The Ansoff Matrix is an analytical technique used in marketing and strategic management. Its author is Igor Ansoff. The matrix allows to select the appropriate product-market strategy and evaluates its risks.
The Ansoff matrix has two dimensions:
- The vertical dimension describes markets - existing and new
- The horizontal dimension describes products - existing and new
By combining both types of markets, and both types of products, four types of strategies emerge :
- Market penetration - the company tries to increase its penetration of the market with an existing product. The goal is to increase its market share. It is the least risky strategy because the compay can use existing resources, processes and capacities.
- Market development - this involves searching for additional market segments or regions. The company uses its existing products and if it manages to produce them in high quality, this can be an appropriate strategy. It is riskier than the previous strategy.
- Product development - the company innovates the product and tries to apply it to existing markets. This strategy is appropriate if the company is strong in innovation. The development of a new product is riskier than previous strategies.
- Diversification - the riskiest option of all four strategies. The company tries to innovate an existing product or develop a new one and succeed with it in a new market.
Use of the Ansoff Matrix in practice: If a particular product of a company has arrived at the end of its lifecycle, the company has to decide how to proceed. Market penetration in not an option because of the age of the product, so the remaining three options are left. The company eventually decides to proceed with product innovation (product development strategy), because it has already succeeded a few times with this strategy. It introduces a new product into an existing market.