- Ansoff Matrix is a popular strategic framework for decision-makers, entrepreneurs, and business managers tasked with evaluating opportunities for business growth.
- Marketing teams can also use it in the marketing planning phase.
- Best for companies with a serious commitment to aligning their efforts and prioritizing transparency
- Pros: Simple to use and easy to understand, helps stakeholders understand the level of risk associated with different strategies.
- Possible cons: It can’t be used as a standalone tool and it’s hard to make accurate predictions.
The Ansoff Matrix, also known as a product/market expansion grid, is a 2x2 strategic framework designed for organizations that want to move beyond 'business as usual’ and prioritize their strategic options.
It's designed to help you figure out which of four strategic directions you should take to successfully grow your business. The chosen approach should then inform which tactics should be used in the strategy execution phase.
Tip: Consider the fact that you don't have to stick to one strategy. Some organizations adopt multiple strategies to reach different markets.
In this article, we are going to explain each of the 4 growth strategies and how to use the Ansoff Matrix in your strategic planning process.
First, let's take a closer look at the matrix and its four quadrants.
What are the 4 growth strategies of the Ansoff Matrix?
1. Market Development Strategy
new markets / existing products
This is all about selling more of your current product or service to a different or expanded group of people. In other words, you will focus on finding new market segments to sell your product to.
These new customer segments will have the same needs as your existing customers, but perhaps aren't aware that your product could help them.
Some examples of market development strategies that would fit into this part of the matrix would be:
- Expanding into foreign markets (international expansion)
- Use of new sales channels such as online
A great example of market development:
Coconut Water had been on sale in health stores for decades. More recently, several large manufacturers decided to change how they marketed the product.
They enlisted sports stars and celebrities, positioning Coconut Water as the healthy alternative to sports drinks such as Gatorade. A year later, Coconut Water had snagged nearly 6% of the global juice market.
2. Market Penetration Strategy
existing markets / existing products
Market penetration strategy is focused on selling your current product to the same people but in larger quantities.
Here are some possible examples of how you can approach it:
- You may be more aggressive with your marketing but in the same customer segment
- You may also offer incentives for people to buy more of your product in exchange for a discount
- Change pricing strategy: Lower or increase the price of your product
- Identify a business partnership that can help you grow your market share
A great example of market penetration:
Have you ever wondered how and why Coca-Cola is associated with Christmas? The answer is that they decided to implement an aggressive strategy of market penetration.
They invested heavily in marketing to create a positive association between the two. The target of the marketing effort was existing customers who already loved Coke, and already loved Christmas.
By linking the two, Coca-Cola created a 13% revenue increase linked directly to Christmas sales.
3. Product Development Strategy
existing markets / new products
This strategy is all about developing new products and selling them to your existing customer base. For example, makers of sports shoes have aggressively developed products such as sports clothing to sell to the same group of people who were originally just buying shoes.
A great example of product development:
McDonald's seems to have done a pretty good job of weathering the changes in consumer taste over the years. They've done this by supplementing their mainstream fast-food products with new additions.
The strategy was to appease customers who've grown tired of high-fat junk food (but love the convenience/low cost that McDonald's offers). A great example is the McSalad, a completely different product from burgers and fries.
The McSalad debuted on the Maccas menu to stop an increasingly health-conscious customer base from going elsewhere.
4. Diversification Strategy
new markets / new products
Diversification is the riskiest of all 4 growth strategies. This quadrant involves selling new products to new markets.
The risk lies in your lack of familiarity with either the product or the market. In spite of this, diversifying can often result in substantial gains.
There are two types of diversification strategy:
- Related diversification: It happens when the company moves into a new market that has similarities with the company’s existing market.
- Unrelated diversification: It happens when the company moves into a new market that has little to no similarities with the company’s existing market.
A great example of related diversification:
Long ago, Apple was a brand that only appealed to serious graphic designers and a certain type of tech geek. Then came the iPod (and eventually the iPhone).
These products were actually very different from anything that had come before (from Apple or anyone else). They were designed from day 1 to appeal to a totally different customer base than had previously been buying Apple products.
What enabled them to do that?
As both products share similar manufacturing processes, Apple could share resources across both product groups.
