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As the world shrinks with each passing day, the business opportunities multiply at an ever-increasing rate leading to intense competition. Due to this pressure of survival and growth, organisations must devise and implement a competitive growth strategy to strengthen their economic position.

The Ansoff Matrix is one such framework that aids in formulating an effective growth strategy. In this article, we will discuss what is Ansoff Matrix, its importance, the four strategies associated with it and some examples to understand it better.

What Is Ansoff Matrix?

The Ansoff Matrix, also known as the product/market expansion grid, is a future-oriented portfolio analysis tool marketers use to devise future growth strategies while factoring in the inherent risks associated.

Developed by Igor Ansoff in 1957, the Ansoff model is based on the fundamental question of ‘where should a company direct its growth efforts?’ and provides four distinct growth strategies that a company can adopt, depending on whether it wants to target new markets or new products.

The matrix suggests 4 different growth strategies that can be implemented in the business namely –

• Market penetration [existing product, existing market]: The company tries to grow its existing products’ sales in the existing market. The aim is to increase the market share of the company. For example, Coca-Cola focusing on selling more bottles of Diet Coke in the US market.
• Product development [new product, existing market]: The company tries to develop new products for its existing markets. The aim is to satisfy the changing needs of the customers in the existing market. For example, Samsung launching the new Galaxy phone focused just on the needs of Gen Z.
• Market development [existing product, new market]: The company tries to enter new markets with its existing products. The aim is to increase sales by selling the same product in a new market. For example, Google focusing on the Chinese market.
• Diversification [new product, new market]: The company enters a new market with a new product. The aim is to reduce the risk by spreading the business into new areas. For example, Apple launching a home theatre system for Indian customers.

The 4 Strategies Of The Ansoff Matrix

Product and market are the most important factors driving business growth. The Ansoff Matrix factors in both aspects to create a 2-dimensional matrix that gives rise to 4 growth strategies.

Market Penetration

Market penetration is a measure of how much an offering is bought by customers as compared to the total estimated market.

This is the most commonly used strategy wherein the company focuses on selling more of its current products to its current markets. This can be achieved by either improving marketing efforts or providing customers with additional benefits that encourage them to buy more. For example, a mobile phone company may offer more minutes or data at a lower price to attract new customers and encourage existing customers to buy more.

What Is The Goal Of A Market Penetration Strategy?

The goal of a market penetration strategy is to increase sales of a company’s products or services in the existing market without changing the product. This is usually done by increasing marketing efforts and improving customer service.

For example, a company may offer discounts or special deals to customers in order to increase sales. Additionally, the company may invest more in advertising and promotion to increase brand awareness and reach more potential customers.

When Is A Market Penetration Strategy Used?

The market penetration strategy is used by firms when they don’t have any new product or service to launch or any new market to explore but still wish to expand their revenue and market share. Companies usually adopt this strategy in the early stages of their product life cycle when they are still trying to gain a foothold in the market.

How To Use A Market Penetration Strategy?

There are various ways in which a company can go about adopting a market penetration strategy. Some of the most common methods are as follows:

1. Price Reduction: By reducing prices, companies make their products and services more affordable and thus attract more customers. This strategy is particularly effective in markets where the price is a major deciding factor for customers.
2. Advertising and Promotion: Advertising and promotion can help create awareness about a company’s products and services and make them more attractive to potential customers.
3. Improved Distribution: By incorporating new distribution channels or improving existing ones, companies can make their products and services more accessible to customers.
4. Mergers and acquisitions: Mergers and acquisitions involve combining two or more companies to create a new entity. This strategy can help companies expand their reach and increase penetration in the current market.

Risks Associated With Market Penetration Strategy

The main risk associated with market penetration strategy is that of becoming complacent. Companies that have successfully penetrated their markets may become overconfident and stop innovating. This can lead to them losing their competitive edge and eventually being replaced by newer, more agile firms.

Product Development

The product development strategy is where a firm introduces a new and improved product line in its existing market.

The main aim of this strategy is to maintain market share and generate new revenue streams by offering customers something new that they value.

In order to successfully implement a product development strategy, companies need to deeply understand their target market and what they are looking for.

An excellent example of a company that has successfully used a product development strategy is Apple. Starting as a computer company, it has expanded its product range to include iPods, iPhones, iPads, and a host of other electronic devices.

