THE ANSOFF MATRIX OR HOW TO MAKE YOUR

BUSINESS GROW

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ANSOFF'S MATRIX OR HOW TO GROW YOURBUSINESS

What is the path that your company must take inthe future? Surely "growing" goes through yourhead, but there are many different ways to grow.This question also occupied the Russianmathematician and economist Igor Ansoff, whoin 1957 created the famous concept that bearshis name. The Ansoff matrix, also known as theproduct / market matrix or growth matrix, givesbusiness owners and managers the ability todecide how their business should grow. Thus,this simple tool allows decision-making bodiesto direct and control the company's growthstrategy.

WHAT IS THE ANSOFF MATRIX?

It is essentially a table organized into fourcategories or business units that can becombined with each other. The columnscorrespond to the products or services offeredby the company, which are subdivided into"available" and "new". The ranks, meanwhile,reflect the markets. Here the matrix differentiatesbetween the markets in which the company isalready active and those to which it couldexpand its business activity.

The Ansoff matrix enables four different growthstrategies to be developed by combiningbusiness units with new or explored markets.

Depending on the innovations that you arewilling to face, different strategic lines for thebusiness can be defined.

MARKET PENETRATION

If it is not the time to introduce new products orservices to the catalog or to conquer newmarkets, then the most appropriate growthstrategy for your business may be to occupy amarket. Here, it would be about both winningover competing customers and increasing salesamong the fixed customer base, which meansmotivating your customers to buy morefrequently. In both cases, it is necessary to applynovel marketing strategies. Adjusting the pricepolicy also generates good results, and it is alsorecommended, if it is to increase sales amongregular customers, to train sellers.

Even managing to attract new clients, the growthderived from market penetration is subject to thelimited number of clients.

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Therefore, to detect the growth potential of yourbusiness, you should know in advance its degreeof penetration, an index that results fromdividing the number equivalent to yourClient portfolio for all potential clients in themarket:

(𝑡𝑢𝑠 𝑐𝑙𝑖𝑒𝑛𝑡𝑒𝑠) / (𝑡𝑜𝑑𝑜𝑠 𝑙𝑜𝑠 𝑐𝑙𝑖𝑒𝑛𝑡𝑒𝑠 𝑒𝑛 𝑝𝑜𝑡𝑒𝑛𝑐𝑖𝑎) * 100

With this simple formula, the degree of market penetration of a brand or business can be calculated

MARKET DEVELOPMENT

When a business is consolidated in a pre-existingmarket with a new product, it is applying a growth strategy based on product development. You have two different options: create a completely new product for your target audience or a variant of an already known product that isalready for sale. By considering customerfeedback, the company can better tailor the new or modified product to its audience.Compared to the others, this strategy requires a large investment, because developing new products or services always involves great cost. There is also a certain risk here: only after the product launch can it be verified whether the innovation is successfully received in the market.

DIVERSIFICATION

But a business can also enter unknown territorywith a new product, a strategy that, although itcarries the highest risk so far, can also be verysuccessful because, in addition to a higher sales figure, it also allows you to win new groups Of customers. Diversification, which can be carriedout with related or unrelated businesses, alsohelps spread risk; Instead of betting on a single product or a certain market, with this strategy of Ansoff you can bet on several horses at the sametime.

This Ansoff matrix strategy can be subdividedinto three different variants. Choosing the right strategy will depend on the risks you are willingto take.

Horizontal integration

In this type of related diversification, the catalogis expanded with an article similar to an existingone. This has the advantage that the business already has know-how in this area and can take advantage of the infrastructures. With these new products, the company targets both a new audience and well-known buyers, who thus see a different need covered. Compared to otherdiversification tactics, horizontal presents limitedrisk because the company does not leave knownterritory and can thus avoid making the wrongdecisions.

Vertical integration

Vertical diversification is less about expandingthe product range than extending the valuechain: the company could be in charge of distributing its merchandise (vertical integrationforward) or managing steps in the manufacturing process that it did not previously manage(backward integration ). In this way, she freesherself to a certain extent from suppliers or merchants and can take charge of selling the results to other buyers herself. This option involves a higher risk because it requiresinvesting in new workshops or premises.

Unrelated diversification

The so-called diversification in unrelatedbusinesses is the one that entails the greatestrisk for the entrepreneur because, instead of concentrating on the current business unit and expanding it, it dares to travel entirely new paths, positioning itself in a new market with a product that does not bears no relation to the rest of the range.With this growth strategy, the entrepreneurenters an unknown sector in which he lacks the necessary experience. This action is linked to high costs and it is not easy to estimate a priori whether the project will be crowned successful. Unrelated diversification, for all this, is onlyrecommended if the business is in a position to face a hypothetical failure.

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THE ANSOFF MATRIX MECHANICS WITH ANEXAMPLE OF GROWTH

For our example we start from a fictitiousdelicatessen, Charcutería Ramírez, which plansto grow. We will apply one Ansoff strategy afteranother and show what steps the business has totake to achieve its growth objectives. Until now,the Ramírez Delicatessen has only one location.While still a small business, you prefer not totake risks and limit yourself to marketpenetration first. For this, the owner asks thesellers in her shopping area to also recommendother products from the house. Offeringdiscounts periodically, it is also intended toconvert sporadic customers into permanentones. As a result, neither the market nor theproduct range has expanded, but if you applythe right marketing strategies, the companycould increase its sales figure.

To continue growing, the owner goes one stepfurther and opens another store in a neighboringtown where she sells the same merchandise. Therisk of discovering a market is somewhat higherbecause the company cannot predict whetherthe offer will be received equally well. Only whenthe new market is already consolidated, can youthink of product development. Now thebusiness, in addition to its usual offerings inmeat and sausages, also sells a spicy sausage,and since it does not imply changing the existinginfrastructure, the businesswoman manages toreduce the risk to a minimum. Thus, it managesto increase sales with a new product in a pre-existing market.

Charcutería Ramírez has grown, opened newmarkets and expanded the range of products.With this, it has generated enough profit to dareto take greater business risks in its growthproject. The owner, then, decides on the Ansoffstrategy of diversification, specifically thehorizontal one, that is, expanding the scope. Thecompany thus decides to introduce vegansausages in its offer: with this it introduces a newmarket niche, that of vegetarian customers.

The next step for the company goes throughvertical integration. Willing to opt for forwardand backward integration, the businesswomandecides to raise deer on her own farm andexpand the Ramírez Delicatessen family with herown restaurant. By doing this, the entrepreneurpartly becomes independent from the suppliersand creates a new distribution channel for herown products.

Finally, it is time for unrelated diversification: thebusinesswoman concludes that from now on sheis going to manufacture and sell watches. Thisnew product has nothing to do with its catalogand is aimed at a completely new audience. It istrue that the owner of Charcutería Ramírez istaking a significant risk, but this is the only wayto guarantee long-term sustainable growth.

IS ANSOFF'S STRATEGY SOMETHING BAD?

Although the Ansoff matrix integrates thefundamental pillars of growth planning, its ageand extreme simplicity must be considered. It isa model that was born in the middle of the 20thcentury and reflects the corporate strategicthinking of that time. The Ansoff matrix is basedon two unique factors: products and markets,which can be expanded if a more modernapproach is followed. The products are thussubdivided into current, modified and new, andthe market factor, in geographic market andtarget audience. In spite of everything, this moremodern expansion is also forced to leave outmany factors. The product / market matrix, forexample, ignores the competition entirely

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