Ansoff Matrix: The Art Of Diversification And The Brilliant Truth About 4 Tested Strategies
Here’s a little secret that few people know about the Ansoff Matrix.
Igor Ansoff, was a Russian-American mathematician and business theorist.
He created the matrix in 1957 and he wouldn’t want you to know this tasty little secret.
After all, he spent years testing his theory.
And it was during those tests that he discovered the truth.
That secret found its way through to one of the biggest organisations in the world.
What happened next was insane…
… that organisation became one of the most accomplished in history.
What’s the name of this great company that grew using the Ansoff Matrix?
Coca Cola.
And there’s another giant of a company that uses it too.
Although it may surprise you when you find out who it is.
A very modern tech company, using a matrix from the ’50s.
The Ansoff Matrix is a tool that helps businesses spot different ways to grow. It has four different strategies, all designed to help a business make more profit.
Those 4 strategies are:
Market penetration (taking the market share in your existing market),
Market development (finding new markets or countries to go into),
Product development (how can you make your products even better or develop new products),
And Diversification (looking at new products AND new markets).
For small businesses, the Ansoff Matrix is superb. It helps them find ways to grow and make more money.
Small companies can use the Ansoff Matrix to figure out the best way to grow.
AND to avoid making costly mistakes.
It’s been in use by thousands of businesses since 1957.
2 of them are up there with the Giants.
2 of the biggest brands in the world.
To show how powerful this tool is.
It’s worth pointing out that it’s over 65 years old and still sensationally useful today.
In the next sections, we will explain the four ways to grow with the Ansoff Matrix.
And how it can help YOUR business triumph.
The Ansoff Matrix
The 4 Tested Strategies That Are Used In The Ansoff Matrix
The matrix provides businesses with a framework to test different strategies for growth.
There are four strategies:
Market Penetration
This strategy focuses on increasing sales of existing products in existing markets.
It involves increasing the frequency of purchases by current customers.
Or taking over the marketplace.
Market Development
This strategy involves expanding into new markets with existing products.
No need to go down the product development route.
Use the products you have, but go after new markets.
This could include going into new geographical regions.
Or targeting new demographics, customers, and market segments.
To keep it simple. Market development is about finding new uses for existing products.
The Ansoff Matrix – New And Existing Markets
Product Development
This strategy involves developing new products for existing markets.
Target the same location, and the same people, but use a new product.
It can involve modifying existing products.
Or creating completely new ones to meet changing customer needs and preferences.
The Ansoff Matrix With Product Development
Diversification
This strategy involves entering new markets with new products.
It can be related or unrelated to the company’s existing products and markets.
It can be riskier.
But often, with great risk, comes great reward.
Each of these strategies involves a different level of risk.
And they all need a different approach to execution.
If you analyse each strategy, you can make informed decisions on which one to pursue.
The Completed Ansoff Matrix
Using The Ansoff Matrix
The Ansoff Matrix is a valuable tool for businesses looking to spot growth opportunities.
It can be useful when you are looking to develop a winning strategy to achieve growth.
You can use it in a few different ways:
A. How To Use The Ansoff Matrix in business
The Ansoff Matrix helps businesses make decisions.
It can helpful when making decisions on growth strategies in particular.
You can use the matrix because it prompts you to look at different opportunities.
It also helps look at the risks associated with each strategy.
It can also be useful to help businesses assess their current position.
That way you can identify areas for growth.
Basically, go through each quadrant, discuss ideas, look at where you have strengths and weaknesses at present, then choose the strategies to execute.
There’s a detailed explanation of how to use the matrix in a brain storming session below.
B. Real-life examples of Ansoff Matrix in action
You’ll find one real-life example of the Ansoff Matrix in action at Coca-Cola.
They used the matrix and it led to the introduction of Coke Zero.
It was in a product development strategy that Coca-Cola created its newest product.
But it created a new product for an existing market.
Another example is Amazon’s entry into the grocery market.
They completed the acquisition of Whole Foods, which was a diversification strategy. (New product in a new market).
There are thousands of examples where big companies have used this matrix to grow in a major way.
C. Advantages of using Ansoff Matrix
The Ansoff Matrix provides a structured approach to identifying growth opportunities.
It helps you brainstorm new strategies to achieve growth.
You can also make informed decisions based on each strategy’s risks and benefits.
The Ansoff Matrix is also flexible.
It allows businesses to adjust their strategy as needed based on changes in the market.
Or their business environment.
D. Disadvantages of using Ansoff Matrix:
The Ansoff Matrix is a theoretical model.
Which means it may not always reflect the complexities of real-world business scenarios.
It is also reliant on accurate market research and data analysis.
A good level of research can often be time-consuming and costly for some businesses.
Because of that, the Ansoff Matrix may not be suitable for all types of companies.
But it’s also worth drawing the matrix out and brainstorming.
That might be with your team or coach, to see if any opportunities exist.
How Do I Use The Ansoff Matrix In My Small Business?
It’s as simple as it is beautiful.
The best way to use this Matrix is also the best way to grow a business.
The first step, block some time out of your diary. (The single best way to grow a business).
