Product Strategy Framework

 

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The Ansoff Matrix In A Nutshell

 

By Gennaro Cuofano

You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and whether the product is new or existing.

Growth Strategy	Description	Analysis	Implications	Examples
Market Penetration	A strategy focused on selling more of your existing products/services in your current markets.	Increase market share or sales of existing products within existing markets.	Requires a deep understanding of current customer needs and competitors.	Running promotions to attract more customers in your current target market.
Market Development	A strategy aimed at entering new markets with your existing products/services.	Seek new customer segments or geographic markets for your current offerings.	Involves market research and adaptation to meet the needs of new customers.	Expanding to new regions or demographics with your current product line.
Product Development	A strategy focused on creating new products/services for your existing markets.	Innovate and develop new offerings to satisfy existing customer needs.	Requires R&D and product launch efforts, but you already have market knowledge.	Launching a new and improved version of an existing product.
Diversification	A strategy involving both new products/services and new markets.	Enter entirely new markets with entirely new products/services.	High-risk, as it involves entering unknown territory; requires extensive research and investment.	Entering a completely different industry or market segment.

Ansoff matrix in a nutshell

According to the Ansoff matrix, you can evaluate a growth strategy based on whether you’re trying to grow in an existing market with an existing product (market penetration).

Whether you will try to grow in a new market with the same product line (market development).

Whether you will try to grow by developing new products in the existing market (product development). Or growing by developing new products for new markets (diversification).

Market penetration

In a market penetration scenario, the company grows by leveraging its existing products, thus trying to increase its market share in its current market.

Therefore, the company will either try to sell more to its customers or expand its customer base.

In this scenario, the company is not trying to expand the boundaries of its market, but rather to increase its presence in that market.

In short, the company grows by leveraging its products within its defined market.

Market penetration usually might move along two lines:

• 1 – Utilizing more distribution channels (expanded distribution).
• 2 – Mergers and acquisitions (expanded size).

Market penetration case study

Since its inception, Google has been able to grow its market share in search, year over year.

By simply leveraging on its core product (the search engine) the company has been able to grow consistently to dominate the search market.

Market development

Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products. Companies utilize the market development strategy to discover new potential buyers of their products or services.

In this scenario, the company grows by leveraging its products to expand in new markets.

Thus, the company will try to make its product available in new markets, and geographies.

Market development case study

When Facebook started to roll out, in the early years. The company followed a gradual traction model.

Where it opened to more and more universities first, in the US. Then moving to other niches and markets, until it opened to anyone.

Product development

Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.

In this scenario, a company grows by developing new products for the existing market, for instance, by developing new products that can benefit the same customer base.

There are various frameworks for product development, however, product development might leverage the following process:

• 1. Idea Generation 
• 2. Idea Screening
• 3. Concept Testing
• 4. Business Case Analysis
• 5. Product development
• 6. Test marketing
• 7. Commercialization
• 8. Post-Launch Review

Product development case study

As Instagram was expanding its market share in the social media space, it started to experiment with new features that enabled it to gain more traction within the same market, thus growing quickly.

Diversification

In this scenario, a company grows by going beyond its market boundaries and by developing a whole new set of products.

Based on the degree to which the new product line and the market is adjacent compared to the existing market (related diversification) and a product line, or it goes far beyond it (unrelated diversification).

Diversification case study

When Apple launched the iPhone back in 2007, it risked cannibalizing its most successful product, the iPod.

Yet when the iPhone was out, in a few years would create a whole new category (smartphone) much bigger than that of music player devices.

Thus, making Apple develop an entirely new market as a consequence of launching a whole new product.

Is the Ansoff Matrix still useful?

In the Ansoff Matrix, growth is intended as the prioritization of the development of a portfolio of products, based on existing and new markets, and existing and new customers.

This perspective is also very relevant today.

Indeed, to build a viable business model, over time, a company needs to look into its core business but also beyond it.

This is the logic of using market expansion as a strategy for having the business thrive in the long term.

Companies can move toward market expansion in a tech-driven business world by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.

This connects to the framework of disruptive innovation, and what Clayton M. Christensen labeled Innovator’s Dilemma.

Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.

In short, a property business strategy must also include a future vision, where the company needs to move beyond what current customers want.

Otherwise, the company will fail in the long run due to its focus on profitable customers.

This is the paradox or dilemma. In short, as Clayton M. Christensen highlighted, the right short-term strategy often leads to long-term failure.

As executives are incentivized to prioritize current customers and profitable markets, which move the needle for the company’s quarterly profits.

