Ansoff matrix

Most businesses want to grow, and visible growth tends to reinforce success: it attracts customers, draws capable employees and creates fresh opportunities that help retain them. Sustaining that momentum becomes harder as an organisation matures. The Ansoff matrix structures the search for growth around four choices—market penetration, market development, product development and diversification.

When to use it

• To identify credible routes for company growth.
• To compare where growth may be achieved and the relative uncertainty of each option.

Origins

The matrix takes its name from Igor Ansoff, born in Russia in 1918 to an American father and a Russian mother. His family relocated to the United States in 1936, where he studied mathematics and engineering. Work at the RAND Corporation and Lockheed Aircraft gave him practical experience in planning and strategy. During that corporate phase, he published “Strategies for Diversification” in Harvard Business Review in 1957. He moved into academia soon afterwards and held appointments at universities in the United States and Europe until his death in 2002.

What it is

Market penetration means selling more existing products in markets the company already serves. It creates opportunities to:

• capture a larger share of current customers’ spending;

• win additional customers inside existing markets.

Few companies receive every unit of expenditure from their customers; purchases are normally shared with one or more competitors. Because an existing customer has already accepted the supplier’s value, expanding that relationship is generally easier than persuading a stranger to buy. Charities use the same logic when they quickly ask a first-time donor to contribute again. Organisations with a strong “hunting” culture may nevertheless prefer the excitement of acquiring new accounts to “farming” established ones. Before looking farther afield, test whether existing clients could reasonably buy more.

Market development: selling existing products

to new markets. This route creates opportunities to:

• reach new customers in additional geographies;

• enter industry or demographic segments not served before.

A healthy business usually combines deeper existing relationships with a continuing supply of new customers. Some established buyers will inevitably leave because they no longer need the product or prefer an alternative. Replacing those losses merely holds revenue steady; acquisition must exceed churn for the company to grow.

Market development seeks customers in new geographies or new segments within a current geography. Consumer businesses may target another demographic, while B2B companies can approach a different industry vertical. Gillette, for example, adapted disposable razors designed for men to appeal to women. Guinness expanded beyond its association with older drinkers by positioning its stout to younger audiences as cool, intelligent, original and distinct from light beers and lagers.

Acquisition remains difficult. A promotional campaign cannot simply summon revenue: unfamiliar prospects must first recognise the supplier, become interested in the offer and develop enough desire to buy. The AIDA framework describes that progression.

Product development: selling new products

to existing markets. This option creates opportunities to:

• offer additional products to current customers;

• discover and meet needs that existing markets do not yet satisfy.

Existing trust gives a supplier an advantage when introducing another product. Customers already understand what the brand represents and may welcome an adjacent offer, whether developed internally or licensed into the portfolio. Extensions are most likely to work when they solve a genuine customer need and remain meaningfully connected to the established brand.

A bread baker might add meat pies or confectionery; an airline could sell holidays to loyal travellers; a machinery supplier could provide contract maintenance. Each offer has a clear relationship to the original business. The further an extension travels from the brand’s core meaning, the harder it becomes to earn acceptance. Virgin’s challenger identity transferred successfully from music into airlines and rail, but produced weaker results in categories including wine, cola, condoms and bridal wear.

Diversification: selling new products

to new markets. It includes opportunities to:

• develop new products for unfamiliar geographies or segments;

• acquire a company operating in another field.

Unfamiliar markets can look more attractive from a distance, encouraging companies to imagine easier sources of profit elsewhere. Yet selling an unproven product to customers who do not know the company is effectively a start-up. The offer must work, the supplier must become credible and established competitors must be overcome.

Successful diversification therefore attracts attention. Husqvarna is now associated with chainsaws and lawnmowers, but across several centuries it has produced muskets, bicycles, motorcycles, kitchen equipment and sewing machines for very different audiences. Apple likewise moved beyond computers and became heavily dependent on the iPhone. Such visible successes obscure many failed attempts. Diversification is the most demanding of Ansoff’s four routes, though its rewards can be transformative.

Developments of the model

The matrix frames growth choices but cannot evaluate them by itself. Every route requires a deeper examination of the external environment and the company’s capabilities. Market penetration, for instance, cannot be judged without evidence about share of wallet, competitive behaviour and customers’ willingness to buy more. Complement the matrix with tools such as PEST for the external environment, AIDA for the challenge of communicating with a new market and SWOT for organisational strengths and weaknesses.

How to use it

Use the matrix to compare where long-term growth could create the greatest impact for the least acceptable risk. A sound choice requires substantial research, but excessive information can produce the “paralysis through analysis” associated with Ansoff’s work. The goal is a disciplined marketing audit that grounds strategic options in evidence without postponing judgement indefinitely. This makes the framework useful to boards and stakeholders who need to see both growth possibilities and their risks. The Coca-Cola Company illustrates how all four routes can contribute over time.

Market penetration: selling existing products

to existing customers. Coca-Cola recognises that persuading current drinkers to consume one additional can each week would produce a substantial increase in sales. Much of its promotion has consequently reinforced refreshment and encouraged more frequent consumption.

Product development: selling new products

to existing customers. The original sarsaparilla-based drink has expanded into a wider portfolio. Cherry Coke, launched in 1985, was the first flavour extension beyond the original formula; lime, lemon and vanilla variants followed.

Market development: selling existing products

to new markets. Diet Coke, introduced in the 1970s, reached a broad audience but achieved much higher penetration among women. In 2005 the company used black packaging and the name Coke Zero to give the same low-calorie proposition a more masculine appeal and extend it among male consumers.

Diversification: selling a new product into a new market. Coca-Cola has moved beyond cola into several kinds of health-oriented beverage, adding dairy and juice businesses, acquiring Vitaminwater and selling coffee and tea in Brazil.

Some things to think about

• The easiest and often richest growth opportunity is usually to sell more of an existing offer to current customers. Measure share of wallet by account so that the remaining potential is visible.

• Next, examine where existing products could attract new buyers. Which segments remain unserved, and which countries outside the current footprint offer credible demand?

Top practical tip

Begin with market penetration and quantify each customer’s share of wallet. This establishes how much growth may be available before the company accepts the greater uncertainty of new products or markets.

Top pitfall

Do not choose a quadrant because it sounds ambitious. The matrix identifies direction, not attractiveness, capability, economics or likely competitive response; investigate those factors before committing resources.

Further reading

• Ansoff, H.I. (nineteen fifty-seven). “Strategies for Diversification.” Harvard Business Review.
• Ansoff, H.I. (nineteen sixty-five). Corporate Strategy. McGraw-Hill.