Ansoff Matrix Advantages And Disadvantages
What are the weaknesses and strengths of Igor Ansoff's model, called the the Ansoff Matrix? Have any other theorists developed or improved a more modern model based on the same idea?
The Ansoff Matrix was proposed by Igor Ansoff and presented in the Harvard Business Review in 1957 as a means for "marketers and small business leaders" to quickly develop a growth strategy ("Ansoff Matrix"; "The Ansoff Matrix--Understanding the Risks of Different Options"). The model, also called the Product/Market Expansion Grid, "shows four different growth options" for businesses as they match "existing and new products and services with existing and new markets" ("The Ansoff Matrix").
As Dr. David Ward explains in his article titled "An Overview of Strategy Development Models and the Ward-Rivani Model," the Ansoff Matrix consists of four different strategies:
- Market Penetration. Using this strategy, businesses penetrate current markets for current customers by more effectively marketing their existing products or services through "promoting the product, repositioning the brand, and so on" (p. 6).
- Market Development. Using this strategy, businesses introduce a current product into a brand new market by introducing it to a brand new audience.
- Product Development. Using this strategy, businesses market new products to their customer base that already exists. One example of product development would be "when existing models are updated or replaced and then marketed to existing customers" (p. 6). Both the technology and automobile industries use product development frequently.
- Diversification. Using this strategy, businesses market brand new products to brand new customers.
While the Ansoff Matrix is useful for businesses that compete solely based on market-pull, the model fails to take into account all of the elements that can impact a market, which if taken into account, could lead to a different, more beneficial growth strategy. As Ward asserts, one weakness of the Ansoff Matrix concerns the fact it does not take into account forces external to a market that can drive a market regardless. It was Michael Porter who in the early 80s developed a model to take into account that such strategies as "down-sizing, re-engineering, etc." can and often should be implemented to help a company grow in profits (p. 2). Porter's model is called the Five Forces Model, or P5F, and was designed to "help enterprises realize the impact of external scenarios (that he calls forces) on their overall performance" (p. 2). Seeing the "external forces" would also better help a business analyze both the competition within a market and its competitors, leading the business to develop a better growth strategy.
The P5F model relays five different "external forces": (1) the difficulty of entering a new market; (2) the competitors within a market; (3) the fact that customers and other buyers "establish price and product/service expectations"; (4) the fact that suppliers strongly influence "company performance"; and (5) the fact that "substitute" products "of better quality and lower prices" can "flood the market" (p. 3).
Hence, those who criticize the Ansoff Matrix may do so on the basis that the model is too simplistic because it does not take into account all of the factors that influence a market.