Ansoff Matrix Analysis

Some business success stories happen overnight. More o�en, a company that seemingly comes “out of
the blue” to disrupt a product space or industry has strategized their way to the top, using tools to
establish their market penetra�on strategy. Of course, growth always comes with risk, and any decision
that has a long-term impact on an organiza�on requires a thorough evalua�on of both what’s possible—
and what’s at stake.

For any company looking to move beyond “business as usual,” the Ansoff matrix is an invaluable tool to
help analyze and manage risk and strategize growth opportuni�es. Here’s a deep-dive into what this
effec�ve strategic tool can do for your business.

Ansoff matrix

What is the Ansoff growth matrix?

Developed in 1957 by H. Igor Ansoff, the Ansoff growth matrix offers a simple and useful way to think
about product and market development strategy. By looking at ways to grow via exis�ng products and
new products, and in new or exis�ng markets (customers), the matrix outlines four possible areas of
opportunity for growth, which vary in risk:

Market penetra�on

Product development

Market development

Diversifica�on

The benefits of the Ansoff matrix lie in its simple 2x2 matrix design and ability to quickly convey your
company’s current state and poten�al risk factors. The matrix itself is quite self-explanatory, which
makes it an effec�ve tool to gain buy-in as a company collabora�vely evaluates and moves from one
quadrant of the matrix to another.

Selec�ng a product market growth strategy

To use the Ansoff growth matrix, you must first align around the business goal you’re trying to
accomplish. Is your product new or exis�ng? Are you trying to disrupt an exis�ng space? Your
approach—and the resul�ng risks—will depend largely on your company’s maturity, current state, and
long-term roadmap. It also depends on how much risk you’re currently willing—or able—to take.

Start by plo�ng your strategic op�ons into the appropriate quadrant. Next, look at the risks associated
with each one, and develop a con�ngency plan to address the most likely risks. This risk analysis will help
you make the best choice for your organiza�on. Here’s a look at each strategic approach in the Ansoff
matrix.
Market penetra�on

You’ve created a solid product. You’ve iden�fied a market for it, and you’ve been able to demonstrate
demand through consistent sales. That’s a great start, but how do you grow those sales and learn more
about the customers using your product?

The market penetra�on quadrant of the Ansoff matrix helps you determine strategies to sell more of
your exis�ng products or services to your exis�ng customer base through aggressive promo�on and
distribu�on. Using this strategy, the organiza�on tries to increase its market share in its current market
scenario.

Note: This approach does not involve expansion into new markets or product innova�on. Rather, it
maximizes on the value and capital of your exis�ng product and customer base.

Benefit: This strategy is low-risk as it leverages many of the company’s exis�ng offerings.

Drawback: Market penetra�on strategy is an inherently limited approach for long-term, high-growth
companies. Ideally, a company will outgrow a market penetra�on strategy and will need to pursue a
more ambi�ous strategic approach to con�nue growth.

Product development

Let’s say you’ve created a successful product and expanded into new markets. A�er a while, you may hit
a point of market satura�on, par�cularly if there isn’t a need for customers to repurchase or replenish
your product on a regular basis. Perhaps your customer base loves your exis�ng products and services so
much that they’re demanding more from your company.

In these cases, you might consider crea�ng new products and services, or expanding exis�ng products or
services, to meet those demands. Product development strategy is targeted at exis�ng markets to
achieve growth and involves extending the product range available to exis�ng markets.

Benefit: By paying aten�on to what’s already working and listening to consumer feedback, companies
can develop products to directly meet customer needs to grow the business.

Drawback: New product development is inherently risky. Addi�onally, new product development
requires heavy upfront investment in new technologies or produc�on strategies. Companies should also
an�cipate delays and increased costs.

Market development

Even the most successful lineup of products or services can hit a point of market satura�on. In that case,
the best strategic approach might be to expand into new markets (either users or geographies) using
exis�ng offerings.
However, it’s important to consider that a market development strategy may also need to include some
level of product development as you adapt your offerings to meet the unique needs, or even legal
requirements, of a new market or economy. Think about updated packaging, including any language
transla�on.

There are several tools that can help a company strategically evaluate a market before entering it. The
PEST analysis, which iden�fies the poli�cal, economic, social, and technological factors that might
influence a market, and Porter’s Five Forces, a tool for analyzing a business’s compe��on, are two
common approaches.

Benefit: This strategy provides an alterna�ve to risky and expensive product development strategies.

Drawback: Market developers might lack the required knowledge and skills for making the necessary
progress in an unfamiliar market with unfamiliar users.

Diversifica�on

Diversifica�on exists to some degree in every quadrant of the Ansoff matrix. But at �mes, an opportunity
could be big or disrup�ve enough to bypass every other growth strategy and introduce a new product. In
that case, companies should dive right into a pure diversifica�on strategic approach. It is the riskiest
strategy as it radically shi�s the scope of the organiza�on by entering completely new markets with
completely new products.

Benefit: Diversifica�on presents a huge opportunity to tap into and own an underserved market or
uniquely differen�ate your company from the compe��on.

Drawback: As it inherently embraces uncharted territory, a diversifica�on strategy is the riskiest in the
Ansoff matrix. O�en, companies following this growth strategy must move ahead without exis�ng
industry knowledge or a roadmap for scaling the product or service to meet market demands.

How to use an Ansoff matrix

1. Outline your matrix

Now you can fill in the matrix with poten�al strategies you can adopt under each quadrant. These should
be prac�cal ways you can grow the company from each angle. For instance, in your Ansoff matrix
example, you might write “implement a new loyalty scheme” under the market penetra�on ideas.

2. Analyze your op�ons

Now you can fill in the matrix with poten�al strategies you can adopt under each quadrant. These should
be prac�cal ways you can grow the company from each angle. For instance, in your Ansoff matrix
example, you might write “implement a new loyalty scheme” under the market penetra�on ideas.

3. Assess risk

Once you’ve filled in your matrix, analyze the risks associated with each idea (and quadrant). Some
strategies are more inherently risky than others, but their poten�al reward may offset them.
4. Outline con�ngencies

When you understand the risks, you can plan for con�ngencies to mi�gate and address them. Priori�ze
risks with the highest probability and poten�al impact.

5. Choose your approach

With the op�ons, risks, and con�ngency plans outlined, you can now select the best strategy for your
business.

Using the nine-box Ansoff growth matrix

For more sophis�cated marketers, the standard four-box Ansoff grid might feel too simplis�c. A�er all,
markets are rarely easily defined, and product development o�en involves numerous stages of tes�ng
and refinement.

For example, if you’re a tor�lla chip company, you may just want to launch a new flavor rather than an
en�rely new product to your already sa�sfied customer base. If you’re a so�ware company, a fine-tuned
update to an exis�ng capability might be a more valuable—and safer—bet than an en�re product
relaunch.

That’s why some marketers use a nine-box matrix for a more thorough analysis of their business’s
current risks and opportuni�es. The nine-box matrix allows considera�on for modified products,
services, and markets between exis�ng and new ones.

This matrix is useful as it shows the difference between product extension and true product
development and also the difference between market expansion and venturing into genuinely new
markets.