Another name of Ansoff Matrix is Product or Market Development Grid. It is a technique used by the organizations to examine and decide their growth plan that, how we are going to expand our business and its products through different methods. This tool is based on four intensive growth strategies that help the company to evaluate and examine the current market situation along with the risks involved in each of these plans (CFI, 2019).
Ansoff matrix was introduced by a Mathematician and business manager “H. Igor Ansoff” in 1957. This matrix supports several industries and their leaders to analyze and measure the risks associated with the process of business expansion. Ansoff Matrix is based on four strategies that contain; Market Penetration, product development, market development, and Diversification.
Market Penetration; emphasizes on improving sales record of already developed goods into the current market.
Market Development; emphasizes on selling and development of fresh goods into the current market.
Product Development; emphasizes on the distribution of existing goods to new consumers of a new market.
Diversification; emphasize production and selling of new goods and services in a very new market.
Market Penetration
By using this strategy, a company improves its current goods and services in the current market to increase its sales and market share. Simply, when an organization aims to expand its market share by using a market penetration plan. A firm may implement this strategy in various manners. For example, a decrease in production costs helps to retain existing customers as well as attract new ones because customers always prefer to purchase at a low price. The introduction of various promotional activities may also divert the buyer’s attention towards the company and its product. The organization may acquire its current market competitors. For instance, all telecommunication organizations execute a market penetration plan by introducing modified price and promotional schemes to cater to the existing market (Morrison, 2018).
Product Development
In this strategy, the organization decides to produce contemporary goods to capture the eye if current customers in the current market. There is a lot of research and development involved to produce a range of new products. Before executing this strategy, the organization needs to have a piece of appropriate knowledge about the current market condition. Besides this, a firm must possess the ability to give progressive suggestions and solutions to the current market. This strategy may also be employed in various manners. For example, the organization may invest to improve its research and development department to innovate something new for the customers. Furthermore, a company may develop a partnership with other organizations to reach a large number of distribution channels. Such as, the automotive industry is focused on the development of electric motors to satisfy the fluctuating demands of their current market. Customers of the automobile market are now more concerned about the environment (Morrison, 2018).
Market Development
In the preceding growth plan, the organization plans to involve in the fresh market by taking its already developed products. With this perspective, market development may be considered as development in terms of geographical, demographical and regional factors. It is one of the successful strategies among the four. For example, an organization may hold on to new markets by owning proprietary technology. Favorable economic conditions of the other country may benefit the firm in different ways like, high-income consumers have the high purchasing power that may increase sales revenue. Most often, Customer buying behavior in fresh markets does not switch easily from the current market. Market development can be employed by operating business activities in new domestic or international markets. Such as, Nike and Adidas have started operating their businesses in China to expand their growth and development. They are distributing existing goods at a new demographic location (Morrison, 2018).
Diversification
This strategy is based on the development of the latest product by participating in a very new market. However, this is the most jeopardize plan due to the new market and new product development. The risk level can be reduced through relevant diversification. Usually, diversification is classified into two categories which involve; related diversification and unrelated diversification (Morrison, 2018).
Related Diversification; refers to the realization of strong collaboration among current business and the fresh market/goods. For instance, a telecommunication company decides to produce computers and laptops.
Unrelated diversification; There is no need to realize potential synergies among current business and fresh markets or products. Let say, if a textile cloth company plans to introduce leather shoes.
References
Ansoff Matrix The Product/Market Expansion Grid. (2020). Retrieved 12 January 2020, from https://corporatefinanceinstitute.com/resources/knowledge/strategy/ansoff-matrix/
Morrison, M. (2018). Ansoff Matrix – product -v- market grid. Retrieved from https://www.google.com/amp/s/rapidbi.com/ansoff-matrix-product-v-market-grid/amp/