Frameworks: Ansoff Matrix

4 minute read

Short read to set context first: Why I am a fan of frameworks?

I’m a fan of 2x2 matrices in particular because it generates a neat output of 4 buckets that are mutually exclusive and completely exhaustive (MECE). My favorite is the Eisenhower Matrix.

Image Source: Asana

It is a simple yet powerful framework to drive execution by prioritizing which tasks to do, defer, delegate or delete.

Recently, while exploring how product and marketing teams tackle growth, I came across another 2x2 matrix called the Ansoff Matrix.

Ansoff Matrix

This framework, named after mathematician and business manager Igor Ansoff, is a planning tool to devise strategies for future growth. As you move from existing products to new products or from existing markets to new markets, the risks and benefits increase.

Across all the strategies, to add more customers, the firm tweaks their marketing mix or 4Ps

  • Product: introduce competitive product offering and features
  • Price: adjust price to meet the demand, offer discounts, etc.
  • Promotion: improve their advertising and distribution efforts
  • Place: add new distribution channels and go to where the customer is

Let’s run through the 4 strategy buckets from the Ansoff Matrix with examples.

Market Penetration

Firm focuses on improving sales of their existing products in the existing markets.

To gain a higher market share, the firm may decrease their prices, acquire a competitor, or increase their promotion and distribution.

Example: Samsung in the Smart Phone market

Apple dominated the premium segment until Samsung came up with their premium smart phones at lower prices with comparable features. Later brands like OnePlus adopted the same strategy to gain market share in the same existing smartphone users’ market.

Product Development

Firm focuses on introducing new products into their existing markets.

In this strategy, the firm understands their existing market well and conducts research and development to come up with innovative solutions to meet the needs of this market.

In the effort to build better solutions, the firm may acquire a competitor or complementary offering to combine resources. They may invest into extensive R&D and iterate on solutions. They may form strategic partnerships to improve distribution.

Example: Reliance Jio in the Indian Telecom market

Reliance developed their Reliance Jio network telecom services. They introduced Jio at no charges first and captured nearly 400 million customers from Vodafone, Airtel, and others.

The other prominent example today is the push for electric and green vehicles in the automobile market.

Market Development

Firm focuses on introducing their existing products into new markets.

When we think of expanding into new markets, we think primarily of geographic expansion. However, expansion may also refer to a new customer segment altogether because they’re potentially profitable and the product can serve their needs.

Example: 91springboard expanding to new geography & customer segment

91springboard, the largest coworking chain in India, was the startup I worked at.

  1. Geography: We started off with coworking locations in Delhi-NCR (India). We realized we could scale our solution to newer domestic markets in India and setup more locations and served customers across Bangalore, Mumbai, Hyderabad, Pune, etc.

  2. Customer Segment: When we started, we imagined our coworking spaces as Open offices suited for Founders, Freelancers, and small teams. But the demand for flexible office spaces from larger companies and our ability to tweak the product to provide Private areas within our spaces to these companies meant we could service a new customer segment altogether. Today in some of our spaces we have companies with over 400 people on their team, also coworking with solopreneurs and freelancers.

Diversification

Firm introduces new products in new markets.

For this strategy, both market and product development are required. While this is the riskiest of the lot, it unlocks new revenue streams for the firm. Companies usually diversify into related areas for the complementary benefits, expertise, brand power.

Example: Airbnb Experiences

The pandemic dealt a huge blow to travel and living in stranger’s homes. Airbnb countered this by introducing Online Experiences. This allowed any guest (customer) from anywhere to access a travel-like experience conducted by a host from another part of the world, all delivered online. This unlocked a new revenue stream for the company, demonstrated perseverance, and played a role in moving forward with their IPO during the pandemic.

Closing Thoughts

While the strategies above are helpful in planning a firm’s growth strategies, there needs to be more nuance to the final business decision. To move into a new market or introduce a new product, for example, the firm needs to consider whether they have the flexible structures and transferrable skills to take on the task. The decision must be business valuable, viable, feasible, and sensible.

Do you have examples of companies who’ve adopted any of the strategies above? How did it pan out? Share in the comments below.

References of Frameworks mentioned in this post

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