What Is Ansoff Matrix?

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Strategies & Examples
August 7, 2023 by Khushi Agrawal in Marketing Essentials | Reader Disclosure

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As the world shrinks with each passing day, the business opportunities
multiply at an ever-increasing rate leading to intense competition. Due to this
pressure of survival and growth, organisations must devise and implement a
competitive growth strategy to strengthen their economic position.

The Ansoff Matrix is one such framework that aids in formulating an

effective growth strategy. In this article, we will discuss what is Ansoff
Matrix, its importance, the four strategies associated with it and some
examples to understand it better.

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What Is Ansoff Matrix?

The Ansoff Matrix, also known as the product/market expansion grid, is a
future-oriented portfolio analysis tool marketers use to devise future growth
strategies while factoring in the inherent risks associated.

Developed by Igor Ansoff in 1957, the Ansoff model is based on the

fundamental question of ‘where should a company direct its growth efforts?’
and provides four distinct growth strategies that a company can adopt,
depending on whether it wants to target new markets or new products.

The matrix suggests 4 different growth strategies that can be implemented in

the business namely –

 Market penetration [existing product, existing market]: The

company tries to grow its existing products’ sales in the existing
market. The aim is to increase the market share of the company.
For example, Coca-Cola focusing on selling more bottles of Diet
Coke in the US market.
 Product development [new product, existing market]: The
company tries to develop new products for its existing markets.
The aim is to satisfy the changing needs of the customers in the
existing market. For example, Samsung launching the new
Galaxy phone focused just on the needs of Gen Z.
 Market development [existing product, new market]: The
company tries to enter new markets with its existing products.
The aim is to increase sales by selling the same product in a new
market. For example, Google focusing on the Chinese market.
 Diversification [new product, new market]: The company
enters a new market with a new product. The aim is to reduce the
risk by spreading the business into new areas. For example,
Apple launching a home theatre system for Indian customers.
The 4 Strategies Of The Ansoff Matrix
Product and market are the most important factors driving business growth.
The Ansoff Matrix factors in both aspects to create a 2-dimensional matrix
that gives rise to 4 growth strategies.
Market Penetration
Market penetration is a measure of how much an offering is bought by
customers as compared to the total estimated market.

This is the most commonly used strategy wherein the company focuses on
selling more of its current products to its current markets. This can be
achieved by either improving marketing efforts or providing customers with
additional benefits that encourage them to buy more. For example, a mobile
phone company may offer more minutes or data at a lower price to attract
new customers and encourage existing customers to buy more.

What Is The Goal Of A Market Penetration Strategy?

The goal of a market penetration strategy is to increase sales of a company’s
products or services in the existing market without changing the product.
This is usually done by increasing marketing efforts and improving customer
service.

For example, a company may offer discounts or special deals to customers in

order to increase sales. Additionally, the company may invest more in
advertising and promotion to increase brand awareness and reach more
potential customers.

When Is A Market Penetration Strategy Used?

The market penetration strategy is used by firms when they don’t have any
new product or service to launch or any new market to explore but still wish
to expand their revenue and market share. Companies usually adopt this
strategy in the early stages of their product life cycle when they are still
trying to gain a foothold in the market.

How To Use A Market Penetration Strategy?

There are various ways in which a company can go about adopting a market
penetration strategy. Some of the most common methods are as follows:
 1. Price Reduction: By reducing prices, companies make their
products and services more affordable and thus attract more
customers. This strategy is particularly effective in markets
where the price is a major deciding factor for customers.
2. Advertising and Promotion: Advertising and promotion can
help create awareness about a company’s products and services
and make them more attractive to potential customers.
3. Improved Distribution: By incorporating new distribution
channels or improving existing ones, companies can make their
products and services more accessible to customers.
4. Mergers and acquisitions: Mergers and acquisitions involve
combining two or more companies to create a new entity. This
strategy can help companies expand their reach and increase
penetration in the current market.
Risks Associated With Market Penetration Strategy
The main risk associated with market penetration strategy is that of becoming
complacent. Companies that have successfully penetrated their markets may
become overconfident and stop innovating. This can lead to them losing their
competitive edge and eventually being replaced by newer, more agile firms.

Product Development
The product development strategy is where a firm introduces a new and
improved product line in its existing market.

The main aim of this strategy is to maintain market share and generate
new revenue streams by offering customers something new that they value.

In order to successfully implement a product development strategy,

companies need to deeply understand their target market and what they are
looking for.

An excellent example of a company that has successfully used a product

development strategy is Apple. Starting as a computer company, it has
expanded its product range to include iPods, iPhones, iPads, and a host of
other electronic devices.
What Is The Goal Of A Product Development Strategy?
The main goal of a product development strategy is to create new products or
services that appeal to customers and generate new revenue streams for the
company in the existing market.

Product development can also help companies to stay ahead of the

competition by constantly innovating and offering new products or services
that the competition does not have.

When Is A Product Development Strategy Implemented?

The product development strategy is implemented when the company has an
established large customer base and the market for its existing products is on
the brink of saturation.

This involves high inherent risk as it demands a huge investment from

research and development to build a new product.

However, it’s easier to market a new product to an existing customer base as

they are already aware of the company and its products.

How To Use A Product Development Strategy?

