The Ansoff Matrix

Introduction

In this article I would like to introduce to you a methodology for analyzing and planning a portfolio. Portfolio refers to both products and services.

The methodology that I would like to introduce to you was developed by the American mathematician and economist Harry Igor Ansoff and is generally known by the name Ansoff Matrix, also known as Product Market Matrix.

Motivation and conditions

The concept of the Ansoff Matrix is based on the idea to categorize product portfolios into meaningful categories. Based on these categories strategies for the further development of the portfolios can be identified, in particular the (further) development of growth strategies.

In addition, the Ansoff Matrix can be used to analyze retrospectively which growth strategies have been used implicitly or explicitly in the past. In this way, the strategies of different companies can be compared with regard to the expected and actual results in the implementation of the chosen strategies.

For the categories, the Ansoff Matrix distinguishes between existing and new products as well as between existing and new markets. Based on these criteria, the following four categories can be derived:

1. Existing products for existing markets
2. Existing products for new markets
3. New products for existing markets
4. New products for new markets

The four categories can be visualized using the Ansoff Matrix and attributed with strategies.

The Ansoff Matrix

I would like to discuss the four categories in more detail below.

Existing products for existing markets

I would like to start with the category, which typically is identified and implemented first and which can usually be implemented with the least amount of effort.

Strategies for existing products in existing markets

Growth with existing products in existing markets can be generated in different ways. Typical approaches are

• Generation of new users in the existing market results in an associated increase in market share
  • e.g. placing a companies brands in more retail stores
• Increasing sales volumes to existing users
  • e.g. through the distribution of multipacks
• Increasing the frequency of use among existing users
  • e.g. through the communication of appropriate usage recommendations
• Increasing the number of used products
  • e.g. by selling smart home appliances for every room
• The identification of new uses for the products
  • e.g. through the publication of baking and cooking recipes for spreads

New products for existing markets

The second growth area is the generation of growth through new products in existing markets.

Strategies for new products in existing markets

Typical strategies are:

• The development of product improvements
  • e.g. through improved recipes in the chocolate spread
• The extension of product families
  • e.g. by marketing a light version of soft drinks
  • e.g. by marketing a flavored mineral water
• The development of new products for the same market
  • e.g. through the development of electric cigarettes by tobacco companies

Existing products for new markets

New markets can be in new geographies, but also be different from existing markets in cultural or socio-economic characteristics. Typically, companies apply this strategy most often when a product was successfully introduced as a new product into their existing home market, and then gradually new markets are opened up.

Strategies for existing products in new markets

A tried and tested example of this strategy with beverage manufacturers is to make a beverage, which was previously marketed as a stimulant and soft drink, attractive to new customer groups. For example, by addressing the market of sports-loving customers through its isotonic ingredients.

New products for new markets

The most risky of the growth areas is the generation of growth through new products in new markets.

Strategies for new products in new markets

Typical strategies are:

• vertical diversification along the value chain
  • top down: An automobile manufacturer could start to produce certain vehicle components in-house that were previously produced by suppliers. These components can than be used both for the manufacturers production as well as provided to other car manufacturers
  • bottom up: A manufacturer of software solutions enriches its portfolio with consulting services that were previously typically provided by other companies.
• the horizontal diversification into a related business
  • A logistics service provider for goods and products is expanding its portfolio with passenger transport services
• Diversification into a new kind of business
  • An automobile manufacturer diversifies its portfolio towards financial services. As customers can finance the company’s core products in this way, positive side effects to the core business can be expected.

Summary

Finally, I would like to introduce you to three features of the Ansoff Matrix, which have some relevance in the practical work with the model.

1. With the help of the Ansoff Matrix, one-to-one mappings from growth strategy to growth field can not be deduced, as some of the strategies can be assigned to one or the other growth field or to hybrid forms.
2. The Ansoff Matrix model is a useful tool to identify measures for growth but is not designed as a decision making tool. This is in particular because the Ansoff matrix does not consider many aspects that are important in deciding on a growth strategy. For example, the Ansoff Matrix considers neither the competitive situation nor the current situation of the company.
3. In some industries, one can observe the strategies implemented in typical sequences. As an example, the beverage manufacturer which introduces an improved or new product into an existing market in order to then establish this product as a existing product in new markets.

In summary, it can be noted that the Ansoff matrix is an useful instrument in business development management, in particular:

• in the analysis of product portfolios as well
• the identification of growth strategies

I hope this article has helped you with ideas for identifying growth strategies in your own business and wish you every success in the application.