Market and Ansoff product development model. The role of the Ansoff matrix in strategic marketing

Igor Ansoff is the creator of the concept of strategic management, the author of the idea of strategic planning as a management function. His landmark book Corporate Strategy (1965) was the first work devoted entirely to strategy, and although the ideas it presents are quite complex, it remains a management classic.

Igor Ansoff was born in Russia in 1918. In 1936, he emigrated to the USA with his family. His early research interests were in mathematics, in which he received a doctorate from Brown University in Providence, Rhode Island. In 1950, he joined the Rand Corporation, then moved to Lockheed Aircraft Corporation, where he eventually became vice president of plans and programs, and then vice president and head of the industrial technology division.

In 1963, I. Ansoff took the post of professor of industrial management at the Carnegie Institute of Technology in Pittsburgh. Ansoff was an honorary doctor at many universities in the United States and Europe. After retiring in 2000, he received the title of Professor Emeritus at the US International University.

Main ideas. Before the publication of Corporate Strategies, companies had little guidance on how to plan and make decisions about the future. Traditional planning methods were based on an extended budgeting system that used an annual budget projected several years into the future. This system paid virtually no attention to strategy. But as competition developed, interest in acquisitions, mergers and diversification grew, and market unpredictability grew, strategic issues could no longer be ignored.

Ansoff realized that when developing strategy, it is necessary to anticipate the challenges that the organization will face and develop strategic plans accordingly. He presented his approach in the book Corporate Strategies and created a system of strategy development and strategic decision making through basic theories, methods and models.

Strategic decisions. I. Ansoff identified four standard types of organizational decisions related to strategy, internal policy, programs and standard procedures. The last three, in his opinion, are created to solve recurring problems or issues and, once formulated, do not constantly require original solutions. This means that the decision-making process can be easily delegated. Strategic decisions are not repeated because they always address new situations and require new solutions.

The scientist created a classification of decision making, partly based on the work “Strategy and Structure” (“Strategy and Structure”, 1962). In it, he identified three types of decisions: strategic (focused on products and markets); administrative (organization and distribution of resources) and operational (budgeting and direct management). Ansoff's classification of decisions is called strategy-structure-system or GS model. (Sumantra Ghoshal suggested using the PO model instead: goal setting, process, people).

Components of strategy. Ansoff argued that there must be a core competency among a company's functions. This idea was then picked up and expanded by K. Prahalad. To establish a connection between the past and future functions of the organization (this is the first time such an idea has appeared), Igor Ansoff identified four key components of strategy:

the scale of the market and product - a clear understanding of what the company’s directions or products are responsible for (the foundation of the concept of T. Peters and R. Waterman “mind your own business”);
development vector - a method of analyzing possible development, about which below;
competitive advantage - the advantages of organizational processes that allow you to compete effectively; a concept later championed by Michael Porter;
a synergy that Ansoff explained as the “2+2=5” effect. Unity produces better results than the sum of all elements. Involves analyzing how capabilities match the organization's core competencies.

Known as the product/market development model, or the 2x2 development vector, the Ansoff matrix remains a popular tool for organizations wishing to analyze the risks of various development strategies, including product, market development and diversification. The matrix was first presented in 1957 in the article “Strategies for Diversification.”

Market penetration means increasing the share of a product in an existing market. Market expansion involves identifying new consumers for an existing product. Product development is the development of new products for existing consumers. Diversification - releasing new products for new markets.

Ansoff's article focused on diversification as potentially the most profitable and risky strategy, meaning that careful planning and analysis must be done before decisions are made. According to the researcher, organizations need to “destroy past patterns and traditions” if they are going “on a new path that is not marked on the map.” New skills, methods and resources will be needed there.

The matrix is a method of rigorously analyzing and estimating the potential profits generated by a diversification strategy.

Analysis paralysis. It has been said from time to time that applying the ideas proposed in Corporate Strategy can lead to over-analysis. Ansoff himself recognized the possibility of this, coining the famous idiom analysis paralysis to describe delays caused by too much detailed planning.

