The product/market matrix (Ansoff)

Igor Ansoff’s 1965 product/market matrix distinguishes four growth routes and highlights how risk increases as a firm moves away from products and markets it already understands.

When to use it

• Use the matrix—or its underlying logic—to assess a growth portfolio and make the compounding risk of new products, customers and geographies visible.

Origins

Ansoff presented the framework in his 1965 book Corporate Strategy. He contrasted market penetration, market development, product development and diversification, warning that a superficially attractive move into both unfamiliar products and unfamiliar markets demands capabilities the existing business may not possess.

What it is

The matrix separates familiarity with the offer from familiarity with the market:

• Market penetration: existing products for existing markets; grow share, frequency or use without changing the basic domain.
• Market development: existing products for new customer groups, channels, segments or geographies.
• Product development: new products for an existing market whose needs and route to purchase are already understood.
• Diversification: new products for new markets; both sides of the commercial system must be learned at once.

Diversification is not automatically wrong. It is simply the route least able to rely on familiar production, purchasing, selling, marketing and customer knowledge.

How to use it

Draw a 2 × 2 matrix with existing and new products on the horizontal axis and existing and new markets on the vertical axis. Place each material sales initiative for the planning horizon in a quadrant and show its share of forecast growth.

If most uplift comes from penetration, market development or product development, the plan retains familiarity on at least one dimension. If it depends on diversification, identify the additional capabilities, investment, learning time and governance needed, then apply a higher burden of proof.

The product/market matrix

Existing New

Product

Ansoff later recognised that ‘new market’ can conceal different risks. A new segment in a familiar country is not equivalent to a new geography. Adding geography turns the two-dimensional 2 × 2 matrix into a 3D 2 × 2 × 2 cube and makes the highest-risk corner—new product, new segment and new geography—explicit.

Use the output within a broader strategic-gap analysis. The portfolio gap concerns which product-market segments the business should serve; the capability gap concerns how it must compete in each. Together they define the change from current position to the intended future position.

For a multi-business company, repeat the analysis for each strategic business unit. Portfolio matrices such as Attractiveness/Advantage and Growth/Share, the Strategic Condition Matrix, McKinsey 7S, the Opportunity/Vulnerability Matrix and Value Proposition Design can then deepen the decision.

Top practical tip

Draw the 2 × 2 matrix and show how much forecast growth depends on each quadrant, not merely how many initiatives appear there.

Top pitfall

The compact matrix can hide very different degrees of novelty. Define what ‘new’ means and analyse capability and geography risk separately.

Further reading

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