The Ansoff Matrix is a marketing planning model developed by H.Igor, Ansoff (1957) and has been widely applied since then as a method to assess and evaluate the benefits and risks of company growth. The Ansoff Matrix is based on two dimensions, the market and the product, and correspondingly outlines four different strategic options that attempt to grow the firm either with new or existing products in new or existing markets.
Market Penetration is situated in the lower left quadrant and is the safest of all strategies outlined in the Ansoff Matrix. In this case, a firm is serving an existing market with existing products and attempts to increase usage by existing customers. This strategic option requires implementation at the functional level and seeks to secure dominance of growth markets while maintaining or increasing market share. It is unlikely that this option will require heavy investment in market research.
Product Development is situated in the lower right quadrant and holds a bit more risk since the firm is introducing new product into an existing market. This growth strategy requires significant investment in research and development in order to gain insights into the consumer needs for developing appealing products to existing markets. This strategy is ideal for the business that needs to be differentiated in order to remain competitive across the industry.
Market Development is another strategy that can be pursued and is positioned in the upper left quadrant. In this strategy the firm maintains its existing product range but enters an entirely new market. This may include new geographical markets, new distribution channels or even different price points to attract a whole different customer segment. This strategy is particularly suitable in the case that a firm’s core competencies are derived from a particular product rather than from its experience in a particular market.
Lastly, a firm may choose the Diversification option which is the riskiest of all four options and it is sat at the upper right quadrant. In this case the firm introduces a new product while also entering an entirely new market. This strategy is an inherently risky option and thus risks and rewards must be assessed very well before adopting this option. Yet, diversification may be worth the effort in the case there is a high chance of a high rate of return.
The Ansoff matrix has been widely used within strategic analysis since it is very useful for identifying the alternative corporate growth strategies in accordance to new or existing products and new or existing markets. The simplicity and clarity of the model makes it easy to navigate through the four alternative growth strategies, and in turn examine their benefits and risk. Yet, it is important to note that this model does not take into account any external factors and it is therefore recommended to use this framework in conjunction with other marketing tools for a comprehensive evaluation and assessment.