The Ansoff Matrix is a popular marketing tool that helps businesses decide their marketing strategy. It provides a framework for comparing various growth strategies. Before using the Ansoff Matrix, you need to understand its advantages and disadvantages.
Our goal in this blog post is to help you decide whether to use the Ansoff Matrix in your business.
What is the Ansoff Matrix?
We'll discuss what the Ansoff Matrix is and how it works. Then, we'll dive into the advantages and disadvantages of using this tool.
The Ansoff Matrix was developed by Igor Ansoff in 1957 and first published in the Harvard Business Review. The matrix provides a framework for businesses to decide their growth strategy. There are four growth strategies that companies can choose from:
This strategy involves selling more of your existing products or services to your current markets.
This strategy involves finding new markets for your existing products or services.
This strategy involves developing new products or services for your existing markets.
This strategy involves developing new products or services for new markets.
The Advantages of the Ansoff Matrix
This matrix is elementary to understand, so anyone with limited marketing knowledge can understand and work on the above scenarios. Complex situations or calculations are not involved.
Short-term and long-term planning
Another great advantage of this model is that companies can use it to plan their short term and long-term growth strategies. For instance, if a company wants to enter a new market, the company should go for a market penetration strategy according to the Ansoff Matrix. Similarly, if a company wants to introduce a new product in the existing market, it should go for a product development strategy; this shows that companies can use this model for planning their growth in both the short term and long term.
Observing all possible alternatives
Another advantage is that it helps the company observe all possible alternatives to make the right decision, which will help the company increase its sales and profits. Hence, for example, if the company's product is not performing well in the current market, it can go for market development if it does not have a new product in mind. On the other hand, however, the company has to budget for marketing and advertising costs for introducing the current product in a new market or go for product development if it does not want to take the risk of going into a new market.
It helps analyse the risk associated with each strategy, which allows the company to prepare accordingly. Hence for example, if a company like Apple, which sells expensive iPhones in developed markets like the USA or Europe, decides to sell its iPhone in developing nations of Africa and the Asia region, then it has to adopt a diversification strategy by introducing relatively cheaper iPhone specifically targeted to Asia and Africa regions where levels of income are not that high.
Disadvantages of Ansoff Matrix
Competitors are Ignored
One of the most significant disadvantages of the Ansoff Matrix is that competitors are ignored. This matrix only shows the strategy keeping in mind the company's product and market. Still, in the real world, competitors are there for every product and the market. Therefore, they play a significant role in deciding whether a company's strategy works. In simple words, if you are playing your game only and not observing your opponent's game, the chances of you losing the game are very high. The same is true for companies that ignore their competitors.
Lack of Cost-Benefit Analysis
The Ansoff Matrix does not consider the cost-benefit analysis of various strategies; this means that if a company is considering a diversification or product development strategy, it needs to weigh the costs and benefits of each option before making a decision. In other words, cost-benefit analysis is essential to justify the company's chosen strategy. After all, every decision a company makes is designed to increase sales and profits. Without cost-benefit analysis, it would be difficult to determine whether or not a particular strategy will be successful.
Difficult to Predict
The Ansoff matrix is a simple way to map out company growth strategies. However, it's tough to predict the impact of Ansoff matrixes on company sales and profits because you can never predict consumer and market reactions with 100 per cent accuracy. As a result, all calculations can go for a toss. Therefore, companies should keep this in mind before taking any decisions based on Ansoff matrixes. Ansoff matrixes are a helpful tool, but they should not be relied on blindly. Instead, companies should use them to start further research and analysis. Only then will they be able to make informed decisions about growth strategy.
Strategies for overcoming the disadvantages
Even though there are some disadvantages of the Ansoff Matrix, there are ways to overcome them.
Some of the strategies for overcoming the disadvantages of the Ansoff Matrix are as follows:
Conduct a thorough market analysis to understand the competition better.
A thorough market analysis is essential for understanding the competition better; this will help companies anticipate and respond to any moves made by their competitors. In addition, it will give companies a better understanding of their target markets and allow them to fine-tune their marketing strategies accordingly.
Do a cost-benefit analysis before deciding on any growth strategy.
As mentioned earlier, the Ansoff Matrix does not consider the cost-benefit analysis of various strategies. Therefore, companies need to do a cost-benefit analysis before deciding on any growth strategy; this will help determine whether a particular method is likely to be successful.
Make use of other tools and techniques in addition to the Ansoff Matrix.
Even though the Ansoff Matrix is a helpful tool, it should not be relied on blindly. Use the Ansoff Matrix only to start further research and analysis. Then, companies should use other tools and techniques and the Ansoff Matrix to make informed decisions about growth strategy. Only then will they be able to develop an effective growth strategy for their business.
Be aware of the risks involved before implementing any growth strategy.
Even though the Ansoff Matrix is a helpful tool, it is vital to be aware of the risks involved before implementing any growth strategy. For example, all calculations can go for a toss if you cannot predict consumer and market reactions with 100 per cent accuracy. Therefore, companies should keep this in mind before taking any decisions based on Ansoff matrixes.
The Ansoff Matrix is a helpful tool for companies to map out their growth strategies. However, companies should be aware of some disadvantages of the Ansoff Matrix. These include the fact that it is difficult to predict the impact of Ansoff matrixes on company sales and profits and that cost-benefit analysis is essential to justify its chosen strategy.