Ansoff Matrix : 4 Key Areas to Understand Marketing Risks

Almost everyone in the marketing field would have heard of Ansoff Matrix and many of you would have already used it in some context. In this article, we explore how best to utilise Ansoff Matrix to understand business risks. We further delve into the strategising process of countering these risks and develop an action plan to mitigate the effects of these risks. 

Whether you are an established business or a new one, you can look at the market in four primary segments as shown below: 

 Each of these areas defines the strategy you can follow to identify your marketing needs. It can also help you understand the key risks facing your market and find a way around it. 

1. Market Penetration

This is represented by the first quadrant in the Ansoff Matrix. It simply refers to expanding your sales/market size in the existing market. This does not need massive innovation in the product or change in the service offering. It might need a few changes in packaging your sales. It can be achieved in a lot of ways. Some examples are:

• Developing distributor channel
• Price reduction/promotions. Discounts, etc
• Loyalty schemes
• Increasing sales staff

To achieve this, you will need to identify your USP or key selling point. It is usually the least risky option. Statistically, this approach would yield you a greater % of success. The returns may not be as exciting as the others. But it will provide you with results at lower risks.

If you are a startup or a small business, it is not the best advice to start on this model. The problem is – there are already too many established players. The market is competitive. Unless you have the ability to sustain losses and beat out the other players in this market, it usually is a place for established players. Having said that you can still operate in this segment if you are innovative. The challenge however is a tough one. You will usually need more time than you think.

2. Market Development

Market development refers to expanding the sales to a completely new market. If you are a business planning to take on a new geographical area, you automatically fall into this area. The biggest advantage you have in this segment is that you already have a product and an established market. You can rely on this success story and try to sell it to other customers.

Be careful to understand the impact of cultural factors in an external market. You might have been successful on home turf. But when you are playing in an unknown market, the risks are also unknown. A good way to counter some of these risks is by performing a simple PESTLE analysis to understand key risks. It may be that you need a local representative. Or perhaps an area-specific partner.

You may also do well by franchising your product or service to the local area experts. This can help reduce your risks. The risks are slightly higher when compared to market penetration. But you can still bank on your previous success story. You will have to establish the market need and cater to the local environment.

3. Product Development

This is a slightly riskier strategy in the Ansoff matrix. It refers to selling different products to the existing customer base. The risk in this segment is the investment in product development. It can relate to adding new features to existing products. It can also refer to developing related products or adding a service element to existing solutions.

A good starting point for product development is in understanding your customer. We have also talked about Minimum Viable Products and how you can involve customers in product development. All these tools/strategies help you understand customers better. A good amount of research in identifying the hidden needs of customers can also benefit product development largely. In all essence, this will still qualify as a risky strategy. But the gains from such a risk can be high.

If you are a startup or small business, this is not a bad area to delve into. The amount of competition in this segment is slightly lower as opposed to Market Penetration and Market Development.

4. Diversification

This is the riskiest strategy in Ansoff Matrix. Not only are you looking at a new product, but also a new market. The risks are

• Customer’s reaction to a product
• Change in market dynamics
• Providing product differentiation
• Convincing need for your product/service

Many startups/new business ventures fall in this segment. This has the highest risk but can also provide the best benefits. If you are a startup looking for investment, this area might be the right one to seek investors. If they are seasoned investors who understand the risks – you not only gain access to their experience, but also the network which can be exceedingly powerful.

Key approaches in this segment are the Minimum Viable Product approach, prototyping and development in partnership with a specific client. Either of these approaches can provide you with the crucial market information you need to develop your product/service further.

How to use Ansoff Matrix for startup?

The Ansoff Matrix is a strategic planning tool that helps companies determine their product and market growth strategy. Here are some steps that a startup can follow to use the Ansoff Matrix:

1. Identify the current products and services offered by the startup.
2. Determine the target market for the current products and services.
3. Identify potential new markets that the startup could target.
4. Determine potential new products or services that you can offer to the current market.
5. Determine potential new products or services for new markets.
6. Evaluate the risks and benefits of each growth strategy and choose the best option for the startup.

By using the Ansoff Matrix, startups can identify new opportunities for growth and make informed decisions about their business strategy.