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Marketing Academy.

Design the future of your business with the Ansoff matrix

The Ansoff Matrix, otherwise known as the Product/Market Expansion Grid, is a useful tool developed by H. Igor Ansoff in 1957 and published in the Harvard Business Review. This two-by-two structure helps managers, business owners and controllers, and the analyst community plan and evaluate growth initiatives, while helping stakeholders conceptualize associated risks.

Companies can use the Ansoff Matrix in conjunction with other business and industry analysis tools, such as the BCG matrix, SWOT analysis and Porter's 5 Forces, to gain an understanding more complete about how their growth strategies will develop.

In our magazine we have dedicated ample space to the BCG matrix and Porter's Forces in dedicated insights:

The DNA of the Ansoff matrix

By creating an overview of possible growth opportunities, companies are able to identify the strategy that is most likely to succeed based on their current market position. The matrix is made up of four distinct areas and strategies, built by crossing two very simple axes: current vs new markets, and current vs new products/services.

  1. Market penetration: refers to the increase in sales of existing products or services within existing markets. Penetration is by far the "safest" strategy because every supply and demand variable is roughly known. Generally, operational marketing operates in this quadrant, maximizing sales and brand equity.

  2. Product Development: Refers to the development of new products or services for existing target markets. A necessary activity for every company, it is clearly more risky than penetration.

  3. Market development: Involves the expansion into new target markets of existing products or services. Another area of choice for marketing, but this time in strategic terms, the idea is to find new uses for existing products and services or enhance benefits or insert new characteristics and features that can make them a little more universal.

  4. Diversification: where companies can expand into completely new product areas or markets. There is no denying that we are at a maximum risk level. Not surprisingly, it is not a strategy loved by large companies. In a rather cynical and ruthless way, capitalism prefers to sacrifice mountains of start-ups by testing new markets and products.

The few start-ups that do well are assured of glory, often in the form of acquisition by a "big" company. Diversification for them is the Big Kahuna.But it's almost always a game of slaughter. For everyone else, all that remains is the emotion of having been a "startupper" for a while and having believed in a beautiful dream. Francesco Galvani, CEO of deep marketing

If used correctly, these strategies can help organizations achieve positive results in terms of increased profits and sustainable growth over time compared to competitors who have not adopted similar tactics.

However, it should be noted that each strategy carries its own level ofassociated riskand therefore it is important for companies to analyze possible outcomes before diving headfirst into a particular approach.

Change and danger
Every change involves a degree of danger. But also lots of excitement and opportunities!

How to explore the matrix in concrete

When looking to implement a new strategy for your company, the Ansoff Matrix is an excellent tool to help you analyze potential opportunities and evaluate different strategic options. It is important that, before you begin using the matrix, you have completed a thorough analysis of your company and its environment, including a SWOT analysis and, ideally, a sort of external analysis like PESTLE or Porter's Five Forces.

Once you are ready to start working through the quadrants of the Ansoff Matrix, start with Market Penetration and proceed towards the riskier options. Consider the potential activities or strategies that the company could adopt to increase its market share, obviously giving priority to operational marketing (therefore new campaigns, new channels, new persuasive messages), and then thinking about the 'introduce new products or services into existing markets.

As we proceed with the other quadrants other than penetration, it is good to keep in mind geographical areas, industries, sectors or markets in which we can expand our offering and business. Take time to consider all the potential options and evaluate which will be the most beneficial for your company. It may also be useful to consider collaborating with existing partners or suppliers to achieve the desired result. Something to which, in our experience, too little attention is always paid!

When considering implementing one of these strategies, it is important to also consider any financial issues associated with each decision. Think carefully about the resources available within the organization and whether they are sufficient to implement these strategies successfully – this includes staffing levels, budget, etc. Don't put the cart before the horse.

Yes, it also has limitations

The Ansoff matrix is a very useful tool, but there are some limitations to keep in mind. For example, while on the one hand the matrix can help identify the risk associated with various strategies, on the other hand it does not take into consideration the reward that could be obtained with a successful implementation. Literally: it cannot evaluate the correlation between risk and possible “outcomes”. It also does not capture the details of your market position or position relative to competitors. And this is one of the reasons why we always recommend to work on Ansoff only AFTER having carried out an analysis of Porter's Five Forces.

Furthermore, this tool should not be used as a standalone guide for strategic direction, but should be used in conjunction with other tactics and research to form a comprehensive plan. We often tend to prefer the use of a single hammer, such as the Ansoff matrix, to build the entire house!

Finally, it is important to remember that this is only one element of the entire process. Companies need to conduct in-depth research and analysis before deciding which strategy is best for them. This meansgathering dataon customers, understanding their needs and preferences, researching competitors, and examining your internal resources before making any decisions.

So: take the side of the question. The basis of the work of the Deep Marketing agency.

By taking all relevant factors into consideration, companies can ensure they are making informed decisions that will lead to success both now and in the future.

A famous example

Xiaomi. is a Chinese mobile phone manufacturing company. Since it entered the scene in 2011 with its Android-based MIUI operating system, it has quickly become one of the largest companies in the market. Taking full advantage of its diversification strategy, Xiaomi Inc. offers a wide range of products including consumer electronics, household items, appliances, software and even bags. By investing heavily in research and development, the company continues to remain competitive in an ever-changing market, constantly offering new products and services to customers around the world.

The company's diversification approach has given excellent results with an increase in the number of customers, as it is able to address different markets and increase its success rate. For example, many have chosen Xiaomi's range of home appliances for their affordability and reliability, while others have chosen the software offering for its comprehensive design and ease of use. With offices located in many countries around the world, the company is able to provide an effective customer assistance experience, offering discounts and offers on the most popular products from time to time

Furthermore, Xiaomi Inc.'s continuous investments in research and development have allowed it to stay ahead of the competition and continue to innovate to offer users unique features not available elsewhere. Among these, the integration of artificial intelligence into the MIUI operating system to improve the user experience and the development of its own line of camera lenses for its smartphones, something that currently no other brand offers.

Overall, it can be said that Xiaomi's diversification strategy has been decisive for the overall growth of the company, as it allows it to reach a greater number of potential customers and at the same time offer existing customers an easier way to upgrade or add more products without having to rebrand or look elsewhere.

This is why the company has become one of the most successful companies on the market: a testament to how powerful a good diversification plan guided by the Ansoff matrix can be, if used correctly!

Xiaomi product
Xiaomi, one of the most diversified electronics companies

Are we forgetting something?

Diversification implies the greatest possible risk, as we have seen. And for this reason it is usually left to start-ups. And we talked about this too. However, Xiaomi demonstrates that a very high level of aggressiveness and structure can also allow "operational" companies to attack new markets with new products.

But what is the ingredient that allows this?

Obviously, His Majesty the brand.

Xiaomi allows itself to risk so much because it has simply stellar brand equity. In the world of electronics fans - and now not only - everyone knows this brand. Everyone knows his attention to design and his reliability. To the point of making it an exception in the stereotype according to which Chinese companies have very low quality. Without great brand equity, Xiaomi should remain in the market penetration quadrant.

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