This is probably the single best-executed example of a new product + new customer the world has seen.
How to use Ansoff Matrix?
OK, so now we know what the Ansoff Matrix is all about, and how powerful it can be in helping organizations grow their business. Let's take a look at how exactly to implement it.
1. Analyze the current state and evaluate your options
Ansoff Matrix is essentially a brainstorming tool that can help you in your strategic planning phase. Preparation isn't necessary, but we believe it's key to success. It will make your brainstorming session more focused and productive. Set an agenda and tell each invitee which data or insights should they bring to the table.
The Ansoff Matrix is often used in conjunction with other business and industry analysis tools to support more robust assessments of business growth drivers. You need to know where you stand today so you can plan for your future. What are your strengths and weaknesses? Where do you see opportunities and challenges?
No matter which you use, ultimately, it's about asking yourself critical questions such as:
- What makes me different from my competitors?
- Why do people buy from me instead of others?
- How are we currently performing?
- What is our current market share?
- What are competitors doing?
- What are our internal capabilities to innovate?
Answering those questions should give you some insight as to which part of the Ansoff Matrix to attack first.
2. Determine your risk appetite
OK, so just because you're good at something, doesn't mean you should stick to doing only that. In fact, the right move may be to push yourself a little harder - either because you see a big opportunity or even a big looming threat to your current industry.
The more risk appetite you have, the further away from your strengths you might want to push yourself. Generally speaking, the risk factors of the Ansoff Matrix look like this:
As a company moves away from its comfort zone - from what it is currently doing and therefore knows to work - the level of risk increases.
Figure out where you want or need to sit on that spectrum and use that to influence your decision as to which quadrant to attack.
3. Make a strategic plan
Now that you've chosen which part of the Ansoff Matrix you want to attack, it's time to make a plan. Start by creating a succinct vision statement that captures what you're trying to achieve.
If you were Apple and were about to pursue the diversification strategy, you might have had a vision statement somewhere along the lines of:
"To capture the hearts, minds (and wallets) of a new generation of a computer geek, through innovative technology that increases their access to pop culture staples such as music and movies."
(OK, so I made that up on the spot - it's not an actual Apple vision statement, but you get the idea!)
Once you've got your vision, the rest of your strategic plan should be much easier to create.
Don't be afraid to try creating plans for a few different quadrants of the Ansoff Matrix to see which one suits you best! As we mentioned before, many companies tackle 2 strategies at the same time due to their diversified range of products.
This piece is part of a series that covers 5 of the best strategy frameworks out there. Be sure to have a read of the guide, as you may find that one of the other frameworks will fit a little better with your organization at this stage.
Frequently asked questions about Ansoff Matrix
Who created Ansoff Matrix?
The Ansoff Matrix was created by Igor Ansoff and was first published in Harvard Business Review in 1957. The matrix is as relevant today as it was over 50 years ago.
What is extended Ansoff Matrix?
Extended Ansoff Matrix is an upgraded version of the classic Ansoff Matrix. It’s a nine-field matrix with additional fields: market expansion, product modification or extension, limited diversification, and partial diversification.
What is the difference between Ansoff Matrix and PEST?
PEST is another useful strategy tool that helps you identify threats and opportunities in the market by analyzing political, economic, social, and technological factors. It can be used together with Ansoff Matrix so you can get a better understanding of external factors that could have an impact on your business in the future.
What is the difference between Ansoff Matrix and BCG Matrix?
BCG, also known as a product portfolio matrix, helps business prioritize their resource allocation based on two dimensions: market growth and relative market share. BCG Matrix focuses on the product, while Ansoff Matrix also takes into account the market. Both have their own pros and cons, but used together can provide great support in the strategic planning process.
Editor’s note: We've written extensively on strategic frameworks businesses can use. Check out some of our other articles below:
- Value Disciplines Model & Your Competitive Advantage
- The Benefits of Applying The Stakeholder Theory
- Maslow's Hierarchy As a Business Framework
- Unlocking the Power of the Balanced Scorecard
- Using the VRIO Framework to Create Sustained Competitive Advantage
- McKinsey's Three Horizons of Growth Can Help You to Innovate