The Ansoff Matrix

Understanding the Risks of Different Options

(Also known as the Product/Market Expansion Grid)

Ansoff Matrix

Selling new products to your existing market is only one growth option.

© iStockphoto/alexsl

Successful businesspeople spend a lot of time thinking about how they can increase profits. They’ll typically have hundreds of ideas about things they could do, including developing new products, opening up new markets and new channels, and launching new marketing campaigns.

In the same way, people within organizations often have many different ideas about how they want to progress their careers. Perhaps they want to develop new skills, move into new roles, and even work in new industries.

That’s great! But, if this describes you, which of these ideas should you choose? And why?

This is where you can use a strategic approach, such as the Ansoff Matrix, to start screening your options, so that you can narrow these down and choose the ones that best suit your situation.

Understanding the Tool

The Ansoff Matrix was first published in the Harvard Business Review in 1957, and has given generations of marketers and business leaders a quick and simple way of thinking about growth.

Sometimes called the Product/Market Expansion Grid, the matrix (see Figure 1 below) shows four ways that businesses can grow, and helps people think about the risks associated with each option.

Figure 1: The Ansoff Matrix – Business

Ansoff Matrix Diagram

The Matrix essentially shows the risk that a particular strategy will expose you to, the idea being that each time you move into a new quadrant (horizontally or vertically) you increase risk.

The Corporate Ansoff Matrix

Looking at it from a business perspective, the low risk option is to stay with your existing product in your existing market: you know the product works, and the market holds few surprises for you.

However, you expose yourself to a whole new level of risk by either moving into a new market with an existing product, or developing a new product for an existing market. The new market may turn out to have radically different needs and dynamics than you thought, and the new product may just not be commercially successful.

And by moving two quadrants and targeting a new market with a new product, you increase your risk to yet another level!

Download Worksheet

Personal Ansoff

Looking at this idea from a personal perspective, just staying where you are is often a low risk option.

Switching to a new role in the same company or industry, or changing to a similar job in a new industry is a high-risk option. And switching to a new role in a new industry has an even higher level of risk!

This is shown in Figure 2, below.

Figure 2: The Ansoff Matrix – Career

Ansoff Matrix Diagram for Careers

Tip 1:

Interpret this according to your circumstances. For example, an accountant may find it easy to switch from one industry to another. But a salesman doing this may lose contacts that would take years to rebuild.

Tip 2:

Don't be too scared by risk – if you manage it correctly (for example, by researching carefully, making contingency plans, building appropriate skills, and suchlike), then it can be well worth taking quite large risks.

Download Worksheet

How to Use the Tool

Use of the tool is straightforward:

  1. Start by downloading either our free Corporate Ansoff or Personal Ansoff worksheet. Then plot the approaches you're considering on the matrix. The table below helps you think about how you might classify different approaches.
Market Development Diversification

Here, you’re targeting new markets, or new areas of the market. You’re trying to sell more of the same things to different people. Here you might:

  • Target different geographical markets at home or abroad.
  • Use different sales channels, such as online or direct sales if you are currently selling through the trade.
  • Target different groups of people, perhaps with different age groups, genders or demographic profiles from your normal customers.

This strategy is risky: There’s often little scope for using existing expertise or for achieving economies of scale, because you are trying to sell completely different products or services to different customers

The main advantage of diversification is that, should one business suffer from adverse circumstances, the other may not be affected.

Market Penetration Product Development

With this approach, you’re trying to sell more of the same things to the same people. Here you might:

  • Advertise, to encourage more people within your existing market to choose your product, or to use more of it.
  • Introduce a loyalty scheme.
  • Launch price or other special offer promotions.
  • Increase your sales force activities.
  • Buy a competitor company (particularly in mature markets).

Here, you’re selling more things to the same people. Here you might:

  • Extend your product by producing different variants, or packaging existing products it in new ways.
  • Develop related products or services (for example, a domestic plumbing company might add a tiling service – after all, if customers who want a new kitchen plumbed in are quite likely to need tiling as well!)
  • In a service industry, shorten your time to market, or improve customer service or quality.
  1. Manage risk appropriately. For example, if you're switching from one quadrant to another, make sure that:

     

    • You research the move carefully.
    • You build the capabilities needed to succeed in the new quadrant.
    • You've got plenty of resources to cover a possible lean period while you're learning how to sell the new product, and are learning what makes the new market “tick”.
    • You have firstly thought through what you have to do if things don't work out, and that failure won't "break" you.

Tip:

Some marketers use a nine-box grid for a more sophisticated analysis. This adds "modified" products between existing and new ones (for example, a different flavor of your existing pasta sauce rather than launching a soup), and "expanded" markets between existing and new ones (for example, opening another store in a nearby town, rather than going into online sales).

This is useful as it shows the difference between product extension and true product development, and also between market expansion and venturing into genuinely new markets (see Figure 3). However, be careful of the three "options" in grey, as they involve trying to do two things at once without the one benefit of a true diversification strategy (escaping a downturn in one product market).

Figure 3: The Nine-Box Grid

9-Box Ansoff Matrix Diagram

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Comment (1)
  • Dianna wrote Over a month ago
    How does an organization grow? This matrix provides a structure that explains four key way to grow your business. No one growth strategy is better than the others - they are different and each works well depending on the situation and circumstances facing the organization.

    And since strategic growth planning is a dynamic process it's important to understand the main options available and why each is used. The Ansoff Matrix helps address these issues and is a great place to start your strategic analysis and planning.

    Dianna

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