Ansoff’s growth matrix is a strategy that should give a company the strength to gain market share in various areas.
The reason why it is important for a company to have a growth strategy is that in this way you can find the best competitiveness for the company. Without a growth strategy, your company can lose market share. With a growth strategy you might be able to gain marketshare from your competitors or even get new costumers to the market.
The growth opportunities can be divided into 2 overall dimensions: market and product. Here, each dimension is divided into 2 further dimensions: current and new.
Based on the 4 dimensions, Ansoff’s has created 4 different growth strategies. The 4 growth strategies are:
• Market penetration (existing product in existing market)
• Market development (existing product in new market)
• Product development (new product in existing market)
• Diversification (new product in a new market)
All these growth strategies are characterized by the fact that the company faces special challenges which require a well-planned composition of the 4 action parameters, product, promotion, price and place.
Market penetration is a strategy where the company tries to increase the sales of its existing product into their current markets. There are many ways in which the company can increase sales for their current market. They can, for example, increase sales of goods or increase the price. The company can also try to capture competitors’ market share.
This growth strategy is probably the easiest strategy, as the company does not face new competitors or new markets, but this growth strategy also has the least growth potential. The company will only face known known market conditions and the company will primarily work with the action parameters like price and promotion.
Market development is a strategy where a company tries to create growth by selling their current product in a completely new market. The company does not want to sell in a market that they already sell to. A new market can either be a new geographical location or for a completely different target group. There are many different markets that a company can sell to.
With this strategy, revenue and sales may well fall at the start, as you first have to promote your product to the new customers, but when the promotion is finished and the new market has created awareness of the product, then revenue and sales will increase.
When using this strategy, the company will primarily work with the action parameters, Product, Price and Promotion
Product development is a growth strategy where the company tries to sell a new product to their current market. The company therefore wants to introduce a completely new product that their current market is not aware of. You often see large companies like Arla always making a new variant of their dairy products, which they then sell to their current market.
With this growth strategy, there is a great deal of uncertainty about the sales opportunities.
With this growth strategy, the company will primarily work with the action parameters, Product, Place and Promotion.
With this growth strategy, the company tries to sell a completely new product to a new market. This growth strategy is the most difficult and expensive to execute. Diversification is clearly the growth strategy with the greatest growth potential, with high risk comes high gains. With a diversification strategy, the company will process the market with all 4 action parameters.
How to use Ansoff growth matrix
The matrix can be used to analyze a company’s growth strategy or to make plans for your own company. Professionals will typically use this growth matrix combined with Porter’s Five Forces, a SWOT-analysis and other models that can be useful for company.
When you use this growth matrix, it is important that you consider how the company’s position is and compare it to other companies in the industry.
Every industry will be different, so there’s no rules for how many companies you should compare to, but always compare to the closest competitors.
History behind Ansoff growth matrix
Ansoff invented this matrix in 1957 by writing it in a paper, that later became famous and is among the most used matrixed today.