Every business looks forward to healthy growth, but it often becomes hard to determine the best way to trigger growth in the right direction. To address this concern, Igor H. Ansoff suggested that the capability of the business owners to grow their business depends on the manner in which they market existing or new products in existing or new markets. He developed the Ansoff Matrix that was first published in 1957 in an article titled ‘Strategies for Diversification’ in the Harvard Business Review article. Later in 1965, the concept was developed into a book by Ansoff, named ‘Corporate Strategy’.
So far as business growth is concerned, Igor Ansoff outlines four strategies. By means of the Ansoff matrix, every strategy can be evaluated to arrive at the best one for optimum return.
In simple language, this means selling an increasing number of similar things to similar customers. In an expanding market, this is the most convenient way to trigger growth.
But the crux is that it becomes difficult to execute this strategy when the market matures, and there is an increase in competition. The usual step is to invest more in advertising or sales people or promote vouchers, discounting or competitive pricing. Business owners can also increase sales by providing incentives to the sales people.
However, another intelligent way to boost market penetration is to increase usage. Again new applications can also be developed to boost market penetration.
This involves selling more of similar products to different customers. This is a risky strategy and is apt to execute when the product or service is the core competence of the business.
Introducing fresh sales and distribution channels can be one way of developing the market. Again, the market can also be traditionally developed through entering into a strategic partnership with a business already in operation within the target market. Setting up offices, warehouses or shops in the target areas or adopting the franchise model may trigger a development of new geographical markets.
Coming out of the traditional methods, businesses may also experience market growth if they find alternative uses for their existing products.
Selling new services or products to an existing market is a risky proposition and is most appropriate when the relationship with customers is the strength of the business. Numerous product-oriented businesses can add complementary services while service-oriented businesses can include products to boost sales.
Alternatively, businesses can rope in activities that support the supply chain, such as wholesaling, warehousing or importing. These help the business to grow without deviating from the customer base.
Two unknowns make this the riskiest strategy – new products with unidentified development issues and new markets with unidentified characteristics. However, diversification brings in the best potential for growth.
The commonest route to diversification is to develop new products based upon the organization’s core competencies. Acquiring a business that operates in a different market can also promote diversification.
Ansoff’s Matrix benefits business owners by helping them to analyze the prospects of each growth strategy. A business in an expanding market can adopt market penetration for growth while one in a mature market may choose product development or market development as per internal strengths. If none of these strategies suffice, diversification is the most viable route.