
This quadrant illustrates a strategy for bringing new products to existing markets. R&D is at work to design or adapt products (by creating variants) according to marketing specifications.
Here too, substantial investments are necessary. They are often more substantial than those required by the development of new markets. Design and industrialization require the implementation of heavy resources: acquisition of new skills, design of lines and dedicated production resources, etc.
Note: Innovation is the spearhead of this strategy. The objective is to improve the functionalities, the use, or the cost of its offer.
The risks:
They depend on the degree of novelty of the product and the use of new technologies.
- not being aware of what is at stake: the further one moves away from the skills held, the more the amount of investment and the level of uncertainty increase. Beyond the functional adjustment of a product, this strategy can lead to the implementation of completely new technologies.
- Forgetting to plan certain costs and side effects such as the impact on the distribution network, the marketing of the classic offer (cannibalization, etc.), the storage of products, etc.
Diversification
The option with the most potential – but also the most risk – is to introduce new products into new markets. This is a real diversification, even if the previous quadrants can also be considered as a diversification according to the depth of the investment, the new technologies and skills to be mastered, the level of knowledge of the target market, etc.
The risks:
We find the risks identified (and increased tenfold) for the 2 previous strategies (existing product / new markets and new products/existing market).
Going from an existing products/existing markets situation to new products/new markets represents a very risky gap. The best way to achieve this is undoubtedly to resort to external growth by targeting a company that has both knowledge of the target market and the appropriate product offering.
How to use the Ansoff matrix?
The tool is used in 2 phases.
Position the current strategy of the company (or its activities) in the matrix: precisely identify the explicit or implicit strategies currently implemented. “Are we in the process of ensuring our growth in markets that we control with our historical offer?”. A SWOT analysis (environmental analysis and internal analysis) carried out jointly helps to carry out a complete diagnosis of the situation.
Study the various possible strategic options: armed with the knowledge of its initial positions, analyze the options in terms of growth potential and risks. “Is it appropriate to develop a new offer for our markets?” – “Should we look for new sources of growth in other markets with our product lines? “…
