The majority of businesses want to expand. A growing company is regarded as successful. Success attracts more customers, resulting in a virtuous circle. It attracts good employees and provides new opportunities to keep them engaged. Consistent growth is difficult to achieve, especially as a company matures. in this article we will focus on How does ansoff matrix help a business ?
As mentioned below, the Ansoff matrix provides a growth model based on four strategic premises: market penetration, market development, product development, and diversification.
1:- market penetration
Selling more existing products to existing markets
- Acquiring a larger share of existing customers’ wallets
- Finding new customers within the existing markets
Most businesses do not have a 100% share of their customers’ wallets.
Almost always, business is shared with one or two competitors. A customer who has chosen a supplier has already decided on their worth. As a result, selling more to this customer should be easier than acquiring a new customer. You may have noticed that when you make a donation to a charity, you quickly receive requests for additional funds from the same charity. The charity understands that it is much easier to persuade an existing donor to make a second donation than it is to find a new donor.
This obvious source of new business is often ignored. A company with a strong ‘hunting DNA’ will be more motivated to seek new business from new customers than one with a strong ‘farming DNA’. Farming existing clients and selling them more products should always be encouraged as the first growth opportunity.
2:- Market expansion
Introducing existing products into new markets
This scenario provides opportunities for:
- selling to new customers in new markets;
- Selling to new customers in previously unserved vertical segments.
Businesses require a healthy mix of new and existing customers. Some existing customers will inevitably stop purchasing for one reason or another, either because they no longer require the product or because they have discovered what they believe to be a better alternative. These customers must be replaced. Replacing lost customers with new customers will result in a static position. If growth is to be achieved, new customer acquisition must more than compensate for churn. Market development entails finding: 1) new customers in new geographies; and 2) new customers in existing geographies.
In terms of the second of these options, segmentation offers the opportunity to find new customers in existing geographies.
Most businesses segment their customers, aiming for a specific demographic in the case of consumer companies or an industry vertical1 in the case of B2B companies. A new segment can provide new customers. Gillette made minor changes to its disposable razors aimed at men in order to appeal to a female audience. Guinness was once considered an older person’s drink, but it famously created a huge demand for its stout among younger people by positioning itself as cool, intelligent, original, and distinct from the wide range of light beers and lagers.
It is difficult to acquire new customers. If it were, businesses could simply hit the promotional button and enjoy a flood of new revenue. Before committing to a purchase, new customers must go through a series of steps. They must first become acquainted with the new supplier; they must develop an interest in its products to the point where they have a strong desire to purchase them.
3:- Product development
Product development involves introducing new products into existing markets
This scenario provides opportunities for:
- new product selling to existing customers
- Finding and filling unmet needs in existing markets.
A supplier’s trust and relationship puts them in a strong position to offer new products. The brand and its reputation are well-known and represent something. It is an opportunity to offer the customer additional products. The new products may be developed in-house, or they may be brought into the portfolio under licence.
These brand extensions are more likely to succeed if they meet the customer’s needs (an obvious point) and are closely related to the brand that the customer already buys. Let us look at some simple examples. Customers of a bread baker could easily purchase meat pies or confectionery products. An airline may be able to provide vacations to loyal customers who choose to fly with it. A machinery supplier might think about offering contract maintenance to its customers. All of these are offers that are closely related to the original brand. It becomes more difficult to sell a product once a brand has moved beyond its core values.
4:- Diversification
Diversification is the process of selling new products to new markets.
This scenario provides opportunities for:
- creating new products for new geographical markets or market segments
- The acquisition of companies in a different field of activity.
The grass on the other side of the fence frequently appears to be greener. Companies look around, convinced that there must be easier and better ways to make money.
The dream of selling new products to new customers is powerful, but it is the most difficult path to business growth. Selling new products to new customers is, in essence, a business start-up. The products must be proven, the company must be positioned in the minds of potential customers as a viable source, and an existing network of competitors must be defeated. It is big news when a company is successful in selling new products to new customers. Husqvarna, a Swedish company, is well-known today for its chainsaws and lawnmowers. However, over the course of several centuries, it has produced a wide variety of products aimed at very different audiences. It began by manufacturing muskets, bicycles, motorcycles, kitchen equipment, and sewing machines.
In recent years, Apple has diversified beyond computer manufacturing to become a business heavily reliant on the iPhone. For every success a company has in selling new products to new customers, there are dozens of failures that are never recorded. It is the most difficult of the four Ansoff growth strategies, but when completed, it is the most spectacular.
The model's evolution
The Ansoff matrix is a tool for guiding a company’s strategic growth.It might not be enough on its own. Each of the four approaches necessitates a deeper consideration of the external environment. It could, for example, It is impossible to say whether there are additional opportunities for growth. market penetration unless data on wallet share and the nature of the competition, customer attitudes toward purchasing more from a company and so forth. The tool works best when combined with others, such as PEST. (examining the surroundings), AIDA (determining the difficulties) of communicating with a new market) or SWOT analysis (determining a company’s advantages and disadvantages)
how does Ansoff Matrix work ?
The Ansoff matrix is an effective tool for determining where growth is possible. It will assist a company in determining which option is the best for long-term growth by indicating where the greatest impact can be achieved with the least risk. A company must collect and analyse a large amount of data in order to make the best use of the Ansoff matrix. Ansoff recognised this as a potential issue, giving rise to the phrase “paralysis through analysis,” which refers to the danger of having too much information, making it difficult to see the way forward.
The Ansoff matrix is a useful model for carrying out a marketing audit. It forces a company to consider different strategic options on the basis of facts. As a result, it is liked by boards and stakeholders that need to see options for growth as well as the risks that are entailed.
The Coca-Cola Company has successfully achieved growth over the last 100 years. This can be recognized within the matrix described by Ansoff.
- Market penetration includes selling existing products to existing customers.
Coca-Cola understands that if it can persuade existing customers to drink an extra can of Coke per week, it will have a significant impact on sales. Much of the company’s promotional strategy over the years has focused on it being a refreshing drink and persuading us to drink more of it.
- Product development entails selling new products to existing customers.
The original portfolio of the sarsaparilla-based drink has grown over time. In 1985, the company successfully introduced new flavoured colas such as cherry. It was the company’s first foray beyond the original recipe. Other flavours have since been added, including lime, lemon, and vanilla.
- Market development is the process of selling existing products into new markets.
Diet Coke has a long history, having first appeared in the 1970s. Although Diet Coke found a wide demographic market, it had a much higher penetration among females. Coca-Cola repackaged the same product in a black can and renamed it Coke Zero. It had a more masculine appeal when it was launched in 2005, and it established the low-calorie product in the male market.
- Diversification is the sale of a new product into a new market.
The Coca-Cola Company has expanded beyond cola drinks to include a variety of health drinks. It now includes dairy and juice companies. It purchased Vitaminwater and began selling coffee and tea in Brazil.
Important Note:
- For most businesses, selling more of the same to existing customers is the simplest and often most fertile place to look for growth opportunities. This means you must understand your customer’s share of wallet in order to assess the potential to sell them more.
- The next route for expansion is to sell your existing products to new customers. What new markets could you target? Which countries where you do not currently sell your products could be attractive markets for your products?