More than half a century ago, Igor Ansoff, in his Harvard Business review article,“Strategies for Diversification” introduced the world to the Ansoff Matrix, which is also known as the Product/Market Expansion Grid. The Ansoff Matrix has been a lucrative tool for generations of leaders that have planned and analysed their organisations’ strategies for future growth.
The original 2×2 matrix provided four basic growth alternatives organisations could leverage to inform their growth decisions. The Ansoff Matrix concurrently highlights the level of risk associated with each choice of strategy. The idea is that each time an organisation moves into a new quadrant, the risk increases. Organisations can utilise the Ansoff Matrix to decide which overarching strategy they should pursue when determining “who to sell to” and “what to sell to them”.
The four strategies provided in the original 2×2 matrix can be defined as follows:
Product development is a strategy which focuses on developing new products for existing markets, in essence, organisations will focus on developing products for the same customer base. I will use Discovery as an example of organisation which embraced these strategic growth paths. They can be said to have taken a product development strategy approach when they introduced Vitality as part of their product mix.
Market development is a strategy which focuses on identifying and developing new market segments for existing products. Discovery was able to create new market segments for Vitality by offering it to international clients such as the United Kingdom, Canada and China.
Market penetration is a strategy utilised by corporations when they seek to increase sales to an existing market without departing from their original product-market strategy. Discovery is able to do this by offering their corporate clients discounts if their staff members opt to use Discovery medical aid as opposed to any of their competitors.
Diversification focuses on entering a new market with the introduction of new products. Discovery can be said to have explored this strategy recently when they launched Discovery Bank.
The Modified version of Ansoff Matrix
Product innovation has become even more complex in today’s world, and globalisation allows organisations to have an even greater global footprint. Despite its usefulness and popularity, the Ansoff Matrix is not always the best fit for this ever-changing world due to its simplicity. For one, the matrix fails to demonstrate any potential links between an organisation’s market orientation and any other existing product market growth strategies. For example, it would not showcase a simple product modification allowing an organisation to reach new customers in existing markets. For a more sophisticated strategy outlook that depicts the nuances that exist in today’s product and market innovation world, organisations would have to opt for the 3×3 Ansoff Matrix.
The 3×3 Ansoff Matrix introduces Adjacent Markets between Existing and New Markets and Modified Products, as well as between Existing and New Products. This 3×3 Ansoff Matrix is handy because it demonstrates the difference between Market Expansion and venturing into completely new global markets as well as the differences between Product Extension and true Product Development. Furthermore, the 3×3 Ansoff Matrix can show organisations a particular strategic path they can take to move into their “ideal quadrant”. It is essential to avoid being purist when utilising the Ansoff Matrix but instead, to be practical.
Using the Ansoff Matrix in Practice
The Ansoff Matrix has been utilised by organisations to map out growth strategies which proactively respond to foreseeable and unforeseeable economic conditions.
Example 1: Mapping out Discovery’s response to foreseeable economic conditions
When using the original Ansoff Matrix to evaluate the strategic development of Discovery’s Vitality offering, one would conclude that they moved from a Market Penetration strategy to a Diversification strategy in one move. It does not provide the nuanced path Discovery took, as evident in the 3×3 Ansoff Matrix.
However, when evaluating the strategic path of Discovery’s Vitality offering utilising the 3×3 Ansoff Matrix, we would notice the following:
- Market Penetration: Offering Health Insurance to consumers.
- Product Modification: Rewarding members for choosing healthier behaviours.
- Product Development: Going beyond rewarding members by creating the Vitality offering which incentivises members to fully adopt a healthy lifestyle.
- Market Development: Creating a client base which opts to utilise Discovery because of the Vitality offering.
- Diversification: Expanding the Vitality offering by including other countries such as the United Kingdom and China.
Example 2: Mapping out Checkers’ response to unforeseeable economic conditions
When using the original Ansoff Matrix to evaluate the strategic development of Checkers’ Sixty60 offering, one can conclude that Checkers moved from a Market Penetration strategy to a Market Development Strategy in one move.
When evaluating the strategic path of Checkers utilising the 3×3 Ansoff Matrix, we would notice the following:
- Market Penetration: Create a marketplace and sell goods to individuals at various locations.
- Product Modification: Capitalising on the COVID19 pandemic, an unforeseeable economic event, Checkers modified the way in which it delivered its products to consumers by creating Checkers Sixty60.
- Market Expansion: Checkers Sixty60 allowed them to expand their client base. The result of which was visible within a few months of its inception. The app had already received over 700 000 downloads and solidified its position as South Africa’s number two shopping application.
What can the Ansoff Matrix do for you?
As an organisation, you can use the Ansoff Matrix to decide on the appropriate growth strategy and consider these decisions concerning the associated business risk. We suggest that you plot each opportunity at your disposal on the Ansoff Matrix. Analyse what your plot says about the direction in which your organisation is going, and analyse the gap between your potential growth strategies and your current core offerings. This will also allow you to analyse the universe of opportunities available to your organisation as the permutation of growth strategies is limited. For example, suppose Checkers or Discovery only had a strong product development pipeline with lots of opportunities but little available in adjacent markets and new markets. In that case, the first part of this strategy would have been to focus on market expansion and market development.
Once an organisation has plotted out the opportunities available, the next step is to determine the best way of executing this growth strategy, keeping in mind the current context of the organisation, the assets available to them to leverage and the capital required to invest in this growth. We further suggest that for an enhanced view, you should plot the potential growth strategy pathway of your top three competitors to compare their potential trajectories to make up for the fact that the Ansoff Matrix does not provide a competitor lens. Failure to implement effective growth strategies could make organisations redundant in this ever-evolving market operating landscape. This issue highlights the risk organisations face when they fail to adapt to evolving market conditions.
Step Advisory has strong research and analytics capabilities that we can utilise alongside our strategy and growth team to assist you and your business with your strategy needs. We can evaluate opportunities and strategic paths your organisation should follow to stay competitive in the ever-evolving world. The Ansoff Matrix is one example of the arson of strategy tools we have at our disposal and can leverage to assist your organisation. It is not enough to remain stagnant in a saturated market to avoid risk, you must tackle risks strategically, or your business may fade to the background.