Ansoff strategy model
|Ansoff strategy model|
Strategy model created by H.I. Ansoff is used by companies to choose the best market for its products. It describes four possible business development strategies for the two decision variables: product and market. Both for the product and for the market, managers consider two situations: current and new (projected) status. Ansoff strategy model if presented in form of Ansoff matrix (product/market matrix) or so called product market expansion grid.
|Current||Market penetration strategies (increase sales of existing products in existing markets)||Strategies for product development (creating new products and putting them on existing markets)|
|New||Market development strategies (finding new markets for sales of existing products)||Diversification strategies (selling new products in new markets)|
Fig. 1. Ansoff growth Matrix
Applications of Ansoff matrix
Ansoff matrix is a tool to choose directions of intensive development of the company. First managers check if the company can base on the currently manufactured products, and thrive in markets not yet supported (market penetration). This strategy is based on intensive actions in the field of sales, by for example: increasing density of distribution networks, strengthening promotion, increasing packaging options, etc., as well as an increase in market share or increase it the scope of use of the product.
Then managers examine the possibility of finding and developing new markets for currently marketed products (market development). The use of this strategy means both geographical expansion, as well as generating new market segments for an existing product.
Subsequently, manager examines the possibility of the preparation of new products that could potentially be added to current markets (product development). The company uses this strategy by:
- extension of the characteristics of the product,
- creating new opportunities for the application of the product,
- better adaptation of a product to different market segments,
- improving product features.
Finally, managers of the company consider the possibility of developing new products and offer them to new markets (diversification). Diversification can be made by purchasing licenses, know-how, and finally by the acquisition of other companies, or mergers with them. Diversification can be carried out in three directions: vertical diversification, concentric diversification and horizontal diversification.
Examples of Ansoff strategy model
- Market Penetration:
This is a strategy of increasing the sales of existing products in existing markets. It is focused on building market share in the existing markets, by increasing the frequency of purchase and/or persuading customers to switch from competitors. Companies use this strategy by offering discounts, promotional offers, and other incentives to existing customers as a way to increase market penetration.
Example: Apple Inc. has a market penetration strategy to increase its sales of iPhones. They offer discounts and promotional offers to existing customers in order to increase the frequency of purchase of iPhones.
- Product Development:
This is a strategy of introducing new products in existing markets. Companies use this strategy to stay competitive by introducing new and improved products to existing markets. They use this strategy to meet customer needs and to differentiate themselves from competitors.
Example: Coca-Cola has a product development strategy to introduce new products in existing markets. They introduced new products such as Coke Zero, Diet Coke, and Cherry Coke to existing markets.
- Market Development:
This is a strategy of introducing existing products into new markets. Companies use this strategy to diversify their customer base and to increase their revenues. They use this strategy to expand their business into new markets and to reach new customers.
Example: Unilever has a market development strategy to introduce its existing products into new markets. They introduced their products such as Dove, Axe, and Lipton into new markets such as China and India.
This is a strategy of introducing new products into new markets. Companies use this strategy to diversify their business and to reduce their reliance on existing markets and products. They use this strategy to explore new products and new markets and to increase their revenues.
Example: Microsoft has a diversification strategy to introduce new products into new markets. They introduced their products such as Azure, Office 365, and Windows 10 into new markets such as cloud computing and artificial intelligence.
Advantages of Ansoff strategy model
The Ansoff strategy model is a useful tool for companies to choose the best market for their products. It provides four distinct strategies for developing products and markets, giving managers a wide variety of options for growth. The following are some of the advantages of Ansoff's strategy model:
- It is a flexible tool that can be adapted to a wide range of business situations. By considering both current and projected products and markets, the model allows for a comprehensive analysis of business opportunities.
- It provides a systematic approach to decision-making. Ansoff's strategy model breaks down the decision-making process into smaller, more manageable parts, making it easier to identify the best growth strategy.
- It encourages creativity. By considering both current and potential products and markets, the model encourages managers to think outside the box and explore new and innovative growth opportunities.
- It encourages an integrated approach to growth. By considering both product and market decisions, the model ensures that the two elements are considered together in order to create a cohesive and integrated growth strategy.
Limitations of Ansoff strategy model
Ansoff strategy model is a useful tool for analyzing the potential of a company’s growth, but there are some limitations associated with it. These include:
- The model does not consider the current and future competitive environment, which might dictate different strategies.
- It assumes that the company has the resources and capabilities to implement the chosen strategy, which is not always the case.
- It does not take into account the external factors that can affect the success of the strategy, such as economic and political conditions.
- It assumes that the company has the necessary knowledge and expertise to successfully implement the chosen strategy, which may not be the case.
- The model relies heavily on theoretical assumptions and does not always reflect actual market conditions.
- The model tends to be overly simplistic and does not take into account the complexity of the business environment.
One approach related to the Ansoff strategy model is the BCG Matrix. It is a tool used to evaluate the business’s current position in the market. It looks at the market share and growth rate of each product to determine its potential and categorize it into four categories: Dogs, Cash Cows, Stars, and Question Marks.
- The Growth-Share Matrix looks at the market share and relative growth rate of products to decide whether they should be invested in, harvested, or sold off.
- The Portfolio Matrix is used to assess the overall portfolio mix between business units, markets, and products. It evaluates the organization's products and activities against its strategic objectives to determine the optimal balance between them.
- The Market Growth Matrix evaluates the business’s current market position and suggests possible strategies for growth. It looks at the growth rate of the market, the competition, and the business’s current position in the market to determine whether to enter or stay out of the market.
- The Product Life-Cycle Matrix is used to evaluate the lifecycle of a product or service and the strategies that need to be implemented in order to maximize its potential. It looks at the introduction, growth, maturity, and decline stages of a product to determine the optimal strategies to implement.
In conclusion, the Ansoff strategy model is a powerful tool to evaluate the business’s current market position and suggest possible strategies for growth. It can be complemented by other approaches such as the BCG Matrix, Growth-Share Matrix, Portfolio Matrix, Market Growth Matrix, and Product Life-Cycle Matrix to ensure an optimal balance between products, activities and strategic objectives.
- Ansoff, H. I. (1970). Corporate strategy: An analytic approach to business policy for growth and expansion. Penguin books.
- Chaffee, E. E. (1985). Three models of strategy. Academy of management review, 10(1), 89-98.