Instability. The problem of instability lies at the heart of Ansoff's entire theory. One of his key goals in creating a theoretical basis for strategic planning was to improve the planning process, which had not changed since the days of the stable post-war economy. He realized that this would not be enough to combat the external pressures of abrupt and discrete changes.

By the 1980s, the content and pace of change had become a key management issue in most organizations. Ansoff acknowledged that while some have experienced instability, others continue to operate in relatively stable conditions. Therefore, although strategy development must take into account external instability, a one-size-fits-all strategy cannot be created. He discusses this in his work “Strategic Management,” which presents five levels of external instability:

repetitive - gradual and predictable changes;
expanding - stable, gradually growing market;
changing - development under the influence of rapidly changing customer requirements;
intermittent - characterized by partly predictable, partly more complex changes;
unexpected - changes that cannot be predicted come from new products and services.

Although strategic planners often refer to Ansoff's work, his ideas have not received worldwide recognition. The complexity of his texts and their relevance to analysis and planning are probably one of the reasons why the scientist, who belongs to the highest echelon of management theorists, has not gained the popularity he deserves.

During the same era, other researchers worked on similar topics. In the 1960s, Ansoff was not alone in working on the competency problem (later addressed by Hamel and Prahalad), and although he is credited as the creator of the development matrix, similar matrices had been known before. It is likely that most of the works published in the 1980s and 1990s on strategy under conditions of uncertainty or chaos drew something from Ansoff's theory of instability, although the extent of borrowing is difficult to estimate.

The debate between Igor Ansoff and the viewpoints on strategy has been going on in print for many years, for example, in the Harvard Business Review. Mintzberg always criticized Ansoff for his idea of strategy based on planning and analytical methods. Critics pointed out that Ansoff, because of his passion for planning, suffered from three fallacies: events can be predicted, strategic thinking can be separated from operational management, and complex calculations, analysis and methods can generate original strategy.

Ansoff was one of the first to write about strategy as an independent direction of management and laid a strong foundation for later authors such as Gary Hamel and K. Prahalad. In his works one can find a complex of new concepts and ideas that laid the foundation for the discipline that he called strategic planning. In the 1970s and 1980s, as business writers adopted Ansoff's idea, the discipline as a core competency gave birth to new theories.

Ansoff matrix

It is usually understood as an analytical tool for strategic planning, which allows, depending on the category of product and market, to choose one of four standard marketing strategies: diversification, product expansion, improvement of activities and market development.

· Diversification involves the introduction of new types of products simultaneously with the development of new markets. It is worth using if high profits and market stability are expected in the future, but it is the most risky and expensive.

· Product expansion is a strategy for developing new or improving existing products and offering them in already developed markets. It is most preferable from the point of view of minimizing risk, since the company operates in a familiar market.

· Improvement of activities - the strategy involves the development of marketing activities to increase sales of existing products in existing markets.

· Market development – the strategy is aimed at finding a new market or a new segment for already developed products. Income is provided by expanding the sales market.

The Ansoff matrix helps in solving sales forecasting problems and is used in conjunction with ABC-XYZ analysis.

The Ansoff matrix is a field formed by two axes - the horizontal axis “company products” (divided into existing and new) and the vertical axis “company markets”, which are also divided into existing and new. At the intersection of these two axes, four quadrants are formed:

	Existing product	New product
Existing market	Market penetration	Product development
New market	Market development	Diversification

· Market penetration strategy(existing product - existing market)

A natural strategy for most companies seeking to increase the share of existing products in the relevant market. Increasing market penetration is the most obvious strategy, and its usual practical expression is the desire to increase sales. The main tools can be: improving the quality of goods, increasing the efficiency of business processes, attracting new customers through advertising. Sources of sales growth can also be: an increase in the frequency of use of the product (for example, due to loyalty programs), an increase in the number of uses of the product.

· Market development strategy(existing product - new market)

This strategy means adapting and introducing existing products to new markets. To successfully implement the strategy, it is necessary to confirm the presence of potential consumers of existing products in the new market. Options include geographic expansion, using new distribution channels, and searching for new consumer groups that are not yet buyers of the product.

