Ansoff Matrix – A Simple Way to Think About the Risks of Growth

Part of the work we do with clients is to analyse how to build in growth in profits and customer base over a longer period, i.e. more than just the next 12 months.  This can involve developing new products or opening up new markets, but how do you know which one will work best for your business?

There are several approaches but the most reliable one is based upon the Product/Market Expansion Grid, or for short the Ansoff Matrix.  This was developed by H. Igor Ansoff and first published in the Harvard Business Review in 1957, in an article titled “Strategies for Diversification.” It has given generations of marketers and business leaders a quick and simple way to think about the risks of growth.

The original Ansoff Matrix had 4 quadrants with Products / Services on the x axis and on the y axis was markets, both showing existing and new products/ services and markets, see the diagram below.

Let us examine each quadrant of the Matrix in more detail.

Market penetration, in the lower left quadrant, is the safest of the 4 options. Here, you focus on expanding sales of your existing product in your existing market: you know the product works, and the market holds few surprises for you.

Product development, in the lower right quadrant, is slightly more risky, because you’re introducing a new product into your existing market.

With market development, in the upper left quadrant, you’re putting an existing product into an entirely new market. You can do this by finding a new use for the product, or by adding new features or benefits to it.

Diversification, in the upper right quadrant, is the riskiest of the four options, because you’re introducing a new, unproven product into an entirely new market that you may not fully understand.

The theory also recommends that a business needs to progress logically from the lowest risk strategy (market penetration) to the diversification strategy in this sequence.

We would work jointly with your management to develop the necessary worksheets including risks and opportunities for each strategy to determine the starting strategy and how this would evolve.

If you need more information or have any queries please feel free to contact us with the details below or fill out our enquiry form or call now for a free confidential consultation on  +44 (0) 203 6374212 or click here to call us!

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