What Is The Goal Of A Product Development Strategy?

The main goal of a product development strategy is to create new products or services that appeal to customers and generate new revenue streams for the company in the existing market.

Product development can also help companies to stay ahead of the competition by constantly innovating and offering new products or services that the competition does not have.

When Is A Product Development Strategy Implemented?

The product development strategy is implemented when the company has an established large customer base and the market for its existing products is on the brink of saturation.

This involves high inherent risk as it demands a huge investment from research and development to build a new product.

However, it’s easier to market a new product to an existing customer base as they are already aware of the company and its products.

How To Use A Product Development Strategy?

The organisation focuses on building a differentiated product to improve its product portfolio and operate on the customer’s brand loyalty. The courses of action include:

• Investing in research and development to provide better and cost-efficient solutions.
• Merging resources with competitors to save time and effort in research.
• Forming strategic partnerships to acquire rights to sell a product developed by another company.

Risks Associated With Product Development Strategy

The risks associated with product development strategy are:

• Developing a new product takes a lot of time, effort, and resources.
• The success of the new product is uncertain as it needs to be accepted by the customers.
• The new product can cannibalise the sales of the existing products.

Market Development

The market development strategy is adopted to target new markets with the existing products.

For example, a company selling tennis shoes in the domestic market may decide to target foreign markets.

Another example would be a company selling healthy snacks to working professionals, targeting the same to students in college canteens. Here, the company would not be introducing any new product but targeting a new market segment.

What Is The Goal Of A Market Development Strategy?

Businesses aim to reach a wider audience and expand their user base by selling their offerings in previously unexplored markets. This makes way for acquiring new customers and acts as a driving force for growth and increased revenue.

When Is A Market Development Strategy Implemented?

A business generally uses a market development strategy when its existing market has reached a saturation point, and they are not ready to launch a new product.

The focus is on existing products, so it does not require a huge investment in product research and development, resulting in low business risk. So this strategy best works for a business that is not willing to take risks at the moment.

How Is A Market Development Strategy Implemented?

The strategy concentrates on taking the existing product to a new market. Here’s how they implement it:

• Entertaining a different customer segment in the same geographic area
• Expanding markets geographically i.e. domestically and internationally

Risks Associated With Market Development Strategy

The main risk involved in this strategy is that the company may not understand the needs of a new market and thus, the product may not be accepted. Also, it is difficult to forecast demand in a new market.

Another risk is that the company may incur a lot of costs to enter a new market. This is because they would need to research, develop new marketing strategies and create awareness about their product.

Diversification

A diversification strategy is a market strategy where the business focuses on selling a new product to a new market and involves entirely different skills, technology and knowledge.

The risks are much higher as the company is starting from scratch. This strategy is generally adopted by companies that have spare cash and want to enter a new business.

An example of a company that has used this strategy is Google. It started with the search engine and then moved into selling mobile phones (Pixel), home appliances (Nest) and even forays into self-driving cars.

What Is The Goal Of A Diversification Strategy?

Businesses generally implement diversification strategies to reduce their reliance on a single line of products while gaining a synergetic advantage to sell more of their existing product by adding a new product.

When Is A Diversification Strategy Implemented?

Diversification acts as a means to utilise the spare capacity of the business more efficiently and effectively by developing a new line of products.

It is the riskiest strategy in the matrix as it demands both product and market development on the part of the business and focuses on an entirely new revenue stream. But with the increased risk it also offers the opportunity for huge returns.

How Is A Diversification Strategy Implemented?

The management has mainly two different approaches when it comes to implementing diversification strategies.

• Related diversification: The marketing strategy where the business enters into a new industry by exploiting brand name, sales and distribution capacity and marketing skills as the new product has some similarities with the existing products. For example, Apple, a technology company, introduced AirPods when it was already established in the smartphone industry.
• Unrelated diversification: The marketing strategy where a business invests in a new product portfolio and employs different technologies where it’s unlikely to have any similarities between the new and existing products. For example when Coca Cola a soft drink company, acquired Columbia Pictures, a movie studio, in 1982.

Companies use related diversification to mitigate their risk and use unrelated diversification to reduce risk by operating in multiple industries.

