Ansoff Matrix - Tool for Analyzing Growth Strategy

The Ansoff Matrix was first published in the Harvard Business Review in 1957, and has strategic planning tool for a quick and simple way to develop a strategic approach to growth.

Ansoff Matrix is also known as Product/Market Expansion Grid, as it shows four growth options for business formed by matching up existing and new products and services with existing and new markets.

The Matrix essentially shows the risk that a particular strategy will expose you to, the idea being that each time you move into a new quadrant (horizontally or vertically) you increase risk (See Figure 1).

Market Development Quadrant

Here, you’re targeting new markets, or new areas of the market. You’re trying to sell more of the same things to different people. Below are the possible actions:

- 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 different age groups, genders or demographic profiles from your normal customers.

Diversification Quadrant

This strategy is risky: There’s often little scope for using existing expertise or achieving economies of scale, because you are trying to sell completely different products or services to different customers

Its main advantage is that, should one business suffer from adverse circumstances, the other is unlikely to be affected.

Market Penetration Quadrant

With this approach, you’re trying to sell more of the same things to the same people. Below are possible actions:

- Advertise, to encourage more people within your existing market to choose your product, or to use more of it.
- Introduce a loyalty scheme.
- Launch price or other special offer promotions.
- Increase your sales force activities, or
- Buy a competitor company (particularly in mature markets)

Product Development Quadrant

Here, you’re selling more things to the same people. Below are possible actions:

- Extend your product by producing different variants, or packaging existing products it in new ways.
- Develop related products or services.
- In a service industry, increase your time to market, customer service levels, or quality.


Application of the Ansoff Matrix

Corporate Ansoff Matrix

Viewing from a business perspective, staying with existing product in your existing market is a low risk option: You know the product works, and the market still accepts the product.

However, you expose yourself to a whole new level of risk either moving into a new market with an existing product, or developing a new product for an existing market. The market may turn out to have radically different needs and dynamics than you thought, or the new product may just not work or sell.

And by moving two quadrants and targeting a new market with a new product, you increase your risk to yet another level.

Personal Ansoff

Looking at it from a personal perspective, just staying where you are is a low risk option.

Switching to a new role in the same company, or changing to a similar job with a company in the same industry is a higher risk option. And switching to a new role in a new industry has an even higher level of risk.(See Figure 2)

Manage risk appropriately and if you're switching from one quadrant to another, prepare and practice the following: -

- Research/study the move carefully;
- Has built the capabilities needed to succeed in the new quadrant;
- Have sufficient resources to cover transition period while you're developing and learning how to sell the new product, or are learning what makes the new market tick; and
- Have firstly thought through what you have to do if things don't work out, and that failure won't "break" you.