The organisation focuses on building a differentiated product to improve its
product portfolio and operate on the customer’s brand loyalty. The courses of
action include:

 Investing in research and development to provide better and

cost-efficient solutions.
 Merging resources with competitors to save time and effort in
research.
 Forming strategic partnerships to acquire rights to sell a product
developed by another company.
Risks Associated With Product Development Strategy
The risks associated with product development strategy are:

 Developing a new product takes a lot of time, effort, and

resources.
  The success of the new product is uncertain as it needs to be
accepted by the customers.
 The new product can cannibalise the sales of the existing
products.
Market Development
The market development strategy is adopted to target new markets with the
existing products.

For example, a company selling tennis shoes in the domestic market may
decide to target foreign markets.

Another example would be a company selling healthy snacks to working

professionals, targeting the same to students in college canteens. Here, the
company would not be introducing any new product but targeting a new
market segment.

What Is The Goal Of A Market Development Strategy?

Businesses aim to reach a wider audience and expand their user base by
selling their offerings in previously unexplored markets. This makes way
for acquiring new customers and acts as a driving force for growth and
increased revenue.

When Is A Market Development Strategy Implemented?

A business generally uses a market development strategy when its existing
market has reached a saturation point, and they are not ready to launch a new
product.

The focus is on existing products, so it does not require a huge investment in

product research and development, resulting in low business risk. So this
strategy best works for a business that is not willing to take risks at the
moment.

How Is A Market Development Strategy Implemented?

The strategy concentrates on taking the existing product to a new market.
Here’s how they implement it:
  Entertaining a different customer segment in the same
geographic area
 Expanding markets geographically i.e. domestically and
internationally
Risks Associated With Market Development Strategy
The main risk involved in this strategy is that the company may not
understand the needs of a new market and thus, the product may not be
accepted. Also, it is difficult to forecast demand in a new market.

Another risk is that the company may incur a lot of costs to enter a new
market. This is because they would need to research, develop new marketing
strategies and create awareness about their product.

Diversification
A diversification strategy is a market strategy where the business focuses on
selling a new product to a new market and involves entirely different skills,
technology and knowledge.

The risks are much higher as the company is starting from scratch. This
strategy is generally adopted by companies that have spare cash and want to
enter a new business.

An example of a company that has used this strategy is Google. It started

with the search engine and then moved into selling mobile phones (Pixel),
home appliances (Nest) and even forays into self-driving cars.

What Is The Goal Of A Diversification Strategy?

Businesses generally implement diversification strategies to reduce their
reliance on a single line of products while gaining a synergetic advantage to
sell more of their existing product by adding a new product.

When Is A Diversification Strategy Implemented?

Diversification acts as a means to utilise the spare capacity of the business
more efficiently and effectively by developing a new line of products.
It is the riskiest strategy in the matrix as it demands both product and market
development on the part of the business and focuses on an entirely new
revenue stream. But with the increased risk it also offers the opportunity for
huge returns.

How Is A Diversification Strategy Implemented?

The management has mainly two different approaches when it comes to
implementing diversification strategies.

 Related diversification: The marketing strategy where the

business enters into a new industry by exploiting brand name,
sales and distribution capacity and marketing skills as the new
product has some similarities with the existing products. For
example, Apple, a technology company, introduced AirPods
when it was already established in the smartphone industry.
 Unrelated diversification: The marketing strategy where a
business invests in a new product portfolio and employs different
technologies where it’s unlikely to have any similarities between
the new and existing products. For example when Coca Cola a
soft drink company, acquired Columbia Pictures, a movie studio,
in 1982.
Companies use related diversification to mitigate their risk and use unrelated
diversification to reduce risk by operating in multiple industries.

Risks Associated With Diversification Strategy

The main risks associated with diversifying into new products or services are:

 Difficulty in managing multiple products and businesses: If a

company has a wide range of products and businesses, it can be
difficult for managers to keep track of everything and make sure
that each business is profitable.
 Lack of focus: A company that is diversified into too many
different areas may lack focus and could end up spread too thin.
 Increased complexity: A diversified company is likely to be
more complex than a single-business company, making it more
difficult to manage and understand.
The Importance Of The Ansoff Matrix
Companies with multiple offerings large enough to be categorised
into SBUs (Strategic Business Units) face the problem of correct resource
allocation. Ansoff Matrix provides a framework for resource allocation and
developing marketing plans. It forces the company to consider the risks
inherent in its growth strategy.

Moreover, designing a strategy involves a careful analysis of the strengths

and weaknesses of the company to fit the external opportunities and threats
present in the market. Once an organisation has derived its results from
the SWOT analysis, it needs to channel them into individual strategies and
choose a business model. Ansoff Matrix helps the business to choose one
such model.

The Ansoff Matrix is simple to understand and gives an overview of all

possible alternatives. It is best suited for organisations operating in multiple
industries. The business can choose the best strategy based on its
requirements and risk-taking capacity.

Bottom Line?
Each company has its own method of analysing its business position and
choosing a business strategy for growth and development in the market.
Several tools are available that aid the process of identifying, analysing and
choosing from alternatives much easier.

Risk cannot be totally eliminated from a business. The solution is to choose

the right strategy at the right time, and using a portfolio analysis model like
the Ansoff Matrix, it becomes much easier to make decisions.