Ansoff Matrix
I grew up in the home of traders, my dad was a serial entrepreneur, as well as my mum. While my dad was a bigger trader, importing different goods from foreign nations, my mum donned the wholesaler hat. So, I how businesses grew and died; but what I didn’t understand, was the science behind it; for there’s a thing as the science to growth, be it human, or business growth.
Being a product manager, with a background in business development & consulting, I’ve had to work with several brands, MSMEs, SMEs, and Start-Ups at different growth levels, while also building products; and one common denominator, is always the need for growth, either acquiring more customers (CA), or increasing the average order value of customers (AOV), or even maximizing the long-term value (LTV) of existing customers. Hence the question, how do businesses grow? Sometime in the late ’50s, Igor Ansoff, a mathematician, and economist came up with a framework, which detailed how businesses grow, and that framework became known as the Ansoff Matrix. There are four concrete paths that businesses thread, in their bid to grow. Some businesses thread only one path, and never grow beyond that; some do two, and some do four, throughout their business lifetime. These four paths are named as follows:
- Market Penetration: The idea of selling more existing products e.g. Peak Milk to an existing market
- Market Development: Focuses on selling existing products into new markets
- Product Development: Focuses on introducing new products to an existing market
- Diversification: The concept of entering a new market with altogether new products
Market Penetration:
Let’s use Peak Milk as our case study. Market penetration for the producers of peak milk will simply mean increasing sales of existing products into an existing market, i.e. get more customers who already buy peak milk, to consume/buy more peak milk products. Some of the strategies employed here, includes but not limited to the following:
- Rebranding and Pricing: Reduce price, rebrand product packaging, and/or offer more value for same price. More often than not, this is usually followed by a marketing campaign, to create a buzz/awareness for this new strategy. This strategy can be carried out by either new or existing businesses — MSMEs, SMEs, Start-Ups, or large corporations.
- Increase marketing efforts: Spend more money on marketing efforts, so as to get existing and even new customers to buy more. Think of all the peak milk adverts you’ve seen on billboards and TV commercials, this is exactly what they were trying to do. This strategy can be carried out by either new or existing businesses — MSMEs, SMEs, Start-Ups, or large corporations.
- Buying a competitor in the same market: In this case, it’d be Friesland Campina WAMCO, the producer of Peak Milk, buying out the producer of Loya Milk (Promasidor Nigeria Limited) from the market.
Market Development:
This path allows a business to target another market (outside the existing market) with the same product. The strategy employed here includes but not limited to:
- Upselling to a new customer segment or target demography: So, let’s assume the usual customer target for Peak Milk has always been men and women within the age bracket of 25–65 years, who have kids; upselling to a new customer segment will mean targeting the student population, who live in hostels and dormitories. This customer segment is different for the original customers targeted.
- Regional expansion: Peak Milk manufacturers, having gauged the market acceptance of their product, will then decide to expand to nearby regions, e.g., City or State.
- Foreign Expansion: In this case, having analyzed how well the product has fared in the local market, the producers of Peak Milk might decide to expand to a foreign country (based on numerous reasons backed by data), e.g. Ghana, or Cameroun.
Product Development:
Earlier in my career, I learnt the idea of market share and pocket/wallet share; and brands with customer loyalty, have not failed to increase their wallet share. Product Development in this case refers to a brand creating new products (may or may not be related to their flagship product), to increase the order value, or simply put, the number of products that single customer is buying from the business. A lot of businesses have successfully done this, from your Beverages, to FMCGs, and even electronics. Nestle realized that while Nescafe is an instant market hit, there exist a large gap in the market occupied by people who’d prefer only water as a substitute; so, they introduced water. Coca-Cola understood that some people are trying to stay away from carbonated drinks, choosing water instead, so they went for the water market, and introduced their own water — Eva Water. Same with Apple. Apple’s flagship product was originally a personal computer (PC), but as they gained a lot of brand loyalty, they went back to the drawing board, did a bit of R&D, and came out with iPhone. They didn’t stop there, iPad, iPod, Apple Watch, Ear Pods, etc. all followed; and they’ve created an ecosystem with these products, alongside a massive brand loyalty. Strategies usually employed in this path includes but not is not limited to the following:
- Some research and development, in order to develop new product(s)
- Getting license to produce another company’s product, and selling in your location.
Diversification:
This is the riskiest of all the growth paths or strategies, because it involves a bit of product development, market development and product penetration. And we know, product development might involve some research and development, except in the case where the business is going into already produced goods, and dealing only on sales. Either ways, diversification occurs in two ways:
- Related Diversification: This occurs when the business chooses to diversify from one parallel of business to another that is similar or close, where the common denominator might still be the same raw material or not). Example, Peak milk decides to diversify to making biscuits and candy bars.
- Unrelated Diversification: This occurs when the business chooses to diversify to another parallel that has no iota of similarity to their base business.
Now, it’s clear how companies grow, the science they employ to grow their businesses. More often than not, MSMEs and SMEs don’t give much thoughts to these processes, and so, remain stuck in one stage of their businesses and never growing past it.