Rather than looking into new markets, which are neither profitable nor big enough in the short period.

Ansoff matrix and the four growth strategies

A proper growth strategy must balance short- and long-term growth.

To prevent short-term optimizations from killing the business in the long run.

The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.

In a traditional sense, a proper marketing mix is made of four growth levels: price, product, promotion, and place.

Yet, this is the old way to look at growth.

In today’s context, it’s all about demand generation and the ability to build products that customers want, on the one hand, and the audacity to build and create demand for products that customers don’t even know they want yet!

It’s critical therefore, when looking at the value proposition to look at both, the practical side and the demand generation side!

A value proposition is about how you create value for customers. While many entrepreneurial theories draw from customers’ problems and pain points, value can also be created via demand generation, which is about enabling people to identify with your brand, thus generating demand for your products and services.

With these lessons in mind, we want to use the Ansoff Matrix.

And in case, the Ansoff Matrix is not enough, we can use some alternatives.

Alternatives to the Ansoff Matrix

Usually, the Ansoff Matrix is used in conjunction with other strategic frameworks.

Or other strategic frameworks can be used as alternatives to the Ansoff Matrix.

Porter’s Five Forces

Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

SWOT Analysis

A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

Ansoff matrix vs. BCG matrix

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Both Ansoff and BCG matrices are prioritization tools when it comes to a business development strategy.

The Ansoff matrix looks at business development via four primary strategies: market penetration, market development, product development, and diversification.

The BCG Matrix looks at the various business units to classify them under four main categories:

• Cash cows
• Pets (dogs)
• Question marks
• Star

And according to this classification, the BCG Matrix tries two possible sequences:

• The Success Sequence
• The Disaster Sequence

The aim of the BCG matrix is to move toward a success sequence. Where cash generated by so-called cash cows needs to be invested back in question marks that, over time, must become stars.

And the other main aim of the BCG Matrix is the prevent the disaster sequence, where cash from cash cows gets allocated and invested in question marks that turn into dogs.

Thus, the BCG Matrix looks into ways to generate positive product investment loops to ensure that financial resources from current cash cows can be used to generate new stars’ products.

While avoiding the negative loop, where the cash printed by cash cows, over time, only generates dog products.

In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Key Highlights

• Ansoff Matrix:
• A strategic framework developed by Igor Ansoff to understand growth strategies based on market and product context.
• Four growth strategies in the Ansoff Matrix: Market Penetration, Market Development, Product Development, and Diversification.
• Market Penetration:
  • Grow by increasing market share in the current market with existing products.
  • Achieved through selling more to existing customers or expanding the customer base.
  • Example: Google’s consistent growth in search market share.
• Market Development:
• Grow by expanding into new markets with existing products.
• Make products available in new markets and geographies.
• Example: Facebook’s gradual traction model, starting with universities and expanding to different niches and markets.
• Product Development:
  • Grow by developing new products for the existing market.
  • Develop new products that benefit the same customer base.
  • Example: Instagram experimenting with new features to gain traction within the social media market.
• Diversification:
• Grow by developing new products for new markets, going beyond current market boundaries.
• Can be related diversification (adjacent market) or unrelated diversification (far beyond existing market).
• Example: Apple launching the iPhone, creating a whole new category (smartphone) beyond the existing music player market.
• The Ansoff Matrix and Growth Strategies:
  • Growth strategies should balance short-term and long-term growth to prevent long-term failure.
  • Focus on both the practical side and demand generation side of the value proposition.
  • Utilize alternatives to the Ansoff Matrix like Porter’s Five Forces, SWOT Analysis, BCG Matrix, Balanced Scorecard, Blue Ocean Strategy, GAP Analysis, Scenario Planning, etc.
• Ansoff Matrix vs. BCG Matrix:
• Both are prioritization tools for business development strategies.
• Ansoff Matrix focuses on four strategies, while BCG Matrix classifies business units into categories (cash cows, pets, question marks, and stars) to identify investment priorities and prevent negative loops.