Risks Associated With Diversification Strategy

The main risks associated with diversifying into new products or services are:

• Difficulty in managing multiple products and businesses: If a company has a wide range of products and businesses, it can be difficult for managers to keep track of everything and make sure that each business is profitable.
• Lack of focus: A company that is diversified into too many different areas may lack focus and could end up spread too thin.
• Increased complexity: A diversified company is likely to be more complex than a single-business company, making it more difficult to manage and understand.

The Importance Of The Ansoff Matrix

Companies with multiple offerings large enough to be categorised into SBUs (Strategic Business Units) face the problem of correct resource allocation. Ansoff Matrix provides a framework for resource allocation and developing marketing plans. It forces the company to consider the risks inherent in its growth strategy.

Moreover, designing a strategy involves a careful analysis of the strengths and weaknesses of the company to fit the external opportunities and threats present in the market. Once an organisation has derived its results from the SWOT analysis, it needs to channel them into individual strategies and choose a business model. Ansoff Matrix helps the business to choose one such model.

The Ansoff Matrix is simple to understand and gives an overview of all possible alternatives. It is best suited for organisations operating in multiple industries. The business can choose the best strategy based on its requirements and risk-taking capacity.

Bottom Line?

Each company has its own method of analysing its business position and choosing a business strategy for growth and development in the market. Several tools are available that aid the process of identifying, analysing and choosing from alternatives much easier.

Risk cannot be totally eliminated from a business. The solution is to choose the right strategy at the right time, and using a portfolio analysis model like the Ansoff Matrix, it becomes much easier to make decisions. 

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Did we miss something? Come on! Tell us what you think about our article on Ansoff Matrix in the comments section.

Every entrepreneur wants to be seen as an industry leader in the market. This is quite natural as effective growth is known to be synonymous with brand loyalty, a large customer base and skyrocketing revenues as most powerful companies like Apple and Google implicate.

But what do these companies do to ensure a continuous growth strategy?

At any time, you might not have the capacity to take risks in launching a new product or entering a new market. Today, surviving in the market is not easy. Your competitors might outrun you and cause you to lose momentum in the market.

A market penetration strategy is the ideal plan of action when it comes to achieving growth with minimum risk. It helps you to expand sales and reach maximum customers with your existing products in the existing market.
Here’s a guide to walk you through it.

What Is Marketing Penetration Strategy?

Marketing penetration strategies are tactics used by companies to establish a large customer base and magnify their presence in the market as dominant.

They are also known as “in-market strategies” because they focus on stimulating growth within the existing market rather than targeting new ones.

The goal of market penetration is to achieve a larger sales volume compared to the sales volume of the overall market.

Hence, it is important to understand the market and what needs to be done to stay ahead of the competition.

Why Is Market Penetration Important?

As an entrepreneur, you not just want to maximise your revenue, but you want people to know your brand and trust it. All the powerful global brands are known to be successful because the customers in the market know their names and desire to own their products.

A market penetration strategy aims to achieve that by reaching maximum customers in the market till it becomes saturated. Some companies use a low pricing strategy to attract buyers, while some may adjust marketing campaigns.

It not only results in a large customer base but also helps in increasing the market share.

Even if a firm accounts for 60% of the total revenue in an industry but only manages to reach 15 out of a total of 100 customers, it only suggests a small radius. Market penetration aims to reach 40 out of 100 customers to attain a good penetration rate.

What Is A Good Market Penetration Rate?

Keeping in mind the growing number of startups and new entrants in every market, it is widely estimated that a market rate penetration rate of 2-6% is to be considered normal or above average for any company.

If a company has a penetration rate of 8%, it is already a step ahead of most of its competitors.

On the other hand, in a B2B business, a good penetration rate can be considered to go as high as 40%, which is excellent in any market.

How To Increase Market Penetration?

Market penetration stipulates you use the best strategy to strengthen your position and enhance your growth in the market.

Companies use the Ansoff matrix to decide which strategy best suits their organisation. Market penetration is the least risky of them all and hence is very popular among companies, especially SaaS organisations.

You already know the market for your product exists and how it responds. You focus on expanding your sales by adding more value to your product.

Besides, a little extra promotion of your brand would never hurt.

