Ansoff Product Market Expansion Grid

The Ansoff Product-Market Expansion Grid, often referred to simply as the Ansoff Matrix, is a strategic planning tool that provides a framework for businesses to consider their growth strategies. Developed by Igor Ansoff in 1957, the matrix outlines four main growth strategies by considering products (existing and new) and markets (existing and new). These strategies are:

1. Market Penetration: This involves selling more existing products to the current market segments. The aim is to increase market share within existing markets. This can be achieved through various tactics like price adjustments, increasing promotion and distribution efforts, or improving product features. Market Penetration Strategy: Tactics | Examples | Formula
2. Product Development: This strategy focuses on introducing new products to the existing market. The objective is to leverage the company’s understanding of the current market to meet additional or changing customer needs or to respond to technological advances. Product Development Strategy
3. Market Development: This involves entering new markets with existing products. The new markets could be geographical areas, demographic segments, or industry sectors. Companies might use this strategy when their current markets are saturated or to spread risk. Market Development Strategies: Step-by-step guide with examples
4. Diversification: This is the most risky of the four strategies, as it involves introducing new products into new markets. Diversification can be related, where the new business has some connection to the existing business lines (such as technology or distribution), or it can be unrelated, which involves moving into an entirely new field. Diversification is often pursued to achieve growth when opportunities in existing businesses are limited. What is a diversification strategy | Explained with Types

The Ansoff Matrix is a valuable tool for businesses to evaluate their growth options, consider the risks associated with each, and make strategic decisions on expanding. It prompts companies to consider whether they should build on their strengths, stick closer to their existing knowledge base, or venture into new territories.

Examples of businesses deploying Ansoff product market expansion grid

Here are examples of businesses deploying strategies from the Ansoff Product-Market Expansion Grid:

1. Market Penetration:
   • McDonald’s regularly employs market penetration strategies by offering promotions, limited-time offers, and advertising campaigns to increase the frequency of visits by existing customers and attract customers from competitors. For example, introducing breakfast menus to get existing customers to visit for lunch, dinner, and breakfast.
2. Product Development:
   • Apple Inc. frequently uses product development strategies by innovating and adding new products to its existing lineup. The introduction of the Apple Watch is a good example. Apple leveraged its brand and customer base in the technology market to introduce a completely new product category.
3. Market Development:
   • Netflix expanded its market by entering into international markets outside the United States. Initially available only in the U.S., Netflix has successfully entered markets in Canada, Latin America, Europe, Australia, New Zealand, and parts of Asia, adapting its content and platform for different languages and regional preferences.
4. Diversification:
   • Amazon started as an online bookstore but has since diversified into numerous sectors outside of retail, including cloud computing services (Amazon Web Services), consumer electronics (like Amazon Kindle and Echo), and even film and television production (Amazon Studios). This diversification has allowed Amazon to tap into new markets and revenue streams beyond its original business model.

Each of these examples illustrates how companies can use the Ansoff Matrix to guide their growth strategies and explore different avenues for expansion, whether by building on their existing market and product strengths or venturing into new areas.

How do you build an Ansoff product market expansion grid?

Building an Ansoff Product-Market Expansion Grid involves a straightforward process that allows a business to visualize its growth strategies across two dimensions: products and markets. Here’s a step-by-step guide to creating your own Ansoff Matrix:

Step 1: Draw the Grid

1. Create a two-by-two grid: Draw a large square and divide it into four smaller squares of equal size.
2. Label the axes: Along the top of the grid, label one side “Existing Products” and the other “New Products.” Along the side of the grid, label one side “Existing Markets” and the other “New Markets.”

Step 2: Define the Quadrants

Each of the four quadrants represents a different growth strategy. Label and define them as follows:

1. Market Penetration (Bottom Left Quadrant): Focus on increasing sales of existing products to existing markets. This can involve strategies to increase market share, improve product usage among existing customers, or attract customers from competitors.
2. Product Development (Top Left Quadrant): Involve developing new products to sell to existing markets. This can include modifications or improvements to existing or entirely new products that appeal to the current customer base.
3. Market Development (Bottom Right Quadrant): Entail entering new markets with existing products. This could involve geographical expansion, targeting new demographic segments, or entering new distribution channels.
4. Diversification (Top Right Quadrant): Consider launching new products into new markets. This is the most risky strategy and can include related diversification (where the new products are somehow linked to the existing products or markets) or unrelated diversification (completely new ventures).

Step 3: Analyze and Fill in the Grid

1. Conduct a thorough market and product analysis: Understand your current market position, product portfolio, and potential opportunities or gaps.
2. Ideate strategies for each quadrant: Based on your analysis, brainstorm specific strategies that fit into the four categories. Consider the feasibility, risks, and potential returns of each strategy.
3. Fill in the grid: Write down the strategies you’ve identified in the corresponding quadrants. This might include specific product ideas, market segments, or geographical areas for expansion.

Step 4: Evaluate and Prioritize

1. Assess each strategy: Consider the resources required, potential barriers to entry, competitive landscape, and alignment with your company’s overall strategic objectives.
2. Prioritize strategies: Not all strategies will be viable or equally attractive. Prioritize them based on criteria such as expected ROI, alignment with core competencies, and risk level.

Step 5: Plan for Implementation

1. Develop action plans: For the prioritized strategies, develop detailed action plans, including timelines, milestones, resource allocation, and responsibilities.
2. Monitor and adapt: Once implementation begins, regularly review progress, gather feedback, and be prepared to adjust your strategies as market conditions or internal capabilities evolve.

Creating an Ansoff Matrix can provide a clear visual framework for discussing, analyzing, and deciding growth strategies. Still, it’s important to back up this strategic tool with detailed market research, financial analysis, and realistic assessments of your company’s capabilities and external factors.