Ansoff Matrix

The Ansoff Matrix is a simple grid for thinking about how a business can grow. It asks two questions: will growth come from products the company already sells or new ones, and from markets it already serves or new ones? The answers produce four growth strategies, each carrying a different level of risk. Because it is easy to draw and easy to remember, the matrix is one of the most widely used tools in strategy and marketing, often appearing at the start of planning discussions to lay out the options before choosing between them.

It was developed by H. Igor Ansoff, an applied mathematician who worked in the aerospace industry before becoming one of the founders of strategic management as an academic field. He introduced the idea in a 1957 Harvard Business Review article, "Strategies for Diversification," and expanded on it in his 1965 book Corporate Strategy. It is also known as the product-market growth matrix or the product-market expansion grid.

The Four Growth Strategies

The matrix places existing and new products on one axis and existing and new markets on the other. Risk generally rises with distance from familiar ground, because each step away means less knowledge of either the product or the customer.

Market Penetration: Existing Products, Existing Markets

The company sells more of what it already offers to the customers it already serves, by winning share from competitors, getting current customers to buy more often or bringing in non-users within the same market. Typical tactics include pricing changes, promotions, loyalty programs, better distribution and stronger sales coverage. It is the lowest-risk option, but its potential is limited by the size of the market and by how hard competitors fight back.

Market Development: Existing Products, New Markets

The company takes its current products to new customers. A new market can be a new geography, a new customer segment, such as selling a consumer product to businesses, or a new channel. The product is proven, but the company has to learn the needs, buying habits and competition of an unfamiliar market.

Product Development: New Products, Existing Markets

The company creates new products for the customers it already knows, building on the relationships, brand and channels it has. Apple's launch of the Apple Watch, sold largely to existing iPhone owners, is a well-known example. The risk lies in the product: development costs, technical uncertainty and whether customers want what is built.

Diversification: New Products, New Markets

The company enters a business that is new in both respects. Diversification is the riskiest option, since there is little existing knowledge to draw on, but it can open growth that the core business cannot provide and spread risk across different markets. Diversification is related when it builds on existing capabilities or technology, and unrelated when it does not. Amazon Web Services, launched in 2006 to sell computing infrastructure to developers and businesses, is a frequently cited example of related diversification: a new product for a new market that drew on capabilities Amazon had built to run its own retail operations.

How to Use the Ansoff Matrix

1. Start from the growth gap. Establish how much growth the strategy needs to deliver and how much the current business will provide on its own. The gap between the two shows how far the company may need to move from its core.
2. Generate options in every quadrant. List concrete opportunities for each strategy rather than jumping to the one that is most familiar.
3. Assess each option. Estimate the size of the opportunity, the investment required, the capabilities needed and the risk. Tools such as PESTEL analysis and Porter's Five Forces help judge new markets.
4. Build a balanced set. Most companies pursue several strategies at once, with most investment in lower-risk options and a smaller share in riskier bets that could matter more in the long run.
5. Turn choices into initiatives. Give each chosen option an owner, a budget, milestones and measures so it can be tracked and stopped if it does not perform.