The Ansoff Growth Matrix and Risk Management

The Ansoff Growth Matrix was created by Insor Ansoff. The purpose behind proposing the Ansoff Growth Matrix was to help businesses frame their product-based market entry strategies. The matrix classifies products based on existing and new products. It further classifies markets into existing markets and new markets. One of the main purposes of using Ansoff Growth Matrix by a firm is to mitigate its product positioning and market entry based risks. Four different types of strategies can be adopted by a firm based on the classification of the products and the markets.

The market development strategy is significantly riskier in comparison to the Market Penetration Strategy. If a firm wants to acquire new customers and increase its market share, it will need to adopt the market development strategy. In this strategy, a firm does not sell new products to its new customers but just sells them its existing ones. For example, consider an electric car manufacturing company who has its base set up in Europe and opens a branch in Asia to increase the number of car sales and acquire new customers.

Most firms do not try to build new products and sell them in the existing markets unless the credibility of a firm is established with its existing customers. This type of strategy is used generally used by the firms who are well established in the market and enjoy significant market share in comparison to the new entrants in the market. If a new entrant adopts this strategy, then it takes a higher risk approach as it is highly likely to experience fall in the market share of its existing products by selling new ones. One example of this is if an electric car manufacturing company based in Europe wants to develop and sell electric bikes in its existing market, i.e. Europe.

This is the most risky strategy of all strategies in the Ansoff Matrix. The reason behind its higher risk is because of the risk it carries to diversify the market share due to development of new products and entry into new markets. The expenses in adopting this strategy are high as well, mainly due to the investment required in developing new products and also the additional advertising budget needed to sell them to a new and existing market. For example, an electric car manufacturing company based in Europe may want to develop and sell electric bikes and electric cars in its existing market (Europe) as well as to a new market (Asia).