Tools to make you THINK differently about your business

What is an Ansoff Matrix?

The Ansoff Matrix is a great little 2 x 2 matrix with its roots in a paper written by Igor Ansoff in 1957! But it is still super relevant and useful today. The paper proposed that product marketing strategy could be categorised by thinking about new and existing products and new and existing markets, an approach which results in four archetypal strategies:

• Market penetration
• Market development
• Product development and
• Diversification.

When displayed visually, these four areas create the Ansoff Growth Matrix.

How to Use an Ansoff Matrix

The Ansoff Matrix is essentially a communication tool which helps you identify different growth strategies for your organisation so let’s look at each of the different strategies, not forgetting that it may also be that different strategies could, or should, be applied to different products or services. It’s not necessarily one size fits all!

As with other examples in this blog series we are going to use a small, 30 people, south London based company selling photocopiers and other equipment to clients also based in south London to illustrate how the Ansoff matric might be applied.

Market Penetration.

This is the first quadrant in the matrix and is probably both the most common and least risky strategy …essentially, for both our photocopier company or any international mega company, the strategy is “more of the same”; existing products and services are sold into an existing market. It’s really about increasing market share either by expanding the market, or more usually, taking share from the competition. Market penetration is about the company being more aggressive in its current sandpit and is achieved by selling more products or services to established customers or by finding new customers within existing markets. Typical tactics employed might include:

• Dropping prices;
• Increasing promotion and distribution support;
• Acquiring a rival in the same market;
• Modest product refinements.

Market Development.

The market development strategy is used when a firm targets a new market (counties or countries) but with existing products or services. Car producers like BMW, Mercedes, or others, targeting new markets like China or India would be a good international example, as would Lidl or Aldi penetrating the UK grocery market. However, equally, it could be a photocopier (or any other product) company in South London targeting customers in North London, or beyond. Typical market development tactics include:

• Targeting different customer segments;
• Focusing on industrial buyers for products and services previously only sold to households (or the other way around);
• Targeting new areas or regions about the country;
• Expanding into foreign markets.

Product Development.

Product development is where a firm has a high market share in an existing market and to fuel growth needs to introduce new products as a market penetration strategy is no longer practical. This often involves extending the product or service range available to the firm’s existing markets. As a result, routes for developing new products might include:

• Investing in research and development to create new products;
• Acquiring the rights to produce / market someone else’s product;
• Buying in products and “re-badging” them as your own;
• Joint development with another company who need access to your distribution channels.

Continuing the car company example, think of Ferrari or Aston Martin going into other luxury goods; watches, luggage, clothing etc. Alternatively, if our photocopier company was pursuing a product development strategy, they might be adding products like phones or IT equipment to the goods and services provided to the client base.

Diversification is the riskiest strategy as it involves the company competing in new markets with new products. Everything is new and therefore unknown, both product and market development is required. If this strategy is pursued to its limits the company would end up becoming a conglomerate. On a small scale, in the south London photocopier example, diversification may mean them selling telecoms products in Truro.

More well know examples of diversified companies might include Virgin which has been involved in record stores, airlines, soft drinks and banking. The other example is perhaps Berkshire Hathaway, which is the investment vehicle used by the sometimes-richest man in the world, Warren Buffet, which has interests in bricks, banking, insurance, media and food. In both of these cases there is no direct connection between any of the products or markets.

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