THE ANSOFF MATRIX

The Ansoff Matrix

(Product/Market Expansion
Grid) was invented by H. Igor
Ansoff.
• It has given generations of marketers,
business leaders and entrepreneurs a quick
and simple way of thinking about business
growth.
• The matrix helps entrepreneurs with insights
on how to grow their business through
existing or new products or in existing or new
markets.
• In this way Ansoff was helping
entrepreneurs/ managers to assess the
differing degrees of risk associated with
moving their ventures forward.
• Successful entrepreneurs and managers
spend a lot of time thinking about how they
can increase profits.
• They will have many ideas about things they
could do, including developing new products,
opening up new markets and new channels,
and launching new marketing campaigns.
• This is where they can use a strategic
approach, such as the Ansoff Matrix, to
screen their options, so that they can choose
the ones that best suit their situations.
The Ansoff Matrix (Product/Market Expansion
Grid)
• The matrix shows four ways that
businesses can grow, and helps
entrepreneurs think about the risks
associated with each option.
• The Matrix essentially shows the risk
that a particular strategy will expose
entrepreneurs to.
• Each time one moves into a new
quadrant (horizontally or vertically
downwards) risk is increased
• The grid suggests four alternative
marketing strategies which hinge on
whether products are new or
existing.
• It also focuses on whether a market
is new or existing.
• Within each strategy there is a
differing level of risk
 MARKET PENETRATION
• Is when companies enter markets with
their existing goods or services.
• It involves increasing market share
within existing market segments.
• This can be achieved by selling more
products/services to established
customers or by finding new customers
within existing markets.
• The underlying assumption is that there
is still untapped demand or competitive
advantage that can be further exploited
without either changing the product or
looking beyond existing market
segments.
• Can be done by taking part of or a entire
competitor’s market share.
• Market penetration is considered a low
risk method to grow the business
• This strategy usually involves use of
other elements in the marketing mix,
such as an increase in promotional
effort, more aggressive pricing policies
or more extensive distribution.
• Entrepreneurs can penetrate the market
by finding new customers for your
product or by getting current customers
to use more of their products.
 Action to take
• Advertise, to encourage more people
within your existing market to buy your
product(s), or to use more of it.
• Introduce a loyalty scheme.
• Launch price or other special offer
promotions.
• Increase your sales force activities.
• Buy a competitor company (particularly
in mature markets).
 Why Market Penetration
• To maintain or grow the market share of
the current product range
• Become the dominant player in the
growth markets
• Drive out competitors
• Increase the usage of a company's
products by its current customers
 PRODUCT DEVELOPMENT
• Entrepreneurs and managers develop
new products in existing markets.
• An organization that already has a
market for its products might try and
follow a strategy of developing
additional products, aimed at its current
market.
• Even if the new products are need not
be new to the market, they remain new
to the business.
• Product development involves
thinking about how new products
can meet customer needs more
closely and outperform competitors
products .
• It assumes that an innovation will
be accepted by the organization's
existing customer group.
• Product development can be radical,
with the introduction of an entirely new
product; or moderate, involving only the
modification of existing products in
some way such as performance,
presentation or quality.
• Many prestige car manufacturers offer a
range of merchandise targeted at car
owners so that you can buy replica
models, clothing and pens.
 Action to take
• Extend your product by producing
different variants or packaging existing
products it in new ways.
• Develop related products or services
(for example, a domestic plumbing
company might add a tiling service –
after all, if customers who want a new
kitchen plumbed in are quite likely to
need tiling as well!)
• In a service industry, shorten your
time to market, or improve
customer service or quality.
 MARKET DEVELOPMENT
• This takes place when companies take
existing products into new markets.
• An organization's current product can be
changed improved and marketed to the
existing market.
• The product can also be targeted to
another customer segment.
• Either way, both strategies can lead to
additional earnings for the business.
• Here, the entrepreneur is targeting
new markets, or new areas of the
market.
• He is trying to sell more of the same
things to different people.
• This strategy assumes that existing
markets are fully exploited or that
new markets can be developed
concurrently with existing markets.
• New markets may be defined
geographically (e.g. potential export
areas), or by customer grouping (e.g. a
different age or social group) or other
parameters (e.g. purchasing patterns,
industrial classification or sectors).
 Action to take
• Target different geographical markets at
home or abroad.
• Use different sales channels, such as
online or direct sales if you are currently
selling through the trade.
• Target different groups of people,
perhaps with different age groups,
genders or demographic profiles from
your normal customers.
 DIVERSIFICATION
• It develops new products and offers
them to new markets.
• As it represents a departure from an
organization's existing product and
market involvement, it is the strategy of
highest risk.
• When companies have no previous
industry nor market experience this
strategy is called unrelated
diversification.
• Related diversification describes how
companies stay in a market with which
they have some familiarity.
• Brand new products may also be
created in an attempt to leverage the
company's brand name.
• Ansoff pointed out that a
diversification strategy stands apart
from the other three strategies.
• The first three strategies are usually
pursued with the same technical,
financial, and merchandising
resources used for the original
product line, whereas diversification
usually requires a company to
acquire new skills, new techniques
and new facilities.
• The notion of diversification depends
on the subjective interpretation of
new market and new product, which
should reflect the perceptions of
customers rather than managers.
• Products tend to create or stimulate
new markets; new markets promote
product innovation.
 Diversification goal

