Unit 6: Business Management Toolkit — BMT 2 Ansoff Matrix
Introduction to the Ansoff Matrix
The Ansoff Matrix is a strategic planning tool that helps businesses decide on growth strategies based on products and markets. It identifies four main strategies for expansion: Market Penetration, Product Development, Market Development, and Diversification.
Purpose: To analyze possible growth opportunities and assess corresponding risks for each strategy.
The Ansoff Matrix Explained
| Strategy | Products | Markets | Example | Risk Level |
|---|---|---|---|---|
| Market Penetration | Existing | Existing | Increase sales to current customers; promotions, price cuts | Low |
| Product Development | New | Existing | Launch updated or new products to existing customer base | Medium |
| Market Development | Existing | New | Expand into new geographic regions or customer segments | Medium |
| Diversification | New | New | Enter industry or markets not previously served | High |
Visualization:
Four quadrants: Market Penetration, Product Development, Market Development, Diversification
Four quadrants: Market Penetration, Product Development, Market Development, DiversificationApplying the Ansoff Matrix
- Market Penetration: Increase share in current markets with current products. Example: More aggressive marketing.
- Product Development: Develop new products for existing customers. Example: Launch a new phone model.
- Market Development: Expand into new markets using existing products. Example: Open stores in another country.
- Diversification: Offer new products in new markets. Example: Tech company launching a financial service.
Growth Risk Formula:
Growth\ Risk \propto (Product\ Novelty) + (Market\ Novelty) Greater novelty means higher risk for the business.
Growth\ Risk \propto (Product\ Novelty) + (Market\ Novelty) Greater novelty means higher risk for the business.
Advantages & Limitations
| Advantages | Limitations |
|---|---|
|
- Simple strategic decision-making - Identifies risk/return for growth - Versatile for all types of businesses |
- Oversimplifies nuanced market realities - Ignores competition and resource needs - Risk assessment can be subjective |
Conclusion
The Ansoff Matrix is a powerful tool for guiding business growth, enabling leaders to consider product and market risks to make better strategic decisions.