The Ansoff Matrix helps businesses evaluate their strategy based on its potential risks and rewards, and choose the best approach for their specific business goals and market conditions.
It was developed by mathematician and businessman H. Igor Ansoff in 1957. The model helps businesses weigh the pros and cons of a strategic decision, grow, and scale up by following four basic strategies.
Market penetration - this strategy focuses on increasing sales of existing products in the current market. This is a low-risk strategy since it doesn’t involve entering a new market or developing new products. Market penetration strategies include lowering prices and aggressive promotion campaigns.
Market development - the strategy focuses on sales of existing products in a new market. Unlike the first strategy, there’s a little more risk involved here.
First, you need to have a good grasp of the market you’re moving into and this includes knowing who your competitors are and what advantages they have. Then you may have to modify your products in order to effectively compete in the new market.
Product development -this strategy focuses on sales of new products in an existing market. Product development comes with its own risks. So before proceeding, you must answer certain questions like is there a market for the product?
How would the market respond to the new product? What turnaround strategy does the company have in case things don’t go as planned?
Diversification - this strategy focuses on sales of new products in a new market. It is the riskiest strategy in the Ansoff matrix. Diversification involves developing new products as well as entering new markets. Both of these require considerable investment.
The Ansoff matrix provides marketers with four strategies to achieve growth. Each strategy has a different level of risk. Market penetration has the lowest risk value while diversification has the highest.
The Ansoff matrix is used with other business models/frameworks like PESTEL analysis, and SWOT analysis.