You are on page 1of 21

Ansoff matrix

The Ansoff matrix presents the product and market choices available to
an organisation. Herein markets may be defined as customers, and products as
items sold to customers. The Ansoff matrix is also referred to as the
market/product matrix. Some texts refer to the market options matrix, which
involves examining the options available to the organisation from a broader
perspective. The market options matrix is different from Ansoff matrix in the
sense that it not only presents the options of launching new
products and moving into new markets, but also involves exploration of
possibilities of withdrawing from certain markets and moving into unrelated
markets. Ansoff matrix is a useful framework for looking at
possible strategies to reduce the gap between where the company may be
without a change in strategy and where the company aspires to be.

For any decision to be taken at corporate level, you need the right strategic
tools. Ansoff matrix is one of them. Ansoff matrix helps a firm decide their
market growth as well as product growth strategies. The 2 questions which the
Ansoff Matrix can answer is How can we grow in the existing markets and
What amends can be made in the product portfolio to have better growth.
From the above two questions, it is clear that Ansoff matrix deals with the
companies external market scenario as well as the product portfolio which the
firm has. The matrix is divided in two quadrants The product quadrant and
the market quadrant. The Product quadrant on the X axis is further divided into
Existing products and New products. The market scenario on the Y axis is
divided into existing markets and new markets. Thus the Ansoff matrix divides
a firm on the basis of the products it has existing products or new products, as
well as the markets it is in existing markets or new markets.
Depending on the characteristic of each, the marketing strategy is decided.
These marketing strategy are as follows.
Main aspects of Ansoff Analysis
The well-known tool of Ansoff matrix was published first in the Harvard
Business Review. It was consequently published in Ansoff's book on
Corporate Strategy' in 1965. Organisations have to choose between the
options that are available to them, and in the simplest form, organisations
make the choice between for example, taking an option and not taking it.
Choice is at the heart of the strategy formulation process for if there were no
choices, there will be little need to think aboutstrategy. According to
Macmillan et al (2000), choice and strategic choice refer to the process of
selecting one option for implementation. Organisations in their usual course
exercise the option relating to which products or services they may offer in
which markets.
The Ansoff matrix provides the basis for an organisation's objective setting
process and sets the foundation of directional policy for its future (Bennett,
1994). The Ansoff matrix is used as a model for setting objectives along with
other models like Porter matrix, BCG, DPM matrix and Gap analysis etc. The
Ansoff matrix is also used in marketing audits (Li et al, 1999). The Ansoff
matrix entails four possible product/market combinations: Market penetration,
product development, market development and diversification (Ansoff 1957,
1989). The four strategies entailed in the matrix are elaborated below.

1) Market Penetration In the Ansoff matrix, market penetration is adopted as
a strategy when the firm has an existing product and needs a growth strategy for
an existing market. The best example of such a scenario is the telecom industry.
Most telecom products are existing in the market and they have the same market
to cater to. Thus in such cases the competition is higher and you might have to
go out of the way to cater to your market or to increase your firms market share.
Several things have to be considered when adopting the Market penetration
strategy. By using market penetration, you are ensuring that only the existing
resources of the firm are used and no extra costs need to be incurred in setting
up a new unit for . At the same time, your current group of employees are the
best people to notice any growth opportunities in the existing market. Thus they
need to be used optimally by providing them the right information at the right
time. There needs to be a combination of marketing and sales promotions if you
have to grow in an existing market with an existing product.
On the other hand, market penetration might not be the strategy you are looking
for. What if the market becomes too saturated? Fighting for a higher market
share in a saturated market accounts for higher expenses and lower profitability.
Thus the market analysis needs to be spot on and the market penetration
strategy should be adopted only if there is scope for increasing market share in
an existing market.
For example,
Cadbury india is pushing for chocolate to be used as small gifts instead of
more traditional sweets during Diwali and other festivals.
HUL try to capture more market share of already existing market with
already existing products such as in India. It includes aggressive
advertisements, offers etc to penetrate more into existing market.

2) Market Development Market development is the second market growth
strategy which can be adopted as per the Ansoff matrix. The market
development strategy is used when the firm targets a new market with existing
products. There are several examples of the market development strategy
including leading footwear firms like Adidas, Nike and Reebok which have
started entering international markets for market expansion. Every other day we
hear of one or the other companies thinking of lunching their products in a new
country. Thats the perfect example of market development. Similarly, on a
micro level, expanding from a current market to another market where your
product does not exist is also an example of market development.
For market development, you have to treat your product as a new entrant in the
market. Thus there are several factors which influence the market development
strategy of a firm. If the product already has a high brand equity, it possibly just
needs distribution points in the new market (Example Walmart). The same
goes if the product is a needs product and known to be of high quality. On the
other hand, if the product is not established in your current market, it is not
recommended to start a market development strategy. You need to first cater
your existing markets.
The risk factor of a market development strategy is higher. This is because lots
of investment needs to be done when entering new markets. You need to
advertise and market your product for the customers to adopt it. For the same
you need to invest in admin expenses, advertising expenses, possibly new
production facilities, so on and so forth. Thus you might have to develop
new strategic business units itself to have a strong market development. This is
exactly what is done in international firms, wherein the unit in another country
is treated as a separate business unit or a profit center.