· Product development strategy(new product - existing market)

Offering new products on the existing market is a product development strategy. As part of this strategy, it is possible to introduce fundamentally new products to the market, improve old ones, and expand the product line (diversity). This strategy is typical for high-tech companies (electronics, automotive).

The Ansoff matrix (named after its inventor Igor Ansoff) is a marketing strategic analysis tool that helps manage the development of any company by choosing the optimal option for its business activity. This choice is made taking into account current and projected market conditions, as well as one’s own capabilities.

The Ansoff matrix has a dimension of 2x2 and consists of four fields, each of which represents a specific strategy. Structurally, this matrix is formed from two axes:

horizontal, on which the company’s manufactured and planned products are presented,
vertical, which presents the market sectors or target audiences used and intended for development.

Thus, each field of the Ansoff matrix identifies alternative strategic opportunities for growth through:

products produced and market sectors used (Market Penetration strategy),
manufactured products and market sectors expected to be developed (market expansion strategy),
products planned for production and market sectors used (product development strategy),
products planned for production and market sectors intended for development (strategy “Diversification”).

The company's current operation occurs in a market sector in which it has a certain level of experience and reputation. It is in the market sector used that the company has a current target audience that gives preference to the products offered.

The company does not have much experience in the market sectors it intends to develop, but they are attractive from the point of view of expanding its existing business activities. In this part of the market there is an audience that does not purchase the product offered for some reason. In this case, the new market sector may be part of the regional market.

Manufactured products are an assortment that is contained in the company's portfolio and has a sales history.

The products planned for production are not in the company's portfolio and have no sales history, but can attract new customers or replace existing products.

Let's look at each strategy in more detail.

Market penetration

In this case, the company's position in the market is maintained and strengthened through marketing activities. The strategy is characterized by minimal risks, since the company's activities occur in a familiar market sector.

The effectiveness of this strategy is maximum in a growing market, which allows the company to increase sales of its products in the market sector it occupies. For this we use:

active promotion of products,
setting competitive prices.

As a result, it is possible to increase sales by attracting new customers and increasing consumption by already attracted customers.

Market expansion

In this case, new markets are developed by selling manufactured products in new market sectors:

regional,
national,
international.

The effectiveness of such a strategy is maximum when the company’s goal is to increase sales of its products. This can be implemented:

development of new market sectors,
entering new geographic markets with growing or potential demand,
new ways of offering products,
new methods of distribution and implementation,
increasing the intensity of product promotion.

Features of the “Market Expansion” strategy are:

significant financial costs,
big risks.

Product Development

In this case, the products planned for production are offered in already developed market sectors, which allows increasing the company’s market position.

The effectiveness of this strategy is maximum if the company has several brands that are in constant demand among regular customers. In this way, the company can begin to produce new products or modify existing products. Its sales are carried out to consumers who are already using the company's products and have no intention of abandoning them. As a result, the process of promoting new and modernized products is effective due to their production by a company that is well known to consumers.

The “Product Development” strategy is optimally suited for companies whose activities are focused on the application and development of innovative technologies.

Diversification

In this case:

the company is developing new market sectors, which allows reducing risks in already used market sectors,
production is expanding with new products.

This strategy helps prevent the company from becoming dependent on a narrow product range. Products planned for production are aimed at untapped market sectors. At the same time, there is a change in the priority goals of distribution, sales and promotion of new products.

The disadvantage of this strategy is that the company's forces are dispersed.

The “Diversification” strategy is appropriate for companies:

unable to achieve their goals using other strategies,
implying greater profits than from current activities,
not confident in the stability of current activities,
not requiring significant capital investments to move into new market sectors.

Ansoff matrix (product-market growth matrix)- an analytical tool for strategic planning that allows you to choose one of the possible standard marketing strategies. The idea behind the matrix is that there should be a relationship between a company's existing and future products and the markets in which it operates. Any industry has a very wide choice of products that can be produced and markets in which to operate, so a company has a wide choice of growth areas. The company needs to determine its current position in the industry and choose the direction of its growth that would provide the most competitive position for it in the future. Thus, the company's strategy should be determined by three main factors:

The status quo as a set of products and markets in which the company currently operates

Growth vector, which sets the direction of the company's development based on its existing position

Competitive advantage- key features of existing and future products and markets that can provide the firm with a strong competitive position.

