The Ansoff Matrix is a tool that helps businesses decide what the right growth strategy is for them. It looks at a business’s products and the markets it operates in to help set the right direction for growth.
Sometimes called the Product/Market Expansion Grid, the matrix (see below) shows four ways that businesses can grow, and helps people think about the risks associated with each option.
|Existing Products||New Products|
|Existing Markets||Market Penetration: Selling existing products into existing markets to maintain or increase market share (e.g. competitive pricing, more sales activity), to dominate growing markets, to drive out competitors (aggressive pricing e.g. loss leaders) or to increase purchases by existing customers (e.g. loyalty schemes)||Product Development: Introducing new products to existing markets. This could involve modifying existing products or developing new capabilities.|
|New Markets||Market Development: Selling existing products into new markets by exporting to new geographic areas, amending the product or packaging in some way, adopting new distribution channels or by pricing differently in new markets||Diversification: Selling new products into new markets. This is the riskiest strategy because it involves developing products of which the company has no experience and selling them in markets in which it is inexperienced.|
The option carrying the lowest risk is to stay with your existing product in your existing market. However, to make large growth steps forward with your business, you may need to look at one of the more risky options of moving into a new market with an existing product or developing a new product for your existing market. The option that carries the most risk is looking at moving into two new quadrants by targeting a new market as well as a new product – a much higher risk growth strategy but one that holds the greatest opportunity for expansion.