Use Competitive Pricing

Price plays an important role in creating a market penetration strategy as it is one of the first factors that any consumer considers before purchasing a product. With the growing popularity of ecommerce, comparing prices across platforms has become very easy.

Now your product being in an existing market already has substitutes and competitors, making price a driving force for your sales. Often companies use competitive pricing in this situation.

Setting low prices This is a common strategy used by retailers to attract customers by setting low prices and getting ahead in the game. However, you need to consider the risk of facing huge losses if you are unable to recover your production costs.

However, this strategy won’t work in the case of luxury products. You need to ensure that you don’t end up offering substantially low prices for your products as customers might conclude them to be less valuable or cheap quality.

Setting high prices If you choose to offer a high price for your products as compared to your competitors, then you need to justify the increase in the price by adding new features or modifications to your product. The customer tends to analyse the value of a high-priced product before buying it.

Setting prices at par Companies set equivalent prices in the market to avoid price wars and shift the focus to the product itself. Now if you can offer better features for the same price without adding much to the cost, your competitors will automatically lag behind.

Engaging in a price war works well in markets where customers are price sensitive but it’s important that you keep in mind the average income of the target market.

Take vegan makeup products, for instance, which are priced higher than other makeup products. A market penetration strategy involving price drops would stimulate customers to switch to your brand, but at the same time, you need to ensure that your product is not regarded as cheap.

Introduce More Distribution Channels:

A distribution channel is a path through which any product or service goes through before reaching the end consumer. It includes anyone that is a part of the process of sale – wholesaler, retailer, distributor and sometimes even the Internet as in the case of ecommerce.

Having a good and efficient distribution channel is an integral part of marketing as it ensures the delivery of products and services to the customers at the right time. So, depending on just one distribution channel is not advisable when you are striving for quick growth.

Add more distribution channels to increase the number of ways in which a product or service may reach the customer. Set the distribution process in a way to reduce the number of stops that a product or service has to pass through and make it more efficient.

With the onset of the digital era, ecommerce and online marketing channels have made it a lot easier for retailers to reach their customers quickly. It will be unwise to not tap the opportunity.

Coca-Cola would never have become the brand it is today had it just depended on individual retail outlets. It sells its products to canning and bottling companies, wholesalers, retailers and distributors who further sell to convenience stores, supermarkets, gas stations etc. With this advantage of such a strong and wide distribution system, coke was made available in every store, and to date, any startup cannot easily replicate their network.

Modify Your Product

You need to listen to your customers to make them listen to you. If you want your customers to buy your product you need to give them exactly what they need.

Analyse customer reviews and feedback for your product and any other similar products in the market. This helps to identify any features that might be missing in the product. Now use this to adjust and modify the product according to the customer’s needs.

Sometimes, product appeal can be established just by communicating the product’s value. By making minor product and packaging adjustments, you can appeal to the customers more powerfully and increase your sales overall.

Apple has the highest market penetration in the smartphone industry worldwide even though iPhones are costlier. The reason behind this is the customer appeal that an iPhone generates among its consumers. When they experience their device’s unmatched quality and exclusive features, it satisfies the value to the money.

Acquiring Businesses

Acquisition is a standard approach which fosters the idea to buy out your competition instead of challenging them. Existing companies already have an established sales and market share in the industry. Buying the whole company allows you to access their customer base, hold on to their current sales and at the same time scale your own operations.

As a startup, you might not have the required resources to buy a whole company but you can look for strategic alliances with companies to widen your reach and explore new audiences. The most common form of strategic alliances is forming joint ventures where each company has a definite equity shareholding. This makes it easier for small ventures to enter new markets in the future.

Facebook (now Meta) buying Instagram and WhatsApp is the perfect example of where a company acquires another business in the same industry to resolve its competition. Both WhatsApp and Instagram were growing steadily to capture the market share substituting other popular mobile apps, especially Facebook. So, seeing this as a threat, Facebook converted it into an opportunity by buying out its competitors. Today, these apps have a combined user base of 3.6 billion.

Adjust Marketing Campaigns

Customers get to know about your product through your advertising campaigns. You need to connect with your customers through these campaigns so they see the value in the product and feel the urge to buy it. Aggressive marketing campaigns help you reach larger audiences and increase brand awareness.

