Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager H.

Igor Ansoff and was published in the Harvard Business Review in 1957. The
Ansoff Matrix’s helped many marketers and leaders understand the risks of
growing their business.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: It focuses on increasing sales of existing products

to an existing market.
2. Product Development: It focuses on introducing new products to an
existing market.
3. Market Development: It strategy focuses on entering a new market
using existing products.
4. Diversification: It focuses on entering a new market with the
introduction of new products.

Of the four strategies, market penetration is the least risky while diversification
is the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing
market. In other words, a firm is aiming to increase its market share with a
market penetration strategy.

The market penetration strategy can be done in a number of ways:

1. Decreasing prices to attract existing or new customers

2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace
For example, telecommunication companies all cater to the same market and
employ a market penetration strategy by offering introductory prices and
increasing their promotion and distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater

to the existing market. The move typically involves extensive research and
development and expansion of the product range. The product strategy
development strategy is employed when firms have a strong understanding of
their current market and are able to provide innovative solutions to meet the
needs of the existing market.

The product development strategy can be done in a number of ways:

1. Investing in R&D to develop new products to cater to the existing

market
2. Acquiring a competitor’s product and merging resources to create a
new product that better meets the need of the existing market
3. Strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand

For example, automotive companies are creating electric cars to meet the
changing needs of their existing market. Current market consumers in the
automobile market are becoming more environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with their
existing product(s). In this context, expanding into new markets may mean
expanding into new geographies, customer segments, regions, etc. The market
development strategy is most successful if (1) the firm owns proprietary
technology that it can leverage into new markets, (2) consumers in the new
market are profitable (i.e., they possess disposable income), and (3) consumer
behavior in the new markets does not deviate too far from the existing
markets.

The market development strategy can be done in a number of ways:

1. Catering to a different customer segment

2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)

For example, sporting companies such as Nike and Adidas recently entered
the Chinese market for expansion. The two firms are offering the same
products to a new demographic.

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The Ansoff Matrix: Diversification

In a market development strategy, the firm enters a new market with a new
product. Although such a strategy is the riskiest as market and product
development is required, the risk can be mitigated through related
diversification.

There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized

between the existing business and the new product/market.

For example, a leather shoe producer that starts a line of leather wallets or
accessories is pursuing a related diversification strategy.
2. Unrelated diversification: There are no potential synergies to be realized
between the existing business and the new product/market.

For example, a leather shoe producer that starts manufacturing phones is

pursuing an unrelated diversification strategy.
Ansoff's Matrix is a marketing planning model that helps a business determine its product and
market growth strategy.

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow

depend on whether it markets new or existing products in new or existing markets. The
output from the Ansoff product/market matrix is a series of suggested growth strategies
which set the direction for the business strategy. These are described below:

Market penetration

Market penetration is the name given to a growth strategy where the business focuses
on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

 Maintain or increase the market share of current products – this can be achieved
by a combination of competitive pricing strategies, advertising, sales promotion
and perhaps more resources dedicated to personal selling
 Secure dominance of growth markets
 Restructure a mature market by driving out competitors; this would require a
much more aggressive promotional campaign, supported by a pricing strategy
designed to make the market unattractive for competitors
 Increase usage by existing customers – for example by introducing loyalty
schemes

A market penetration marketing strategy is very much about “business as usual”. The
business is focusing on markets and products it knows well. It is likely to have good
information on competitors and on customer needs. It is unlikely, therefore, that this
strategy will require much investment in new market research.

Market development
Market development is the name given to a growth strategy where the business seeks
to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

 New geographical markets; for example exporting the product to a new country
 New product dimensions or packaging: for example
 New distribution channels (e.g. moving from selling via retail to selling using e-
commerce and mail order)
 Different pricing policies to attract different customers or create new market
segments

Market development is a more risky strategy than market penetration because of the
targeting of new markets.

Product development

Product development is the name given to a growth strategy where a business aims to
introduce new products into existing markets. This strategy may require the
development of new competencies and requires the business to develop modified
products which can appeal to existing markets.

A strategy of product development is particularly suitable for a business where the

product needs to be differentiated in order to remain competitive. A successful product
development strategy places the marketing emphasis on:

 Research & development and innovation

 Detailed insights into customer needs (and how they change)
 Being first to market

Diversification

Diversification is the name given to the growth strategy where a business markets new
products in new markets.

This is an inherently more risk strategy because the business is moving into markets in
which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must have a clear idea
about what it expects to gain from the strategy and an honest assessment of the risks.
However, for the right balance between risk and reward, a marketing strategy of
diversification can be highly rewarding.

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