Whilst fashions, trends and the latest hot marketing things appear and then disappear just as quickly, there are a number of marketing models that continue to remain valid and current, and should be considered one of the essential product marketing tools.
First proposed in 1957 by Igor Ansoff in the Harvard Business Review, his 2 x 2 matrix allows companies to identify potential growth strategies and build the tactical plans to succeed.
So why has this model stood the test of time, how is it relevant today, and what should product marketers do with this model ?
To answer the first question, I believe that it’s both a matter of simplicity and adaptability. The model itself has 2 axes with definitions of “existing” and “new” for product and market. Whilst in many cases these two definitions are clearly identifiable, many products are now evolutions rather than revolutions. This model can accommodate this easily – for example the new product becomes the product extension. This can take the form of a high performance version, the stripped-down low cost version, or even the free version within a Freemium strategy.
As for the market axis, again this can be adapted. New markets are not just global expansion, moving into online ( if you aren’t already) but maybe new channels of distribution,consumption and ownership ( music streaming, SaaS…). Perhaps you’ve identified highly specific segments that require a dedicated product offer and value proposition. Again, the axis is adapted to your vision of the market place.
In summary the model defines a strategy for growth in each quadrant.
So how does this translate into marketing and sales actions?
By analyzing the associated risks in each quadrant and putting in place relevant actions the marketer can define the tactics to achieve the required growth.
Market Penetration – lowest risk but with diminishing returns. Selling more to the same customers relies on continuing organic growth in markets without disruption. Such a strategy in a commoditized market will often lead to price pressure, resulting in extra discounting ( see my blog post on the impacts of this here).
Market Development – medium risk and ideal for B2B companies that already master the product aspect and can aggressively target new markets, geographies or segments. SMEs looking for geographical expansion should consider reducing the risk by agents or distributors who have local knowledge.
Product Development – again a medium risk for B2B companies that have segment, market or application experience and credibility. The movement from pure product sell into a system / solutions approach or even the bundling of products and associated services are examples. Making acquisitions of complementary companies is a rapid way to add to your offer portfolio. Speed and agility are essential in order to get products to market so defining clear customer needs is an essential function for marketers.
Diversification – high risk for B2B companies due to the financial investment needed, lack of market credibility and high customer loyalty to existing suppliers. In my experience, the pressures to deliver results quickly can be in conflict with the time needed to deliver diversification. Furthermore, the integration of acquisitions far away from the core business can be a challenge for many companies. Marketers should ensure that their diversification strategy can deliver not only profitable growth but fit with the expectations of the business.
The potential traps of this model
Of course, a model from the mid 20th century could never have envisaged the business world of today and all the advances in technology that even the last few years have bought.
Are there really any truly new products or are most evolutions of what exists? The new aspect often comes from a change in the method of consumption or purchasing. Software and applications are rented rather than bought outright. Larger capital intensive items are leased with bundled services (cars, machinery, even aeroplane jet engines).
The last revolution for new markets has been the impact of the internet, giving companies immediate global presence for a fraction of the cost of traditional selling models. The challenge is to make this a success in an already crowded marketplace.
For a detailed analysis of the potential shortcomings of the Ansoff matrix I suggest this excellent paper by Professor John Dawes of the Ehrenberg-Bass Institute for Marketing Science.
The Ansoff Growth Matrix is extremely flexible and can be adapted to pretty much any market or offer. However Marketers should take care to define the axes with a strong external view to identify the real opportunities – new products and markets for you may not be new to your competition. The blue water you imagine may already be full of sharks.