3) Product development Product development in the Ansoff matrix refers to
firms which have a good market share in an existing market and therefore might
need to introduce new products for expansion. Product development mainly
happens when you have a good customer base and you know that the market for
your existing product has reached saturation. Thus you cannot apply the market
penetration strategy. You can therefore opt for a new product
development strategy which caters to your existing market.
Lets take an example Why do firms like P&G and HUL keep on introducing
new products in different categories? This is because both of these top FMCG
firms are already present in the market. They are only leveraging their strength
in the existing market by introducing new products. Imagine if HUL today
introduces a soap. It is already selling its shampoos and soaps in all grocery
stores across a city. Thus it will start selling this new product in the same
distribution channel and achieve new product launch as well as an improvement
in profitability just by using its current market.
The product development strategy, like the market development strategy is
risky. This is because product development involves investing in developing a
completely new product. The product will also need further investments for
distribution, marketing and manpower. Furthermore, by introducing a wrong
product which does not gain acceptance in the market, you might be affecting
your brand equity. Thus plotting your firm in the right quadrant on the Ansoff
matrix becomes critical.
For example,
McDonalds introduces salads in their outlets in order to retain its
existing customers, many of whom were becoming more health
conscious. Salads are exactly opposite of what McDonalds is known for!
NIVEA Visage soft facial cleansing WIPES show Product Development.
Women are looking for new ways to clean and care for skin.
Colgate Pamolive introduced colgate active salt as their new product in
highly competitive market of tooth paste. By introducing new product,
colgate want to get more market share.

Colgate Active Salt Healthy White is an innovation from Colgate and has been
developed on a core consumer insight of using a combination of salt and lemon
to remove yellowness. Integrating the benefits of salt and lemon, this new
toothpaste offers an innovative every day solution to yellowness removal.
Developed after extensive consumer research in India, it is positioned as an
everyday family toothpaste that combines a minty taste with a dash of salt for
a unique brushing experience. Using feedback from consumers, we have
combined the wisdom of traditional and modern oral care knowledge to create
a dramatic innovation in the toothpaste category that is contemporary and
beneficial. The launch is being supported by an extensive 360-degree
marketing programme, which was developed following an intensive `Day in the
Life of a Consumer' study, where Colgate marketers acquired significant inputs
about consumer triggers and touch points.

4) Diversification Diversification is a strategy used in the Ansoff matrix
when the product is completely new and is being introduced in a new market.
The best example for Diversification can be big groups like Tata or Reliance
which initially started with one product but have expanded into completely
unrelated segments by introducing new or their own products. Tata for example
has presence in steel, motors and now in retail.
However, Diversification should be taken as a last option and should be adopted
only when the company is very strong financially. As seen in the above two
strategies, if the product or the market changes, the company has to do some
heavy investments to be successful. In case of Diversification, both product and
market are new and hence the amount of investment required would be high
thereby considerably increasing the risk factor. Therefore we see larger groups
with deep pockets and multiple SBUs actually using the process of
Thus depending on your product and your existing customer base, you can
decide which quadrant you fall under in the Ansoff matrix. Once you know your
position, the Ansoff matrix also outlines the right kind of strategy to adopt. The
Ansoff matrix is especially useful for multiproduct organizations or
organizations which are planning to increase market share.

For example,
Bharti is one of the conglomerate of telecom industry. But, it joined
hands with AXA (a French insurance company) to form a joint venture
Bharti AXA in india. So, Bharti included insurance product into its
portfolio to diversify itself.
iPod was pehaps one of the most successful diversifications ever. With its
launch, Apple targeted a very large customer group, very different from
its traditional smaller cult-like following. Apple also entered into the
music business that was completely new for the company. Steve jobs and
his team put a tremendous effort in creating contracts with music labels
and artists.

