Ansoff Matrix Meaning
Ansoff matrix is the term used in the context of marketing, it helps the company to decide its plan based on the current market and product scenario. It basically has four strategies, in the first strategy called market penetration companies try to increase the sales of existing products in the existing market while in the second strategy which is called market development company try to find new markets for existing products then comes the third strategy which is called product development in which company introduces new product to the existing market and last strategy is called diversification strategy where company introduces new product in the new market. In order to understand this concept in a better way, one should look at the advantages and disadvantages of Ansoff matrix –
Advantages of Ansoff Matrix
Simplicity
The first and foremost benefit of the Ansoff matrix is that it very easy to understand as anybody having limited knowledge about marketing can also understand and work on the above four scenarios. In simple words, this matrix does not present you with complex situations or calculations rather it simply gives you four alternatives out of which you have to choose the best alternative so that companies achieve its objective of increase in sales and profits of the company.
Observing All Possible Alternatives
Another advantage is that it helps the company in observing all possible alternatives so that the company can make the right decision which in turn will help the company in increasing the sales as well as profits of the company. Hence for example if the product of company is not performing well in current market than it can go for market development if company does not have new product in mind, however company has to make budget for marketing and advertising cost for introducing the current product in new market or company also go for product development if it does not want to take the risk of going into new market and so on.
Analyze of Risk
It helps in analyzing the risk associated with each strategy which in turn helps the company in preparing accordingly. Hence for example, if a company like Apple which sells expensive iPhone in developed markets like the USA or Europe decides to sell its iPhone in developing nations of Africa and Asia region than it has to adopt 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
The biggest disadvantage of Ansoff matrix is that competitors are ignored because this matrix only shows the strategy keeping in mind the company’s product and company’s market but in real-world competitors are there for every product as well as market who play a big role in deciding whether company’s strategy works or not. Hence in simple words in a game of chess if you are playing your game only and not observing your opponent game than chances of you losing the game are very high same is the case with companies that ignore their competitors.
Lack of Cost Benefit Analysis
It only points out the strategies but does not take into account the cost-benefit analysis of various strategies, hence for example if the company is confused between diversification strategy and product development strategy than it has to take the help of cost-benefit analysis for taking the correct decision. In simple words cost-benefit analysis is needed to justify the company’s decision as in the end, it is all about the numbers as every action of the company is aimed at increasing the sales and profits figures of the company.
Difficult to Predict
In theory Ansoff matrix seems simple but in real life it is very difficult to predict the impact of implementing these strategies on company’s sales and profits because consumer and market reaction can never be predicted with 100 percent accuracy resulting in all calculations going for a toss and hence company should keep it in mind before taking any decision based on Ansoff matrix.
As one can see from the above that this matrix is quite useful as far as company is concerned but at the same time suffers from limitations and that is the reason why companies should use this matrix intelligently not only to increase its sales but also to strengthen the company’s position in market as well as creating a brand image of company’s products in the minds of the consumers.