And I mean, clear your desk, get away from the office, get some flipchart paper and some pens, and grab a coffee.
If you have a team, get them there.
Even better if it’s a management team.
And now you are ready to start the second step.
Draw the Matrix out as below:
Then spend the whole brainstorming session on each of the four segments.
One by one.
Start with existing markets and existing products.
The topic?
How can you penetrate the market?
Get everyone on the team to come up with as many ideas as possible and get them down on paper.
Once you’re happy you have lots of ideas, move on to another segment.
And repeat until you have completed all 4 segments.
Then, walk away.
That’s the second step complete.
And it’s time to move on to the third step.
Set up and attend your second session.
Review the ideas.
And see what’s jumping out.
Narrow the list down, as a team, and keep going until you have one strategy per person.
Happy with the strategies?
Great, now it’s time to delegate.
Take one each, and build a solid 90 day plan.
All that’s left to do is execute.
And do it properly!
How effective is the Ansoff Matrix?
The Ansoff Matrix is an effective tool for businesses looking to develop a growth strategy. Here’s why:
How Ansoff Matrix is effective
The Ansoff Matrix is effective as long as it’s used and executed with detail. If you try to rush through this and make it a quick fix, it won’t work.
You have to run through the Matrix with detail as the instructions above suggest.
Importance of considering market and product variables
One of the things that makes this Matrix great is its consideration of market variables.
It also helps when considering product variables.
By reviewing the market and product variables, you can understand the impact of each strategy.
You’ll soon see what you new markets you can target.
And you’ll create new product ideas.
Then you can make informed decisions on which strategy to pursue.
The variables include factors like customer demographics and market trends.
And competitive landscape, or technological advancements.
The relevance of Ansoff Matrix today
Even though it’s over 65 years old, the Ansoff Matrix is still relevant today.
It provides businesses with a proven method for evaluating growth strategies.
While there are criticisms that the Ansoff Matrix is too simplistic.
Some even say outdated.
It remains a valuable tool for businesses looking to achieve growth.
And come up with new strategies.
Ansoff Matrix and Coca-Cola
Coca-Cola is one of the world’s largest beverage companies.
They used the Ansoff Matrix to develop growth strategies.
Here’s how:
Coca-Cola uses the Ansoff Matrix to evaluate and develop new products and markets.
They used the matrix to identify opportunities for growth through all 4 segments.
Market penetration market development, product development, and diversification.
You can see Coca-Cola’s use of the Ansoff Matrix in its product and market expansion over the years.
For example, in the 1980s, Coca-Cola introduced Diet Coke to penetrate and take over the market. (Market Penetration)
They were targeting health-conscious consumers.
It also expanded its market through international growth. (Market Development)
Like when they entered the Indian market in the early 1990s.
In the 2000s, Coca-Cola introduced more new products to appeal to a wider range of consumers. Products like Diet Coke with lime. (Product Development)
And It has also diversified its product portfolio by acquiring other brands.
Brands like Minute Maid and Powerade. (Diversification)
These examples show how Coca-Cola has used the Ansoff Matrix to drive growth.
They remain to this day competitive giants in the beverage industry.
Ansoff Matrix and Tesla
Tesla is a company that has revolutionised the car industry.
And now it’s branching out into other areas, such as renewable energy and technology.
Here’s how Tesla uses the Ansoff Matrix:
Tesla used the matrix to focus on the market development and product development strategies. They expanded into new geographic markets (market development).
And launched new products such as the Model Y and the Cybertruck.
By using the Ansoff Matrix, Tesla ensure that they are taking a data-driven approach to growth.
They use the data to make informed decisions about where to invest their resources.
You can see Tesla’s use of the Ansoff Matrix in its expansion into new markets.
Like when they entered China and Europe.
Tesla has also focused on diversification by expanding into areas such as energy storage.
They did that with the Powerwall and Powerpack products.
These are a few examples of how Tesla has used the Ansoff Matrix to drive growth.
Not only do they continue to dominate the electric car industry.
But they are also breaking out into other industries.
And countries.
Summary
When you can understand the language, the Ansoff Matrix is a simple model.
All you have to do, is make the time to brainstorm the ideas in each quadrant.
Then make sure you implement them.
The Matrix is a valuable tool for small business owners looking to grow their business.
When you understand the four key strategies;
Market penetration,
Market development,
Product development,
And diversification…
…business owners can come up with great strategies to grow and boost profits.
Companies across the world use The Ansoff Matrix today.
It has been effective in helping them grow and remain competitive.
Even more so when they’ve used market research to prompt more ideas.
While it is not without its limitations, the advantages of using the Matrix seem to outweigh the disadvantages.
It’s even more powerful when you take a data-driven approach to using it.
And when you take a data driven approach to growth and expansion.
It’s well worth the time to consider different markets and products that you could use.
Once you have, you can always develop strategies based on these new ideas.
If it’s done on a regular basis.
And it’s done well.
Small business owners can position themselves for long-term success in ANY industry.
Have you ever had success when branching out into new markets?
Or when you’ve released new products?
Let us know below.