Case Studies

Company	Ansoff Matrix Strategy	Description of Strategy	Implications of the Strategy	Examples of Execution
Coca-Cola	Market Penetration	Introducing new flavors and limited-edition beverages.	– Maintaining brand loyalty – Capturing more market share – Boosting revenue and profits by selling more of existing products	Running advertising campaigns, offering discounts, and expanding distribution channels.
McDonald’s	Market Penetration	Expanding the menu with healthier options like salads and wraps.	– Attracting health-conscious consumers – Increasing sales and revenue – Staying competitive in the fast-food industry	Launching marketing campaigns, adjusting menu offerings, and enhancing in-store experience.
Starbucks	Market Penetration	Offering loyalty programs and mobile ordering for customer retention.	– Encouraging repeat business – Increasing customer engagement and loyalty – Boosting sales and revenue	Developing mobile apps, launching rewards programs, and promoting exclusive discounts.
Apple	Product Development	Regularly launching new iPhone models with enhanced features.	– Attracting tech enthusiasts and loyal customers – Generating excitement and demand – Sustaining market leadership	Research and development, design innovation, and marketing new product features.
Procter & Gamble	Product Development	Extending product lines with variations of household and personal care products.	– Meeting diverse consumer needs – Expanding product range and market presence – Competing in multiple segments	Conducting market research, product diversification, and advertising new product offerings.
Amazon	Product Development	Creating innovative products like Amazon Echo and Alexa.	– Expanding the ecosystem and customer engagement – Enhancing brand loyalty – Generating additional revenue streams	Research and development, partnerships for integration, and marketing new products.
Netflix	Market Development	Expanding streaming services to international markets.	– Tapping into new customer bases and revenue sources – Competing globally in the streaming market	Licensing content in multiple languages, adapting content for regional preferences, and marketing international availability.
Airbnb	Market Development	Entering new geographic regions to offer lodging services.	– Accessing new markets and customer segments – Increasing bookings and revenue – Global brand recognition	Localizing listings and services, complying with local regulations, and marketing in new regions.
Uber	Market Development	Expanding ride-sharing services to cities and countries worldwide.	– Entering new markets for revenue growth – Increasing user base and network effects – Global brand recognition	Adapting services to local transportation norms, addressing regulatory challenges, and launching marketing campaigns in new cities.
Tesla	Market Development	Expanding electric vehicle market to various countries.	– Accessing international markets for growth – Boosting sales and revenue – Pioneering sustainable transportation	Setting up manufacturing and charging infrastructure, complying with local regulations, and marketing electric vehicles globally.
Alphabet Inc.	Diversification	Venturing into new industries such as autonomous vehicles (Waymo).	– Diversifying revenue streams and reducing risk – Expanding technological capabilities – Exploring new business opportunities	Developing autonomous vehicle technology, conducting real-world testing, and exploring potential partnerships in the autonomous vehicle sector.
Amazon	Diversification	Acquiring Whole Foods to enter the grocery retail market.	– Entering a new market segment with growth potential – Combining online and offline retail experiences – Leveraging Whole Foods’ brand and distribution	Integrating online and physical stores, offering discounts to Amazon Prime members, and expanding grocery delivery services.
Apple	Diversification	Entering the wearable technology market with the Apple Watch.	– Diversifying product portfolio – Targeting health and fitness-conscious consumers – Expanding the Apple ecosystem	Developing wearable technology, promoting health and fitness features, and integrating with existing Apple products.
Virgin Group	Diversification	Diversifying across multiple industries, including airlines, telecommunications, and space travel.	– Reducing industry-specific risk – Exploring new business opportunities – Leveraging the Virgin brand in different sectors	Launching Virgin Atlantic, Virgin Mobile, Virgin Galactic, and other ventures across various industries.
General Electric	Diversification	Expanding from industrial manufacturing into healthcare technology and services.	– Diversifying revenue streams and markets – Leveraging expertise in technology and innovation – Addressing healthcare industry needs	Acquiring healthcare-related companies, developing healthcare technology, and offering healthcare services and solutions.
Microsoft	Product Development	Developing and launching new versions of the Windows operating system.	– Meeting evolving user needs and expectations – Maintaining market leadership in the PC industry – Generating software sales and licensing revenue	Conducting extensive research and development, improving user interfaces, and launching marketing campaigns for new Windows versions.
Google	Product Development	Expanding the product portfolio with services like Google Drive and Google Meet.	– Providing comprehensive solutions for users and businesses – Encouraging cloud adoption and collaboration – Competing in various software and productivity markets	Developing cloud-based solutions, acquiring related companies, and integrating new services into the Google ecosystem.
