Ansoff’s box

Ansoff’s Box is a two-by-two matrix which provides the options for growth for a company. Different strategies are required, depending on whether you plan to stick with your current products or develop new products and also whether you are going to remain in existing markets or move to new ones.

What is it used for?

Ansoff’s Box is frequently used for

  • Strategy development – to consider whether to create new products or to enter new markets with existing ones (the model helps you to evaluate the options against one another)
  • Business growth – to look at how new products or new markets can be combined to create wealth for the business.

How do I use it?

Look at the matrix and consider the best approach for the business.

Market penetration

This strategy calls for increasing market share with current products in existing marketplaces. Tactics might include introducing a loyalty scheme to encourage more customers to buy your product or to advertise your product more extensively. You could buy a competing company if the market is mature.

Product development

Either new products are developed for current markets or products are adapted in some way to leverage existing markets further. Strategies here include developing new products to form a part of an existing range or showing the use of current products for different purposes.

Market development

The idea behind this is to develop new markets for current products, perhaps by selling them in a different way. This may involve trying to sell your products to different segments, perhaps different demographics or via different sales channels.

Diversification

If you take this route, you will be working with new products in new markets. These products may be either developed or acquired. While an element of risk is involved, there are some benefits in that you will be working with individual products in different markets, so if one strategy goes wrong, the other will probably not be damaged.

Tip

When you are considering which strategy to follow, you will also want to think about synergies that may already exist between markets or products. Market size is another factor to be assessed.

In terms of risk, market penetration is often considered to be the safest option. After all, developing new products or entering new markets that are less well known is a risky business. Diversification is thought to be the biggest gamble, as it involves relying on new, less tried-and-tested products in markets that are unfamiliar. However, market penetration may be very risky if there is significant and growing competition and if the company is less able to compete, due to internal factors.

What are its limitations?

Action

Ansoff’s Box can be most effective when used in conjunction with SWOT or PESTLIED, or both.

As with other business models, Ansoff’s Box cannot make the decisions for you. It can only provide you with possible solutions, each of which you need to analyse carefully. It also only gives you one type of information to consider. You still need to consider your strengths and weaknesses, opportunities and threats and assess the business environment correctly before making your move.

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