How to write a Good Ansoff Analysis
It is important for analysts to acknowledge that different strategic options are
suitable for companies operating in different types of industries and markets.
No one strategic option for growth is appropriate for all types of companies at
all times. The business environment, including competitive activity, also plays
a key role in determining which strategic choice is most appropriate for a
company. It is not possible to write a good Ansoff analysis without looking at
the various factors in the business environment, which impact the choice of a
firm's strategic options. Market penetration, for example, may prove to be a
wise strategy only when the overall market is growing. In a growing market,
companies are often able to increase sales to existing and some new customers
without increasing their relative market share.
Note that companies with low market share in a growing market can make
gains by attacking a competitor head on. For example, Burger King (relatively
low market share) to an extent has been successful at
attacking McDonald's sales (relatively high market share). However, it is more
difficult to reap benefits of market penetration strategy in a declining market.
Note that each strategic option brings with it some inherent risks, which can be
reduced through careful planning and implementing control mechanisms.
Overall, market penetration strategy is a low risk strategy as the business
parameters of product and market more or less remain the same. It is important
to discuss the benefits and appropriateness of the strategic option for an
organisation while mentioning the risks inherent with each strategic option.
While writing about the product development strategy, it is important to
mention that it is often a part of the natural growth of organisations. Look for
the reasons as to why the company selected the strategy and explain the
reasons and implications. In many cases, innovation serves as the most
important reason as it may present an opportunity to take market share from
competitors or a threat to an existing product line. Product development
strategy can in some cases be risky, as was the case of the New Coke. While
customers liked the taste of the New Coke in the taste tests conducted by Coca
Cola, customers of the brand favoured Classic Coke over the new product.
Clearly remember the differences between market penetration and product
development strategies, as it may be easy to confuse the two strategies if the
analysis is not performed carefully.
Note that the core competency of a firm becomes crucial in case of the market
development strategy. For example, Glaxo has been able to develop new
markets for its anti-ulcer drugs by developing and marketing a lower-strength
version of the drug in many countries that can be sold without prescription as a
stomach remedy. Market development strategy, like other strategic options,
entails certain risks also. McDonald's entered a number of new markets in the
wake of globalisation with its existing products. Due to the nature of the
company's products, McDonald's had to make changes in the ingredients of its
burgers in order to cater to the market.
It is imperative for analysts who are trying to identify the growth strategies or
are formulating proposals for such strategies for a particular firm, that firms in
today's fiercely competitive business environment often pursue multiple
strategies. In fact, most big businesses today pursue multiple strategies for
growth at the same time in order to achieve their strategic objectives. For
example, the two Internet incumbents of Amazon and E-Trade are both
operating in a fast evolving, uncertain business environment and have pursued
multiple and high-risk growth strategies, which include market development,
product development and diversification strategies. Amazon focused more on
the diversification strategy while E-Trade focused on market development.
The differences in strategic choices in this case were due to the differences in
the type of markets in which both companies operate.
Notably Amazon operates in a wider retail setup while E-Trade operates in a
narrower are of financial services retailing. Both companies chose product
development as the second most preferred strategic option, which shows
commitment to innovation in products and services. Another similarity that
comes across in the analysis of the two incumbents is that the low risk strategy
of market penetration was the least favourite option for both companies.
Therefore, it is crucial to note that one firm may be pursuing multiple
strategies and it is important to write about all the strategic options that the
firm is pursuing.
A common mistake made while conducting Ansoff analysis is that analysts are
not able to acknowledge how different growth strategies are suitable for
companies operating in different types of markets, and how changes in
business environment make the same company choose a different strategic
option at stage time in its organisational life cycle. On the other hand, the IT
bluehood of the corporate world, IBM, successfully follows the high-risk
diversification strategy. Earlier, IBM followed a vertical integration strategy
wherein it had entered new industries to strengthen the core business model. It
also enjoyed backward vertical integration into the disk drive industry and
forward vertical integration into the consulting services and computer software
industries. IBM's vertical integration was once widely considered a vital
source of competitive advantage. However, due to the fiercely competitive
business environment, IBM has been acquiring a large number of firms in the
last few years and had more than 400 strategic alliances as of 2003. The
diversification strategy is deemed as a high risk strategy but IBM has been
successful due to business foresight and effective control mechanisms.
Therefore, organisations change their strategic options in accordance with
changes in competitive scenario, and it is important to mention the transition in
the write up of Ansoff analysis.

Where to find information for Ansoff
Analysts can explore various sources to find information necessary for
conducting Ansoff analysis. Possible sources of information include company
and competitor websites as they would highlight the portfolio of products and
services and how the company may have diversified over time. Up to three
years of annual reports of the company can be analysed to see how the
company has changed its business focus, according to changes in the business
Marketing communications tools used by the company can reflect which
growth strategy is being pursued by the company. For example,
corporate advertisements along with adverts of products and services can show
whether the company is targeting existing or new customers and/or existing or
new markets. Press releases are also a useful source for evaluating the growth
strategy that a firm is pursuing or should pursue. Journal articles, trade
publications and magazines are useful sources of information to identify
growth strategies.

