The product/market grid of Igor Ansoff is a model that has proven to be very useful in business unit strategy processes to determine business growth opportunities. The product/market grid has two dimensions: products and markets. The Ansoff matrix provides the basis for an organization's objective setting process and sets the foundation of directional policy for its future (Bennett, 1994). The Ansoff matrix is used as a model for setting objectives along with other models like Porter matrix, BCG, DPM matrix and Gap analysis etc. The Ansoff matrix entails four possible product/market combinations: Market penetration, product development, market development devel opment and diversification.
Ansoffs Product-Market Expansion Grid Market penetration strategy: The first strategy company is looking to adapt for increasing their sales
and profits. Marketing efforts of the company to offer their existing products in the current markets is called market penetration strategy. The best way to do this to attract competitors customer and looking for potential customer for the existing products. For example, Pakistan State Oil penetrate in Pakistan market from 40% to 65% in the duration of 4 years by developing deve loping new retail outlets. Market development Strategy: Developing a new market for the existing company product is
called market development strategy. This is the process of finding new market for the new customer to increase company performance by increasing sales and profits. Companies can develop market on geographical such as city, country, region, state etc and demographical such as age, sex, gender, class etc. For example, Chinese products developed new market for their product worldwide. Product Development Strategy: Developing or modifying new products and offering to the existing
market is called product development strategy. This strategy takes time and money for developing a new product. Marketing Manager must conduct a detailed survey whether it is feasible to introduce new product in the current market. For example, Google developed a new browser Chrome for the existing Internet user.
Diversification Strategy: Diversification Strategy is the development of new products in the new market.
Diversification strategy is adopted by the company if the current market is saturated due to which revenues and profits are lower. At the corporate level, it is generally and its also very interesting entering a promising business outside of the scope of the existing business unit. For example, Walt Disney moved from producing animated movies to theme parks and vacation properties. Effectiveness of Ansoff Analysis in different situation: It is important for analysts to acknowledge that
different strategic options are suitable for companies operating in different types of industries and markets. No one strategic option for growth is appropriate for all types of companies at all times. Market penetration may prove to be a wise strategy only when the overall market is growing. In a growing market, companies are often able to increase sales to existing and some new customers without increasing their relative market share. Companies with low market share in a growing market can make gains by attacking a competitor head on. For example, Burger King (relatively low market share) to an extent has been successful at attacking McDonald's sales (relatively high market share). However, it is more difficult to reap benefits of market penetration strategy in a declining market. Overall, market penetration strategy is a low risk strategy as the business parameters of product and market more or less remain the same. The product development strategy is often a part of the natural growth of organizations. In many cases, innovation serves as the most important reason as it may present an opportunity to take market share from competitors or a threat to an existing product line. Product development strategy can in some cases be risky, as was the case of the New Coke. While customers liked the taste of the New Coke in the taste tests conducted by Coca Cola, customers of the brand favored Classic Coke over the new product. Competency of a firm becomes crucial in case of the market development strategy. For example, Glaxo has been able to develop new markets for its anti-ulcer drugs by developing and marketing a lowerstrength version of the drug in many countries that can be sold without prescription as a stomach remedy. Market development strategy, l ike other strategic options, entails cer tain risks also. McDonald's entered a number of new markets in the wake of globalization with its existing products. Due to the nature of the company's products, McDonald's had to make changes in the ingredients of its burgers in order to cater to the market. It is imperative for analysts who are trying to identify the growth strategies or are formulating proposals for such strategies for a particular firm, that firms in today's fiercely competitive business environment often pursue multiple strategies. In fact, most big businesses today pursue multiple strategies for growth at the same time in order to achieve their strategic objectives. For example, the two Internet incumbents of Amazon and E*Trade are both operating in a fast evolving, uncertain business environment and have pursued multiple and high-risk growth strategies, which include market development, product development and diversification strategies. Amazon focused more on the diversification strategy while E*Trade focused on market development. The differences in strategic choices in this case were due to the differences in the type of markets in which both companies operate. Notably Amazon operates in a wider retail setup while E*Trade operates in a narrower are of financial services retailing. Both companies chose product development as the second most preferred strategic option, which shows commitment to innovation in products and services.
Where to find information for Ansoff Analysis: For conducting Ansoff analysis, possible sources of
information include company and competitor websites as they would highlight the portfolio of products and services and how the company may have diversified over time. Up to three years of annual reports of the company can be analysed to see how the company has changed its business focus, according to changes in the business environment. Press releases are also a useful source for evaluating the growth strategy that a firm is pursuing or should pursue. Journal articles, trade publications and magazines are useful sources of information to identify growth strategies. The advantages are firstly that an ansoff matrix is a simply graphical toll that allows a business or
individual to weigh up a complex situation or decision. It is useful to identify high level strategies. Their main advantage is that they take very complex scenarios and allow for a rapid and easy assessment. For example with a complex business decision they would be used to quickly understand the potential for 1 of 4 scenarios. Limitations of Ansoff Analysis: The matrix can tell one part of the strategy story but it is imperative to
look at other strategic models like SWOT analysis and PESTLE. Recommendations made on the basis on only one of the models are not concrete and lack in depth. While the role of analysis in m aking strategic choices cannot be undermined, it is impe rative to note that judgement plays a crucial role in making critical strategic choices that may change the future of the firm (Macmillan et al, 2000). However a disadvantage is that the ansoff's matrix is highly simplistic and does not factor in the external environment, especially wihtin a business context. Lastly, the use of Ansoff matrix as a marketing tool may not be really useful as the matrix is critical for analysing the strategic path that the brand may be following, and does not essentially identify marketing options. Conclusion
Ansoff matrix is one of the most well known frameworks for deciding upon growth strategies of an organization. Strategic options relating to which products or services an organization may offer in which markets are critical to the success of companies. The Ansoff matrix is a useful, though not an exhaustive, framework for an organization's objective setting process and marketing audits. The differences in strategic choices of organizations can often be attributed to the type of market in which the company operates. Changes in business environment play a crucial role in the strategic options that an organization may pursue over its life stages. There are risks associated with all of the four strategic options entailed in the Ansoff matrix. Market penetration is generally considered as a low risk strategy while diversification, on the other hand, is deemed as a high risk growth strategy as it involves moving simultaneously into new products and new markets. Diversification remains a popular strategic option for firms in today's competitive business arena, and if the diversification strategy is consistent and well though-out, significant improvements in profitability can be experienced.
