What is the Ansoff Matrix?

The Ansoff Matrix was made by a guy named Igor Ansoff in 1957. He wanted to help companies figure out how to grow their business. The matrix looks like a square cut into four parts. Each part tells a different way a company can grow.

The Four Strategies

The four parts are:

1. Market Penetration – The company tries to sell more of what it already sells to those who already buy it.
2. Market Development – The company tries to sell what it already sells to new kinds of people.
3. Product Development: The company tries to create new products to sell to its existing customers.
4. Diversification – The company tries to make new stuff to sell to new kinds of people.

How Companies Use The Matrix

Picking the Best Strategy

Companies look at the matrix and consider which part makes the most sense. They have to think about things like:

• How much money do they have?
• How risky is each choice?
• What are they good at making?
• Who are their customers now?
• Could they get new customers?

The answers to these questions help the company pick the best strategy from the matrix.

Market Penetration

This is usually the most straightforward strategy. The company already knows how to make the product and who wants to buy it. They just need to get those people to buy more.

Ways to do market penetration:

• Make the product better, so people want to buy it more
• Put the product in more stores so it’s easier to find and buy
• Make the price lower so more people can afford it
• Tell more people about the product through advertising

A company that sells toothpaste could increase market penetration by improving its taste, placing it in more stores, making it cost less, or placing more ads about why it is good.

Market Development

With this strategy, the company tries to sell what it already makes to new people. These new people could be in different parts of the country or the world, of a different age, or have other interests than the current customers.

To do market development, the company has to:

• Figure out who the new possible customers are
• Learn what those people want and need
• Change how they describe or advertise the product to appeal to new people
• Get the product into the places where the new people shop

Imagine a company that makes skateboards. Right now, they mainly sell to teenage boys. To develop the market, they could try to sell their skateboards to girls, adults, or people in other countries. They must change how they talk about and advertise the skateboards to appeal to these new groups.

Product Development

The company makes new products for product development but tries to sell them to its current customers. The idea is that those customers already like and trust the company, so they will want to buy the new products, too.

Essential things for product development:

• The new product should be something the current customers will like and want
• It should fit with the company’s brand and what it is known for
• The company needs to be able to make the new product well
• The company has to tell its current customers about the new product

Let’s say a company makes smartphones popular with technology enthusiasts. For product development, the company could start making smartwatches, too. They would design the watches to appeal to their tech-loving customers and advertise them to them.

Diversification

This is the most complex and riskiest strategy. The company tries to make new products and sell them to new people. It’s hard because the company has to learn how to create something new and figure out how to sell it to people they don’t know much about.

There are two kinds of diversification:

1. Related diversification – The new product and customers are still similar to what the company does now.
2. Unrelated diversification – The new product and customers are different from what the company currently does.

Related diversification is less risky because the company can still use some of what it already knows. Unrelated diversification is more dangerous but could lead to more growth if it works.

A clothing company that makes jeans could diversify by starting to make shirts, too. That’s still clothing. Or they could diversify unrelatedly by starting to make food, which is different from apparel.

Marketing and The Ansoff Matrix

The Role of Marketing

Marketing is how a company tells people about its products and gets them to buy them. It is essential for all four strategies in the Ansoff Matrix.

• For market penetration, marketing tries to get current customers to buy more.
• For market development, marketing tries to reach new customers.
• For product development, marketing tells current customers about the new products.
• For diversification, marketing has to introduce new products to new customers.

Different Marketing Strategies

The kind of marketing a company does will depend on which part of the matrix they focus on.

Market penetration marketing:

• Emphasizes why the product is better than what competitors offer
• Encourages current customers to buy more, more often
• May offer discounts or specials to current customers

Market development marketing:

• Focuses on learning about the new target customers
• Adapts the product or message to appeal to new customers
• Find ways to reach new customers, like advertising in different places

Product development marketing:

• Builds excitement for the new product among current customers
• Explains how the new product relates to what the company already offers
• Encourages current customers to try the new product

Diversification marketing:

• For related diversification, focus on what the company is known for doing well
• For unrelated diversification, the company has to establish the company as a good maker of new product
• Needs to research the new target customers a lot
• Has to find the right way to talk to the new customers