Increasing the budget for marketing and promotional campaigns helps in generating brand awareness and a bigger market share in the industry. Companies analyse their marketing expenses to identify the areas with the highest customer conversion rates.

For instance, if you run an online store and market your products on your website, social media platforms like Instagram and Facebook, e-commerce platforms like Amazon or any other ads, you should be tracking the origin of your sales. Once you point out what generates the highest revenue streams, you start spending more in that area.

Another way to win customer trust is by getting your product tested and verified by a certified organisation. It gives them a sense of belief and urges them to be loyal to your brand.

Dunkin Donuts has been driving the millennials crazy with their bright-coloured posters and vibrant campaigns, making their social media pages a treat to the eyes. Using a bright-coloured logo makes the brand memorable and leaves a lasting impression on the consumers. It uses almost every form of advertising from print media to television and online ads which has earned the company a huge market share in the industry.

Simplify The Purchase Process

With the growing popularity of e-commerce platforms, most people want to shop online from the comforts of their homes. Thus, it becomes necessary that the process of making a purchase is simple and hassle-free.

You need to give your customers the best online shopping experience, so they wish to come back again later. When someone goes on your website, it should be easily accessible, and the person should not face any difficulty in navigating through the site to find what they are looking for.

If placing an order involves long formalities, it becomes a big put-off for the customers. Ensure that the checkout process doesn’t require a lot of details to be filled in and has customer-friendly options like Cash on Delivery (COD) or an easy return policy.

You don’t need to do it right in your first attempt, so you can take assistance from businesses who have already mastered this concept and help you in the process.

Amazon is the largest e-commerce company in the world. They have managed to list almost every kind of product available in the market, and every retailer eyes a customer base that big. One of the main reasons behind this is their extremely user-friendly interface and hassle-free checkout process.

Increase Geographic Reach

Another approach is to consider expanding to new locations. The scaling process becomes much easier when you get access to new markets with the opportunity to tap multiple resources and reach new potential customers. At the same time, you reduce your operational risk by broadening your presence in the market.

But it is not exactly a foolproof market penetration strategy and comes with a substantial financial risk. An increase in sales is not guaranteed until your product has a considerable value proposition in the market. You need to promise the benefits to your customers they will get after buying your product and show them how it is useful for them.

A careful study of the economic, social, cultural and political environment paired with a detailed analysis of the market helps to identify customer needs in any geographical location and helps you market your products accordingly.

CNET targeted the Latin world and entered the market by introducing a Spanish version of the tech news site while partnering with renowned actress Sofia Vergara.

Educate The Market

If you are looking to launch a new product with no established customer base yet, you first need to draw attention to your brand, so customers become aware of your existence.

You need your customers to understand how you are solving their problems so they see that you feel their pain. Help them get to know you by using marketing tools like pay-per-click advertising and promotion gigs on well-doing websites.

Customer education helps inspire the customer to build brand loyalty and trust and they don’t feel uneasy when you ask them to choose your product over others they were using previously.

Cabot, a cheese manufacturing brand, brought social media into play to educate customers about their product. They used Pinterest ads to flood popular cheese recipes on the market through digital communities and social media pages. People loved interacting in communities and actively participated in it, generating brand awareness.

Examples Of Market Penetration Strategies

• Apple Inc. accounts for more than 50% of the revenue in the smartphone industry. With the constant introduction of new and improved models frequently, the company manages to keep the customers hooked to its products. Not only this, it still has the capacity to increase its customer base by attacking the competitor.
• McDonald’s uses market penetration as its primary strategy for growth. It’s the biggest fast-food chain in the world and grows by reaching customers where it’s already present. For example, it opens new outlets in North America and Europe through franchising and corporate ownerships only to grow globally by adding new locations.
• Netflix doesn’t practice penetration pricing. Instead, it charges higher than other streaming platforms but still manages to beat them all. The reason here is the content quality and the experience it offers so the customers don’t mind paying a little more.

Bottom line?

In the race to dominate the market, retailers are willing to test strategies to scale up their growth process. But only the company which analyses the competitive space and its position well will be able to choose and implement the best strategy.

With a combination of strategic pricing, improvement in products and promotional efforts, it is highly likely that you will be able to dominate the market.

Go On, Tell Us What You Think!

Did we miss something? Come on! Tell us what you think about our article on market penetration strategies in the comments section.