Ansoff Matrix

What is the Ansoff Matrix?

The Ansoff Matrix, often called the Product/Market Expansion Grid,
is a two-by-two framework used by management teams and the
analyst community to help plan and evaluate growth initiatives. In
particular, the tool helps stakeholders conceptualize the level of risk
associated with different growth strategies.
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 is often used in conjunction with
other business and industry analysis tools, such as the PESTEL,
SWOT, and Porter’s 5 Forces frameworks, to support more robust
assessments of drivers of business growth.
What is the Ansoff Matrix?
The Ansoff Matrix is a tool that helps companies decide which Strategy they should focus
on, based on 2 variables:
Product and Market.

These two variables are classified into 2 categories:

•New.
•Existing.

The result is a 2 x 2 matrix that, depending on these variables, suggests one Strategy or
another.
Ansoff Matrix 4 Scenarios
1. Market Penetration: .
•Existing Product.
•Existing Market.
2. Diversification: .
•New Product.
•New Market.
3. Market Development:
•Existing Product.
•New Market.
4. Product Development: t
•New Product.
•Existing Market.
Each box of the Matrix corresponds to a
specific growth strategy. They are:

1.Market Penetration – The concept of increasing sales

of existing products into an existing market
2.Market Development – Focuses on
selling existing products into new markets
3.Product Development – Focuses on
introducing new products to an existing market
4.Diversification – The concept of entering a new market
with altogether new products
Market Penetration
Using a market penetration strategy, the organization tries to grow using its existing
offerings (products and services) in existing markets. In other words, it tries to
increase its market share in current market scenario. This involves increasing market
share within existing market segments. This can be achieved by selling more
products or services to established customers or by finding new customers within
existing markets. Here, the company seeks increased sales for its present products in
its present markets through more aggressive promotion and distribution.
This can be accomplished by:
•Price decrease
•Increase in promotion and distribution support
•Acquisition of a rival in the same market
•Modest product refinements
This is the least risky growth option.
 Market Development
In. a market development strategy, a firm tries to expand into new markets
(geographies, countries etc.) using its existing offerings and also, with minimal
product/services development.
This can be accomplished by:
•Different customer segments
•Industrial buyers for a good that was previously sold only to the households
•New areas or regions of the country
•Foreign markets
This strategy is more likely to be successful where:
•The firm has a unique product technology it can leverage in the new market
•It benefits from economies of scale if it increases output
•The new market is not too different from the one in which it has experience
•The buyers in the market are intrinsically profitable
This additional quadrant move increases uncertainty and thus increases the risk further.
 Product Development
In a product development strategy, a company tries to create new products and
services targeted at its existing markets to achieve growth. This involves extending
the product range available to the firm's existing markets. These products may be
obtained by:
•Investment in research and development of additional products;
•Acquisition of rights to produce someone else's product;
•Buying in the product and "badging" it as one's own brand;
•Joint development with ownership of another company who need access to the firm's
distribution channels or brands.
This also consists of one quadrant move so is riskier than market penetration and a
similar risk as market.
 Diversification
In diversification an organization tries to grow its market share by introducing new
offerings in new markets. It is the most risky strategy because both product and market
development is required.
Related diversification: there is a relationship and, therefore, potential synergy,
between the firms in existing business and the new product/market space.Concentric
diversification, and (b) Vertical integration
Unrelated diversification, otherwise termed "conglomerate growth" because the
resulting corporation is a conglomerate, i.e. a collection of businesses without any
relationship to one another. A strategy for company growth by starting up or acquiring
businesses outside the company's current products and markets.
Diversification consists of two quadrant moves so is deemed the riskiest growth option.
Example:
Market penetration Strategy………
In the beginning KFC only had Fried Chicken.
•It is greasy, it is not healthy… But we all love fried chicken.

Over time, KFC began offering Burgers (and wraps, etc).

Why?
•Maybe because if 4 friends want to have “Fast-Food”, not everyone likes fried chicken.

What did KFC do?

•They were entering an Existing Market, where they already were.

• Fast Food Market.
• There was McDonald’s, Burger King, Wendy’s, etc.
•They wanted to introduce an Existing Product.
• They offered fried-chicken burgers
Example:
Market Diversification Strategy………
When the Internet started… No one knew anything about its future.
•Nobody knew how to monetize a Site.
•Nobody knew that e-commerce would become so popular.
•Nobody knew that blogging would become “profitable” business.
•Nobody knew that Social Networks would become extremely popular.
•etc. Now, all of this seems obvious.
•But, 25 years ago, it wasn’t.
The companies that obtained the best results were the companies that
Diversified their offer.
•Initially, Forums and Chats were very popular.
•Then, the most successful Sites improved their presence on Social-media.
•Then, some Sites started a YouTube Channel.
•Sponsored content, Ads, e-commerce.
•etc.

Think about Amazon: they started with just books.

•Now, they do… everything.
Example:
Market Development Strategy……
In case you don’t know (in Europe is not as famous as in the USA) Supreme is a skateboarding clothing brand.

Over the years, their clothes became so popular that people was willing to pay hundreds of dollars for some of
their products.
•People got crazy about this brand……

Supreme realized that and (almost) “discovered” a new Market:

•“Luxury for teenagers“.
And some adults who think they are still teenagers.
They developed a very interesting Strategy.
•Limit production and promote their products through “Influencers”.

Louis Vuitton, a traditional luxury brand, got very impressed with this brand and this “New Market”.
•And… started to collaborate with them.
Example:
Product Development Strategy……
When McDonald’s expanded its Business outside the US, they had to make some changes to their
Menu to reach as many customers as possible.
If you conceive McDonald’s as a product itself:
•They were a New Product.
• McDonald’s is so famous and “characteristic” that it is difficult to compare it to local restaurants.
• You can consider it the first “American fast food” restaurant that all countries have.
•They were expanding into an Existing Market.
• Fast-Food Restaurants.
• All countries have their own “Fast Foods”.
What did they do? McDonald’s listened to what local people loved the most…
• … And made their own version of it.
They listened to the Market and adapted their product to it. That is why:
•In India: they offer the Maharaja mac.
•In Hong-Kong: they offer a pasta and sausage-based Ramen.
•In Thailand: they offer coconut-based desserts.
•In China: they offer a Honey Chicken rice bowl.
* If you are interested about it, here you have an interesting article that talks more about it:
•“15 McDonalds items from around the world“.