As a small business owner, it’s likely that you’re planning for growth. Expanding your business can mean a number of things, and the Ansoff Matrix can help you decide what method of growth works best for you.
What Is the Ansoff Matrix?
If you want to grow, the four-box grid of the Ansoff Matrix can help strategize and plan. Igor Ansoff developed his matrix in 1957, and it’s still in widespead use more than 60 years later because of its usefulness. Also called the Product/Market Expansion Grid, the matrix looks at markets, products, and services. More sophisticated models expand the traditional model into a nine-box grid, but the standard four boxes is a great place to start to analyze your future growth.
What Is Market Development?
Market development occurs when your company grows by targeting new markets or expanding within your existing market. With this approach, you’re selling the same products or services, but now you have new customers. You might go this route by expanding to online sales channels or marketing within a new geographic area. Research involved in market development includes understanding who your customers are and strategizing to reach new groups of customers.
What Is Diversification?
A riskier strategy involves diversification, which refers to producing new products and selling them in new markets. When you diversify, you face multiple unknowns. Perhaps you don’t have a lot of experience in your new industry. You may have to scale your operations quickly and maximize spending efficiency. The upside to diversification is that if one product fails for whatever reason, you have a backup plan waiting in your other products.
How Do You Penetrate Markets?
If you want to rely on the products you already have in the markets you’re already in, the Ansoff Matrix guides you to be a market penetrator. This quadrant recommends you develop a new marketing strategy. Consider introducing a loyalty program, offering special promotions, or acquiring a competitor. Your goal is to shed new light on the things you’re already offering. Instead of making a new product, the Ansoff Matrix encourages you to introduce your existing products in a different way.
How Do You Develop Products?
The fourth quadrant of the Ansoff Matrix encourages the development of products. It recommends not trying to reach a different market. Instead, if you want to be a product developer, think about how you can approach your existing customer base with something different. You can do this by repackaging products, developing related products or services, or improving your customer service.
How Do You Factor in Risk?
The Ansoff Matrix offers suggestions on how you can grow your business. It does not make recommendations on which of the four categories works best for your current situation. Prior to picking which box you want to be in, do your research and assess your risks so you can understand the potential downsides of each. Also, consider that each of the four quadrants only factors in internal variables. The Ansoff Matrix doesn’t make suggestions about your industry or competition. The ultimate goal of all four options of the Ansoff Matrix is to make your business grow. You must decide which business expansion method suits your business best.