The company's marketing strategy is determined through the mutual change (development) of the company's products and the markets to satisfy the needs of which they are created. The tool for choosing this strategy is the Ansoff matrix.

Ansoff Matrix Structure

The Ansoff matrix is a square formed along two axes:

horizontal matrix axis- company products, which are divided into existing and new

vertical matrix axis- the company’s markets, which are also divided into existing and new

At the intersection of these two axes, four quadrants are formed:

Strategies in the Ansoff Matrix

Market penetration strategy (existing product - new market) Increasing market penetration is the simple and most obvious strategy for most companies. They are already present in the market, their main goal is to increase sales. The main tool here is to increase the competitiveness of products, so the main attention in this strategy should be aimed at increasing the efficiency of business processes, thereby increasing both the consumption of products by existing consumers and attracting new customers. Possible sources of growth could be:

increase in market share

increasing the frequency of product use (including through loyalty programs)

increase in product usage

opening new areas of product application for existing consumers

Market expansion strategy (existing product - new market) This strategy is the second possible solution in which companies try to adapt their existing products to new markets. To do this, it is necessary to identify new potential consumers of existing products. Companies whose marketing competencies are strong enough to be a key driver of growth can successfully follow this path by:

geographical expansion of the market

use of new distribution channels

searching for new market segments that are not yet consumers of this product group

Product development strategy (new product - existing market) A third possible path for growth is to offer products to the existing market that have features updated to improve their market fit. This path is most preferable for those companies whose core competencies lie in the field of technology and technical development. Opportunities for growth are based on:

adding new properties of a product or a product with increased quality, incl. product repositioning

expansion of the product line (including through new offerings of existing products)

development of a new generation of products

development of fundamentally new products

Diversification strategy (new product - new market) The last of the possible strategies is the most risky for the company, because implies entering a fundamentally new territory for her. Its choice is justified in cases where:

the company does not see opportunities to achieve its goals, remaining within the first three strategies

the new line of business promises to be much more profitable than the development of existing ones

when the available information is not enough to be confident in the stability of the existing business

the development of a new direction does not require major investments

Diversification can take one of the following forms.

Horizontal- the company remains within the existing external environment, its new line of activity complements existing lines of business, which makes it possible to use the synergy effect through the use of existing distribution channels, promotion and other marketing tools.

Vertical- the company's activities enter the previous or next stage of production or sale of the company's existing products. At the same time, the company can benefit by increasing economic efficiency, but it increases its own risks. Concentric- development of an existing product line by including closely related products that have technological or marketing differences from existing ones, but are aimed at new customers. This strategy provides economic benefits while reducing risk. Conglomerate- the new direction of the company’s activities is in no way connected with the existing ones.

Western literature provides approximately the following estimate of costs and probability of success depending on the company’s strategy:

strategy		probability of success
Penetration
Market expansion
Product development
diversification

History of the Ansoff matrix

Igor Ansoff- mathematician born in Russia, but immigrated to the United States at the age of 19. After earning a degree in applied mathematics, he found applications for mathematical tools in business. In the early 1950s, he began working at the Rand Corporation in strategic planning and later moved to Lockheed Corporation, where he subsequently rose to the position of vice president of planning. The Ansoff matrix was developed by him during this period as an applied mathematical tool for strategic analysis. It was first published in the Harvard Business Review (Sep/Oct 1957), and was later described in the monograph Corporate Strategy (1965). Since then, the Ansoff matrix has remained one of the most famous and popular applied strategic planning tools.

The Product-Market Matrix, called the Ansoff Matrix after its creator, is a strategic tool that helps answer the most important questions:

How can a business grow in existing and new markets?
What changes should be made to the company's product range in order to achieve higher business growth?