Walmart	Market Penetration	Offering competitive pricing and launching online grocery delivery services.	– Attracting price-conscious consumers – Competing with e-commerce giants – Expanding market share and sales revenue	Implementing price-matching policies, expanding e-commerce capabilities, and partnering with delivery services.
Nike	Market Penetration	Running advertising campaigns to promote existing athletic footwear and apparel.	– Maintaining brand loyalty and recognition – Encouraging repeat purchases – Competing in the athletic apparel market	Marketing through endorsements, sponsorships, and campaigns featuring popular athletes.
Amazon	Market Penetration	Expanding its product range and services through Amazon Prime.	– Increasing customer loyalty and retention – Offering bundled services for added value – Enhancing the customer experience	Offering Prime membership with benefits such as free shipping, streaming services, and exclusive discounts.
Netflix	Product Development	Creating original content to enhance its streaming service.	– Differentiating the service with exclusive content – Attracting and retaining subscribers – Competing in the streaming market	Producing original series, movies, and documentaries exclusive to the Netflix platform.
Facebook	Market Development	Expanding its user base by acquiring Instagram and WhatsApp.	– Accessing new user demographics and markets – Increasing user engagement and ad revenue – Strengthening its position in the social media industry	Integrating Instagram and WhatsApp features into the Facebook platform and cross-promoting the apps.
Disney	Diversification	Entering the streaming market with Disney+ and acquiring 21st Century Fox to expand content offerings.	– Diversifying revenue streams in the media industry – Competing in the growing streaming market	Launching Disney+, producing exclusive content, and acquiring 21st Century Fox assets to expand content library.
IBM	Market Development	Targeting new customer segments and markets for its cloud computing services.	– Expanding market share in the cloud computing industry – Increasing adoption of cloud services – Meeting the evolving needs of businesses and organizations	Developing industry-specific cloud solutions, launching marketing campaigns, and forming partnerships to reach new customers.
Toyota	Diversification	Venturing into the hybrid and electric vehicle market with models like the Prius.	– Exploring new technologies and sustainable transportation – Diversifying the product portfolio – Attracting environmentally conscious consumers	Developing hybrid and electric vehicle technology, manufacturing new models, and marketing them as eco-friendly options.
Pfizer	Product Development	Developing new pharmaceutical drugs and vaccines to expand its product portfolio.	– Expanding the pharmaceutical product line – Addressing unmet medical needs and public health challenges – Capturing market share in the healthcare industry	Conducting research and clinical trials, obtaining regulatory approvals, and marketing new drugs and vaccines.
Samsung	Product Development	Regularly launching new smartphone models with advanced features.	– Staying competitive in the smartphone market – Attracting tech-savvy consumers – Maintaining a strong presence in the electronics industry	Research and development, design innovation, and marketing new smartphone features and designs.
Sony	Product Development	Introducing innovative gaming consoles and accessories.	– Expanding the gaming product line – Attracting gamers and gaming enthusiasts – Competing in the gaming console market	Research and development, launching new gaming consoles, and offering accessories and games for enhanced gaming experiences.
McDonald’s	Market Penetration	Offering limited-time promotions and discounts to attract more customers.	– Increasing foot traffic to restaurants – Encouraging repeat visits and larger orders – Capturing price-sensitive consumers	Launching promotional campaigns, offering combo deals, and advertising limited-time menu items.
PepsiCo	Product Development	Expanding its snack and beverage product lines with new flavors and variations.	– Meeting changing consumer tastes and preferences – Attracting new demographics and market segments – Innovating and staying competitive in the food and beverage industry	Research and development, product launches, and marketing new flavors and product variants.
Amazon	Diversification	Launching Amazon Web Services (AWS) to offer cloud computing solutions.	– Expanding into the lucrative cloud computing market – Providing infrastructure and services for businesses – Diversifying revenue sources beyond e-commerce	Developing cloud infrastructure, offering scalable solutions, and targeting enterprise customers for AWS adoption.

What is 4 strategies of Ansoff Matrix?

The Ansoff Matrix helps you expand your product growth strategy by leveraging four key strategies: product development (expand new products for existing markets), market penetration (expand existing products for existing markets), diversification (expand by creating new products for new markets), and market development (leverage on existing products to develop new markets).

What does Ansoff Matrix measure?

The Ansoff Matrix is really a prioritization tool for your growth strategy, which enables you to understand whether it makes sense to leverage existing products and markets to grow the business or to leverage on new products and markets to do the same.

Connected Strategy Frameworks

ADKAR Model

Business Model Canvas

Lean Startup Canvas

Blitzscaling Canvas

Blue Ocean Strategy

Business Analysis Framework

BCG Matrix

Balanced Scorecard

GAP Analysis

GE McKinsey Model

McKinsey 7-S Model

McKinsey’s Seven Degrees

McKinsey Horizon Model

Porter’s Five Forces

Porter’s Generic Strategies

Porter’s Value Chain Model

Porter’s Diamond Model

SWOT Analysis

PESTEL Analysis

Scenario Planning

STEEPLE Analysis

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