One of the basic objectives of most companies is to consistently pursue profitable growth and increase market share. There are various models that offer strategic alternatives for an organization’s growth trajectory. One of these basic models is the Ansoff Matrix or the product/market expansion growth. This article seeks to explain the model and illustrate how it can be applied.
The Ansoff Matrix
Igor Ansoff argues that organizations can pursue growth by focusing on a combination of the products and markets they serve or can serve. He developed what is termed the Ansoff matrix as a means of providing organizations with various strategic growth options. These strategic options are; Market Penetration, Product Development, Market Development and Diversification.
Figure 1: Ansoff Matrix
Ansoff proposes that the most fundamental way an organization can pursue growth is to critically assess the current market it serves as well as its current product or service offerings. The next step is to determine ways of selling more of its current products to its existing market or target audience. With this basic strategy a company does not need to develop new products or look for new markets to serve but focus on maximizing its effectiveness in order to milk any inherent opportunity offered by its current product/market quadrant. This is the least risky of all the strategic options since an organization is dealing with a market and product for which it has some level of knowledge and experience.
The next key issue is how can an organization effectively execute market penetration strategy?
An assessment of market penetration strategies indicate that they are largely driven by marketing communications tools like advertising, Sales promotions, Personal selling and direct marketing.
Product development is a notch riskier than market penetration and it involves developing new products to serve the needs of an organization’s current target market. For example Capital Bank developed the “SpeedPay” deposit solution to make it convenient for customers to deposit cash into their bank accounts 24/7 without having to visit the banking hall. Currently, most Banks are introducing bancassurance products to make insurance services available in the banks for its current customers. Others are also increasing their range of services by converting their banking halls into payment centers for various utility companies amongst others.
Many mobile telecom firms have also developed solutions like mobile money to serve the needs of their customers and also provide an avenue for them to enter into the burgeoning financial services market. Strategically that move can also be described as an example of a conglomerate or unrelated diversification strategy. This will be explained later in this article.
In general the focus of product development strategy is to re-assess the needs of an organization’s current customers and think of ways of developing new solutions to solve their needs. It’s deemed riskier than market penetration due to the investment in research, development costs and the fact that the solution may not be accepted despite favourable research findings.
Market Development Strategy
Market development strategies involve pursuing growth by using the company’s current products to serve new markets or markets the company does not currently serve with its current product/service offerings. These markets could either be in the form of new market segments or new geographical markets. A company that has aggressively pursued market development strategy is Fidelity Bank. Fidelity leveraged on the geographical coverage offered by Post Offices and established branches in these post offices to ensure rapid geographical market coverage. As explained, branch opening in places where a bank has no presence are all examples of geographical market development strategy.
Ecobank has also partnered two other companies to form Pan African Savings and Loans Company (formerly EB-Accion) with the original focus of competing in the micro-finance segment of the market.
Another example of segment focused growth is that of beauty and grooming outlets like Aloette who have traditionally focused on attracting females for facial treatment but are currently focusing on attracting the modern Ghanaian man who might need facial treatment or other grooming.
Therefore the core objective of market development involves accessing your current products or services and identifying new market segments or new geographical markets that you can serve with those same offerings.
Diversification refers to pursuing growth by developing completely new products for a new market (a market that the company does not currently serve). This growth strategy is deemed the riskiest of all the strategic options.
There are two types of diversification strategies; Related and unrelated diversification. Concentric or related diversification involves developing new products that are related to the company’s core competences or current market offerings.
For example, Antrak Shipping entered into the airline industry with Antrak Airlines. This strategic move can be termed as Concentric Diversification since the Shipping, Haulage and Airline industries are related to the transportation industry.
Conglomerate or Unrelated diversification is when a company enters into a market that is unrelated to its core business. This is riskier than concentric diversification. A classic case is the Mobile Money introduced by the Telecom companies. This strategic move is clearly a move into the financial services market which is unrelated to its core business of providing communication services.
The basic objective of a model like the Ansoff Matrix is to provide a structured framework which can be a starting point for developing various strategic options for pursuing growth. It illuminates one’s strategic path and makes it easier for one to see his or her way clear.