Using the Ansoff Matrix for Market Expansion

As your company grows, expansion becomes inevitable. At some point, there will be a need for you to branch out and open new locations or start entering entirely new markets. So when expanding into new markets, how do you ensure that you will be successful? 

 

While there are a variety of tools and strategies for market expansion, few are as robust as the Ansoff Matrix. The Ansoff Matrix is a favourite by many marketing experts and CEO whisperers. It allows for growth while analyzing for risk and is overall one of the most useful tools in a marketer’s toolbox.

 

What is the Ansoff Matrix?

Developed by H. Igor Ansoff and first published in the Harvard Business Review in 1957. The Ansoff Matrix is a grid that highlights four different market expansion strategies and the level of risk associated with them. 



The four strategies highlighted by the Ansoff Matrix are as follows:

 

 

  • Market Penetration: This strategy works with a focus on increasing sales within an existing market
  • Product Development: This strategy works with a focus on introducing new products to an existing market
  • Market Development: This strategy works with a focus on entering a new market with existing products
  • Diversification: This strategy works with a focus on entering a new market with new products

 

These four strategies each take on an increasing level of risk, with market penetration being the least risky and diversification being the riskiest. So which of these four strategies should you incorporate into your market expansion strategy, and at what point is it appropriate to start implementing them in your marketing strategy?

 

Market Penetration Strategy

 

Market penetration strategies are all about trying to gain the most market share within an existing market. These types of strategies work best for companies where it isn’t possible to distinguish your product offering in a significant way. 

 

Telecom companies like the BT Group can make great use of market penetration strategies. This is due to the fact that they don’t have many aspects of their marketing mix that they can change in a significant manner outside of price and promotion.

 

The chief market penetration strategies revolve around price and promotion almost exclusively. There are three chief market penetration strategies.

 

  1. Lowering prices to attract new customers
  2. Offer more promotions
  3. Acquire a competitor within your market

 

By using one of these as your market penetration strategy, your business can gain traction and market share within your market.

 

Product Development Strategy

 

When using a product development strategy, a firm develops a new product with the focus of introducing it to an existing market. This strategy typically requires a fair amount of research and development into what sort of product meets the needs of this market and will be the most appealing to the said market. 

 

Product development strategies are most effective for companies that have a strong understanding of their target markets. Companies that are able to deliver on innovative new products and services that meet the needs of their market.

 

Some of the most popular product development strategies include:

 

  1. Investing in R&D to develop new products that fill a need within an existing market
  2. Acquiring a competitor’s product and building on top of that to create a better product for the current market
  3. Forming strategic partnerships with other firms to gain access to their distribution channels or to use their brand reputation.

 

A fantastic example of one of these strategies is Vans. The shoe company has done a variety of collaborations with other brands intended to boost its sales, including collaborations with brands outside of the fashion world such as Disney and Marvel Comics.

 

Market Development Strategy

 

A market development strategy relies on a firm being ready to make the jump and start looking at other markets to start offering their products to. In the context of a market development strategy, a new market could mean a number of different things, including a new domestic market, a new international market or even just a new customer segment.

 

For a firm to have a successful market development strategy, they need to carve out the ideal market for their product. Three criteria that should be looked at when expanding into a new market are:

 

  1. Own proprietary technology that can be leveraged in new markets
  2. Ensure that the potential new consumers are profitable (i.e. make sure they have the disposable income necessary to purchase your product)
  3. Consumer behaviour in the new market doesn’t differ too greatly from consumer behaviour in your current market.

 

A great ongoing example of a market development strategy is the current box office success that James Cameron’s Avatar is experiencing within the Chinese market. The movie is being released in theatres for the first time in China. This push has propelled the movie back up to being the highest-grossing film of all time after it was dethroned by Avengers: Endgame two years back.

 

Diversification Strategy

 

When using a diversification strategy, a firm enters a new market with a new product as well. This is the riskiest of all of the strategies in the Ansoff Matrix, but there are methods that can be used to mitigate the risk to some degree. 


Along with being the riskiest of the strategies on the Ansoff Matrix, a diversification strategy also has the greatest potential for being profitable. This is due to the fact that a diversification strategy opens a firm up to an entirely new revenue stream, allowing them access to dollars that would be otherwise be spent elsewhere.

 

There are two diversification strategies that can be employed by firms:

 

  1. Related Diversification: This is when there is potential for synergy between the existing product line and the new product line. For example, a toothbrush company making toothpaste would be a related diversification.
  2. Unrelated Diversification: This is when there is no potential for synergy between the existing product line and the new product. It would be something as seemingly unrelated as Taco Bell opening a hotel.

 

With these strategies guiding you, you will be able to effectively execute market expansion plans leading your company to success. It’s a tough task, but with the help of a fractional CMO, marketing whisperer or other marketing talent on demand, your company will thrive in new markets. Contact gigCMO today to get started.

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