One of the most powerful ideas in marketing, the Ansoff Matrix is a framework that categorize opportunities for sales growth.
The Ansoff Matrix
The Ansoff Matrix is a very simple chart on the left side we have customers grouped into two categories: current customers, those were already buying our products, a new customers, who are not currently buying from us but it could potentially be convinced to do so.
Across the top of the chart we have two classes of offerings: our current offerings, those that were currently selling, and new offerings, those that we are not yet selling but we could. The intersection of the customer types and the offerings creates four boxes that categorize opportunities for sales growth.
In the upper left-hand corner of the matrix is a situation where the business is selling its current customers more of its current offerings. This is known as market penetration. To the right of this box is the situation we have a business that develops new products to sell to its current customer base. This is known as product development.
In the lower left-hand corner is a situation where businesses sell existing products to a new group of customers. This is known as market development. Finally in the lower right corner is a situation where the business sells new product lines to new groups of customers. This is known as diversification.
Let’s start off in the upper hand quadrant upper left-hand quadrant of the matrix and talk about market penetration. This is a situation where you sell more of your current product line to your current customers.
This is typically the least risky means of increasing sales and also surprisingly the avenue for growth that is most often overlooked by marketers who want to increase sales.
Selling a little more to people who have already indicated they like your offering, at least to those who bought it once already. That’s usually the low hanging fruit and it should usually be the place that you look to first for opportunities to increase sales.
So, how do you get your current customers to buy more of your offerings?
Are there several strategies? One is to create additional occasions for them to use the product or service. Other to find new sales is with a product development strategy this is where you try to serve the same group of customers with a new product.
The advantage of pursuing a product development course is that you already presumably have a solid understanding of your target customers you are already serving them with some offerings. Additional products and services these new offerings don’t have to be new to the marketplace although they can be. often they’re just new to your company.
Product development strategy
One way to find new sales is with a product development strategy
this is where you try to serve the same group of customers with a new product.
The advantage of pursuing a product development course is that you already presumably have a solid understanding of your target customers
you are already serving them with some offerings.
Now you use that understanding to serve them through additional products and services, these new offerings don’t have to be new to the marketplace although they can be. Many brand extensions are the result of following a product development strategy.
The third source of growth in the Ansoff matrix is market development. Here we seek out new customers for our current line of products like product development market development is typically more risky than market penetration.
After all you’re trying something with a new group of customers that you likely don’t know as well as your current customers, but the strength of a market development strategy is that you’re not developing a radically new and different product.
Market development means selling more or less the same offerings just to a new group of people, geographic expansion being one of the more common means of market development.
But, you don’t need to expand geographically to engage in market development. Often new customers can be found by re-segmenting
new targets may be chosen and then communicated to directly.
A diversification strategy
This is when you try to sell a new product to a new group of customers. This is obviously the riskiest strategy because it involves two entirely new and different sources of uncertainty. Which is not to say diversification is bad or that you should never do it.
Clearly it sometimes is the right move. I do worry though that many marketers seem to jump to easily to a diversification strategy when there are other less risky sources of growth that have not yet been fully exploited.
The upside of diversification is that when done correctly it can vastly expand the company’s reach. Ideally serving a different group of customers often in different markets with a diverse set of products, often from different price quality tiers and sometimes an entirely different category.
So that’s the Ansoff Matrix. Remember that there are several potential sources for growth. There’s nothing inherently wrong with the riskier strategy diversification, but you should recognize that it is risky and plan accordingly.