A common tool used within marketing was developed by Igor Ansoff in 1957. He suggested that a business has the potential to grow by using one of four strategies. These strategies involve making the most of existing markets and products, introducing new products, or entering new target markets.
The Ansoff Matrix diagram below summarises Ansoff four strategies for growth.
This involves increasing sales of an existing product and penetrating the market further by promoting the product heavily or reducing prices to increase sales. This strategy has the lowest risk strategy as the firm knows the product and the market. Market penetration is often used by supermarkets and large retail chains. recent example is Netflix, which continually promotes its existing content and offers regional pricing in different markets to increase subscriptions. Similarly, UK supermarket chain Tesco often runs aggressive promotional campaigns on staple products, aiming to draw more frequent visits from customers and grow its market share.
The business introduces new products into existing markets with the aim of selling the new product to existing customer groups.For example, Microsoft’s Xbox Series X, which built on previous models by introducing faster loading speeds and enhanced graphics for its existing customer base. This is an example of a new feature added to an existing product aimed at the same market. Product development is a medium-risk strategy as the business is familiar with the market. Another example is Cadbury, which frequently introduces new flavors and limited-edition chocolate products aimed at its existing customer base.
Under a market development strategy a firm sells existing products to new markets. For example a sandwich shop which is doing well in one area, expands and opens another sandwich shop in a different region. Through market development our sandwich shop has the potential to become a national chain. There are different ways to define new markets including different locations for sales to aiming products at different customer groups (age, background, interests, income). example, Starbucks has grown significantly by expanding into international markets such as China and India, adapting its menu to suit local tastes while still offering its core coffee products. Indian company Patanjali also expanded its Ayurvedic products from local to international markets, capitalizing on the global trend for natural and holistic health products.
Diversification involves selling new products to new markets. For example if a business which usually sells food to families, decides it would like to sell cars to single men it would be diversifying. Diversification is a high risk strategy as the business is unfamiliar with the product and the target market. However as it also has the potential to produce the highest rewards many businesses are prepared to take the risk. A recent example of diversification is Amazon’s move into the healthcare sector with its online pharmacy services and partnerships with healthcare providers. Another example is Tata Group in India, which diversified by moving from steel production into the automotive industry with Tata Motors.
Ansoff's matrix enables businesses to decide growth strategy based on products and the markets that the products are aimed at. Under the matrix they have the option to stick with the markets and products they know (market penetration) or change either their market involvement (market extension) or the product (product development). For those prepared to take risks for potentially larger rewards there is the option of diversification into new products and markets.
