The Ansoff Matrix, also known as the Product/Market Expansion Grid, is a strategic planning tool used by businesses to determine growth opportunities. It helps companies analyze and plan their strategies based on their products and markets. Developed by Igor Ansoff in 1957, the matrix outlines four main growth strategies based on 2 dimensions (As shown in the image above): Markets & Products. The underlying thought is that companies can work on either growth via the market or via the products they offer. The 4 strategies are:

  1. Market Penetration
  2. Market Development
  3. Product Development
  4. Diversification

All the 4 strategies are of different levels of risk. The safest being Market Penetration and the most risky being Diversification. Let’s look at the further details:

Market Penetration:

  • Objective: Increase market share with existing products in existing markets. In this strategy, the company remains within the market they operate in and also maintains the same product they have been offering. So essentially nothing is new, and hence it is the least risky. The growth in in market share can come from:
    • Grow the category base by recruiting new ones, while retaining old ones within the same market (Example: Do activities to induce trials by non-buying customers so that they experience the product positively and then convert to sales).
    • Increase consumption by the existing customers with additional offerings or by playing with pricing (Example: Get consumers to consume more with 10% extra content or other promotions to entice larger purchases and more frequent purchases)
    • Acquire competitors and capture their customer base

Market Development:

  • Objective: Enter new markets with existing products. This is the second least risky option, wherein you look at extending your product presence to new markets. It might mean moving into a new country or a new state (depending on the existing scale of the business). Quite a few companies look into this strategy because it seems easier to implement with the promise of high Returns on Investment (ROI). That is the reason why a lot of companies expand into new markets or new countries very often with the same offering. For example, McDonalds, or Coca Cola. The only caveat is that it requires higher investment into distribution and also possibly manufacturing Capex (if you’d want your supply chain to be short). It will also require investments into brand building. So, overall, this option is less complex to execute since you’d just replicate most of the existing framework into a new geography, but it comes with higher capital infusion.

Product Development:

  • Objective: Introduce new products to existing markets. This option requires Research and Development (R&D) expertise. For many companies this is a more challenging option and requires more skill. For older organisations which have an existing R&D budget built into its P&L and tons of consumer insights as well, it might be a lot easier. For example, if Coca Cola wants to introduce a new beverage in the American market, where it is already very dominant, they’d face less challenges because they probably understand the consumers well enough from the years of consumer data (lets leave out the Coke Classic fiasco in this context). Besides, their distribution structure would support any new product in markets they already are present in. Thus, this is a great option for a company to grow via new product development.

Diversification:

  • Objective: Enter new markets with new products. This is the riskiest strategy for the organisation. Entering new markets with new products means you’re diving into an entirely new territory without any proven skills or reputation. It is quite unusual for older organisations to do this.

By using the Ansoff Matrix, companies can evaluate which growth strategies align with their goals and capabilities, and make informed decisions to drive their business forward.