• According to Calori and

Harvatopoulos (1988), there are two
dimensions of rationale for
diversification.
 One
• The nature of the strategic objective:
Diversification may be defensive or
offensive.
• Defensive reasons may be spreading the
risk of market contraction, or being forced
to diversify when current product or current
market orientation seems to provide no
further opportunities for growth.
• Offensive reasons may be conquering new
positions, taking opportunities that promise
greater profitability than expansion
opportunities, or using retained cash that
exceeds total expansion needs.
 Two
• It involves the expected outcomes
of diversification:
• Management may expect great
economic value (growth,
profitability) or first and foremost
great coherence and
complementary to their current
activities (exploitation of know-
how, more efficient use of available
resources and capacities).
• In addition, companies may also
explore diversification just to get a
valuable comparison between this
strategy and expansion.
 Risks
• Diversification is the riskiest of the four
strategies presented in the Ansoff
matrix and requires the most careful
investigation.
• Going into an unknown market with an
unfamiliar product offering means lack
of experience in the new skills and
techniques required.
• Therefore, the company puts itself in a
great uncertainty.
• Diversification might necessitate
significant expanding of human and
financial resources, which may detract
focus, commitment, and sustained
investments in the core industries.
• Therefore, a firm should choose this
option only when the current product or
current market orientation does not
offer further opportunities for growth.
• In order to measure the chances of
success, different tests can be done:
• Attractiveness test: the industry that
has been chosen has to be either
attractive or capable of being made
attractive.
• Cost-of-entry test: the cost of entry
must not capitalize all future profits.
• Better-off test: the new unit must
either gain competitive advantage
from its link with the corporation or
vice versa.
 The Corporate Ansoff Matrix
• From a business perspective, the low
risk option is to stay with your existing
product in your existing market: you
know the product works, and the
market holds few surprises for you.
• However, you expose yourself to a
whole new level of risk by either moving
into a new market with an existing
product, or developing a new product
for an existing market.
• The new market may turn out to
have radically different needs and
dynamics than you thought, and the
new product may just not be
commercially successful.
• And by moving two quadrants and
targeting a new market with a new
product, you increase your risk to
yet another level.
 Considerations
• One will need to know if it is in growth,
decline or entering recession.
• In order to make a worthwhile analysis
it is also important to consider other
factors, such as the condition of the
market.
• Competition levels and amount of
resources available need also to be
taken into account.