Strategic planning tool

This tool for managers and marketers helps them focus on the main directions of the company’s current development. It allows you to create a scenario for future marketing efforts, as well as optimize your portfolio of products and services.

The matrix is divided into two quadrants - Product and Market. Each quadrant is divided into two parts: on the X axis into existing and new products; along the Y axis on existing and new markets. Thus, the Ansoff matrix divides your business based on the products offered to consumers, which either already exist or need to be created, as well as taking into account sales markets, which also either already exist or are completely new, which have yet to be entered. Depending on the choice of quadrant, a decision is made on the marketing strategy that is most suitable for your company.

Ansoff Matrix - Growth Strategy Options

The “Product – Market” matrix implies the presence of four alternative growth strategies, within which the following is formed:

Market penetration,
Development of new products,
Market development,
Diversification.

Market penetration

In a market penetration strategy, a company tries to grow by leveraging its existing offerings (products and services) in an established market. In other words, it is necessary to increase its market share within existing customer segments.

This strategy involves finding solutions to achieve 4 main business goals:

Maintain or increase the market share of existing products. This can be achieved through a combination of competitive pricing strategies, active advertising, the introduction of sales promotion mechanisms and perhaps an increased emphasis on personal selling.
Ensuring a dominant position in a growing market by increasing the supply of goods and services.
Displacement of competitors. This will require a much more aggressive advertising campaign that can support a low-price strategy designed to make the market unattractive to competitors (price wars).
Increase the intensity of sales of your goods and services to an already established customer base, for example, by introducing loyalty schemes or creating package offers.

The company focuses on the market and products it knows well. Typically, you have good information about competitors and customer needs. Thus, it is unlikely that this strategy will require much investment in new market research.

Market development

The name of this strategy stems from the understanding that the company seeks to sell its existing products and services to completely new markets (new customer segments or new regions). This can be achieved through further segmentation to form a new customer base. This strategy assumes that existing markets have been fully exploited in such a way that there is a need to enter new ones.

There are many possible ways to approach this strategy, including:

New geographic markets; For example, exporting products to foreign countries
New product or packaging sizes
New distribution channels (for example, the transition from retail to wholesale, active use of e-commerce, etc.)
Different pricing policies to attract different customers or create new customer segments

Market development is a riskier strategy than penetration due to entering new markets that must be previously explored.

Product development

With this growth strategy, a business seeks to introduce completely new products and services to its existing market. Expanding the product range may require the development of additional sales skills from company employees. The main condition for implementing this strategy is the presence of loyal customers.

In order for a company to remain competitive, it is necessary to focus its efforts on the following aspects:

Detailed understanding of customer needs (and how they change over time)
Active efforts in developing new products, commitment to innovation
Acquiring exclusive rights to sell new products
Be the first to introduce a new product to the market and form a stable association with your brand in the minds of consumers

Product development strategy, like market development strategy, is risky. This is because a new product involves a significant investment. Further investments will also be required to create new sales channels, marketing and training of company personnel. In addition, if you introduce the wrong product to market and do not gain market acceptance, there is a serious risk of reducing or completely losing the influence of your brand with customers.

Diversification

This growth strategy involves organizing sales of new products in new markets. This is the most risky strategy among others, since it involves two unknowns: new products are being created, and the company does not know the real problems that may arise during the implementation process.

When choosing this strategy, you should consider it as a last option. It can only be accepted when the company is very strong financially. As can be seen from the description of the previous two strategies, the business will have to bear heavy investments in order to become successful. In case of diversification, the product and market are completely new and therefore the amount of required research costs will be high, thereby significantly increasing the risk factors.

However, if there is a balance between risk and potential reward, this growth marketing strategy can be very successful.

Let's sum it up

Depending on your product and your existing customer base, you can decide which quadrant of the matrix you will fall into. Once you define your position, you will have insight into subsequent marketing efforts.

You must decide which strategy to use based on the strengths and weaknesses of your company and its competitors (). Each strategy has its own level of risk, from the lowest with a penetration strategy to the highest with a diversification strategy.