The Ansoff Matrix

The Ansoff Matrix is one of those back to basics techniques which helps businesses to look at how they will develop in the future.

It is based on looking across existing and new products and existing and new markets.

Quite simply there are only four ways to grow.

  • Market penetration – more sales of current products to current customers
  • Product development – more sales of new products to current customers
  • Market development – more sales of current products to new customers
  • Diversification – sales of new products to new customers

Some markets see little product development. I’ve worked with several commodity based metals businesses where the product stays the same but new uses are found for it.

Other businesses thrive on having new product to sell to existing customers. Think fashion which changes at least twice a year, the film and music industries which need new products to sell, even though they work their old catalogues hard.

The toy business is an example of a business with a good balance. There are the hot toys to get the kids excited at Christmas, innovative new ways to use digital technology for learning and play and the old classics that have been around for decades.

Diversification is the riskiest move in the Ansoff matrix since it involves moving away from your home market and your normal products. You have a marketing issue selling the product to customers who don’t already know and tust you and you may have an operations problem delivering the product or service.

Strategy teachers Cliff Bowman and David Faulkner extended the Ansoff matrix to have three dimensions by adding new or existing capabilities/technologies. This makes the important point that a diversification using your existing, proven capabilities is much less risky than one where you first have to find the technology and develop the skills to make it work.

In a classic Harvard Business Review article called Marketing Myopia by Theodore Levitt, the railways were criticised for not defining their business wider than railways but instead the transportation of people and goods. That would have opened up the opportunity to diversify away from the rail-road to road haulage, air travel and even sea freight. Their big defence is that each of those requires fundamentally different technologies and capabilities.

Return to P3M3 Industry Attractiveness

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