CASE STUDY: Implementation of Ansoff
In the beginning there was Coca-Cola. A single core
product. Geographically located in the US. Overtime, this
singular core product had become established in its home
market by increasing market share and product usage
(Market Penetration Strategy).
Coca-Cola was later launched into foreign markets and
competed within the international arena. This Market
Development Strategy was undertaken by targeting new
geographical areas and target segments.
As these foreign markets developed further, the Coca-
Cola Company was faced with the problem of how to
further penetrate them. The solution was simply to develop
new products (Diet Coke, Fanta and Sprite), which over
time have also become core products (Product
Development Strategy). How does Coca-Cola increase
market penetration still further?
Again, the solution is to develop new products in new
markets. Originally Coca-Cola's business was defined as
one operating in the carbonated soft drinks (CSD) market.
n order to further penetrate these markets Coca-Cola has
broadened the definition of the business it is in to 'ready
packaged liquid refreshments'. This has allowed the
company to look beyond its traditional CSD market, to
markets such as bottled water, fruit juices and innovative
ready to drink tea markets. They have therefore
successfully used a Diversification Strategy.
Strategic marketing planning makes use of a number of analytical
models that help to develop a strategic view of the business,
and thus can be used as decision-making aids.
Ansoff Matrix for Coca Cola

1. Diet Coke - market penetration

Since being introduced in 1982 as a result of a growing trend towards dieting
and healthier living, Diet Coke has been a highly successful product for the
Coca Cola company, selling millions of units per year. Throughout this time,
Coca Cola has constantly adapted aspects of the marketing mix for Diet
Coke in order to continually match customer trends and fashions.

2. Coca Cola Vanilla - product development

Having had a successful launch in America, Coca Cola decided to launch its
new Vanilla flavoured version in Great Britain. Prior to doing so, Coca Cola
carried out taste tests and developed the graphical look of the Diet Coke
brand. When they did this, they took great care to incorporate aspects of the
Coca Cola brand, but still differentiating it so consumers would see it as an
alternative to Coke.

Fanta Icy Lemon - product development

The development of a new flavour sparkling drink by Coca Cola was as a
direct result of listening to consumers who called the companys Care line
telephone service. The business conducted taste tests prior to the 2001

3. Coca Cola Share Size 1.5l Bottle - market penetration

Desk research showed Coca Cola that a growing number of households
contained 1-2 people, which led them to believe that a smaller version of the
2 litre family sized bottle would sell well to these groups. In launching this
product (simply sell existing brands such as Coca Cola, Diet Coke etc)
4. Diversification

Market penetration: prices reduced in comparison to Pepsi

Selling more of an
EXISTING product to
This is going deeper into
the market. Hence called
More Promotion
Market development: new market. Provided offers. Increased sales.

Selling an
EXISTING product to an
Product development: new product, existing market. In this case, new flavour

Selling an
NEW product to an
Changes to the product
New Coke Vanilla Flavor
Diversification: new product. New market (health conscious people)

Selling a NEW Product to
Diet Coke targeted at people
who are health conscious.
Limitations of Ansoff Matrix
While Ansoff analysis helps in mapping the strategic options for companies, it
is important to note that like all models, it has some limitations. By itself, the
matrix can tell one part of the strategy story but it is imperative to look at other
strategic models like SWOT analysis and PESTLE in order to view how the
strategy of an organisation is formulating and might change in the course of its
future. For example, the Ansoff analysis of Virgin Cola shows that
the brand has been launched in the UK and USA using a market penetration
strategy, which essentially reflects that the brand needs to increase its brand
recognition (Vignali, 2001). The SWOT analysis conducted by Vignali (2001)
showed an opportunity that VirginCola could explore diversification into new
ranges of Virgin Cola products. PESTELanalysis of Virgin Cola showed that
there was need to constantly evaluate the soft drinks industry in all countries,
in order to reflect customer trends, thereby allowing the brand to gain market
share and also predict trends faster than the competition. Therefore, the steps
to be taken while conducting a strategic analysis of an organisation
include SWOTanalysis, PESTEL and Ansoff matrix as fundamental models of
analyses, which should be used in conjunction and not in isolation, to view the
complete strategic scenario. Also, recommendations made on the basis on only
one of the models are not concrete and lack in depth.
The above is also supported by the example of M&S where the company was
not able to keep up with the trends and suffered from decline in sales due to
competitors like Next, which were relatively more aware of customer trends
and needs. Marks and Spencercame up with the Per Una range of clothing in
order to compete effectively and gained market share. M&S would not have
been able to identify which strategy to opt for growth, if a PESTEL analysis
was not conducted.
While the role of analysis in making strategic choices cannot be undermined, it
is imperative to note that judgement plays a crucial role in making critical
strategic choices that may change the future of the firm (Macmillan et al,
2000). Lastly, the use of Ansoff matrix as a marketing tool may not be really
useful as the matrix is critical for analysing the strategic path that the brand
may be following, and does not essentially identify marketing options.

Limitation of our Project