Ansoff matrix

What the Ansoff matrix is

The Ansoff matrix is a business management toolkit tool for planning growth. It sorts growth strategies by whether the product and the market are existing or new.

The four strategies

• Market penetration: selling more of existing products in existing markets, for example through promotions, loyalty schemes or lower prices. Lowest risk.
• Market development: selling existing products in new markets, such as a new country or a new customer group. Medium risk.
• Product development: selling new products to existing customers. Medium risk.
• Diversification: new products in new markets. Highest risk, because the business has experience of neither.

An example

A Singapore bubble tea chain is considering four options:

• opening more outlets in Singapore (market penetration);
• opening outlets in Malaysia (market development);
• launching a range of healthy, low-sugar drinks for its current customers (product development);
• opening a fitness studio (diversification).

The low-sugar range builds on the brand and existing customers, so it is less risky than the fitness studio, where the business has no relevant experience.

Applying it in the exam

Examiners reward application, not description:

1. Identify which quadrant each option in the case belongs to.
2. Analyse the risks and benefits using the case: the firm's finance, brand, competition and market research.
3. Evaluate by comparing options and recommending one, with conditions ("if market research confirms demand").

Combine Ansoff with other tools, such as SWOT for the firm's strengths or STEEPLE for a new market, to support your judgement.

Limitations

The matrix shows the level of risk but not the size of the reward, and it says nothing about how to carry out the strategy. Real decisions also depend on finance, timing and competitors' actions.

Common mistakes

• Describing all four quadrants when the question asks about one option.
• Calling any new outlet "market development" even when it is in the same market.
• Concluding without weighing risk against return.