Ansoff’s Matrix

The Ansoff product/market growth matrix provides a simple way of

generating four basic alternative directions for strategic development. An
organisation typically starts in box A, the top left-hand one, with its
existing products and existing markets. According to the matrix, the
organisation basically has a choice between penetrating still further within
its existing sphere (staying in box A); moving rightwards by developing
new products for its existing markets (box B); moving downwards by
bringing its existing products into new markets (box C); or taking the
most radical step of full diversification, with altogether new markets and
new products (box D).

Market penetration
Market penetration, by which the organisation takes increased share of
its existing markets with its existing product range, is on the face of it the
most obvious strategic direction. It builds on existing strategic capabilities
and does not require the organisation to venture into uncharted territory.
The organisation’s scope is exactly the same.

Business Strategy Notes Page 1

For Academic Purpose Only
Product development
Product development is where organisations deliver modified or new
products (or services) to existing markets. This is a limited extension of
organisational scope.
Product updates/ facelifts/ modifications/ updations are common
methodologies of Product Development.

For Sony, such product development would include moving the Walkman
portable music system from audio tapes, through CDs to MP3-based
systems. Effectively the same markets are involved, but the technologies
are radically different.

Market development
Market development involves offering existing products to new
markets. Again, the extension of scope is limited. Typically, of course, this
may entail some product development as well, if only in terms of
packaging or service.

Market development might take three forms:

1. New segments. For example, in the public services, a college might
offer its educational services to older students than its traditional
intake, perhaps via evening courses.
2. New users. Here an example would be aluminium, whose original
users in packaging and cutlery manufacture are now supplemented
by users in aerospace and automobiles.
3. New geographies. The prime example of this is internationalisation,
but the spread of a small retailer into new towns would also be a
case.

Diversification
Diversification is strictly a strategy that takes the organisation away
from both its existing markets and its existing products.

Three potentially value-creating reasons for diversification

are as follows.
• Efficiency gains can be made by applying the organisation’s existing
resources or capabilities to new markets and products or services.
These are often described as economies of scope, by contrast to
economies of scale.
• Increasing market power can result from having a diverse range of
businesses. With many businesses, an organisation can afford to
cross-subsidise one business from the surpluses earned by another,
in a way that competitors may not be able to.

Business Strategy Notes Page 2

For Academic Purpose Only