You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and whether the product is new or existing.
- Ansoff matrix in a nutshell
- Market penetration
- Market development
- Product development
- Is the Ansoff Matrix still useful?
- Ansoff matrix and the four growth strategies
- Alternatives to the Ansoff Matrix
- Other Strategy Frameworks
Ansoff matrix in a nutshell
Whether you will try to grow in a new market with the same product line (market development).
Whether you will try to grow by developing new products in the existing market (product development). Or growing by developing new products for new markets (diversification).
In a market penetration scenario, the company grows by leveraging its existing products, thus trying to increase its market share in its current market.
Therefore, the company will either try to sell more to its customers or expand its customer base.
In this scenario, the company is not trying to expand the boundaries of its market, but rather to increase its presence in that market.
In short, the company grows by leveraging its products, within its defined market.
Market penetration case study
Since its inception, Google has been able to grow its market share in search, year over year.
By simply leveraging on its core product (the search engine) the company has been able to grow consistently to dominate the search market.
In this scenario, the company grows by leveraging its products to expand in new markets.
Thus, the company will try to make its product available in new markets, and geographies.
Market development case study
When Facebook started to roll out, in the early years. The company followed a gradual traction model.
Where it opened to more and more universities first, in the US. Then moving to other niches and markets, until it opened to anyone.
In this scenario, a company grows by developing new products for the existing market, for instance, by developing new products that can benefit the same customer base.
Product development case study
As Instagram was expanding its market share in the social media space, it started to experiment with new features that enabled it to gain more traction within the same market, thus growing quickly.
In this scenario, a company grows by going beyond its market boundaries and by developing a whole new set of products.
Based on the degree to which the new product line and the market is adjacent compared to the existing market (related diversification) and a product line or it goes far beyond it (unrelated diversification).
Diversification case study
When Apple launched the iPhone, back in 2007, it risked cannibalizing its most successful product, the iPod.
Yet when the iPhone was out, in a few years would create a whole new category (smartphone) much bigger than that of music player devices.
Thus, making Apple develop an entirely new market as a consequence of launching a whole new product.
Is the Ansoff Matrix still useful?
In the Ansoff Matrix, growth is intended as the prioritization of the development of a portfolio of products, based on existing and new markets, and existing and new customers.
This perspective is also very relevant today.
This connects to the framework of disruptive innovation, and what Clayton M. Christensen labeled Innovator’s Dilemma.
Otherwise, the company will fail in the long run due to its focus on profitable customers.
This is the paradox or dilemma. In short, as Clayton M. Christensen highlighted, the right short-term strategy often leads to long-term failure.
As executives are incentivized to prioritize current customers and profitable markets, which move the needle for the company’s quarterly profits.
Rather than looking into new markets, which are neither profitable nor big enough in the short period.
Ansoff matrix and the four growth strategies
To prevent short-term optimizations from killing the business in the long run.
Yet, this is the old way to look at growth.
In today’s context, it’s all about demand generation and the ability to build products that customers want, on the one hand, and the audacity to build and create demand for products that customers don’t even know they want yet!
It’s critical therefore, when looking at the value proposition to look at both, the practical side and the demand generation side!
With these lessons in mind, we want to use the Ansoff Matrix.
And in case, the Ansoff Matrix is not enough, we can use some alternatives.
Alternatives to the Ansoff Matrix
Usually, the Ansoff Matrix is used in conjunction with other strategic frameworks.
Or other strategic frameworks can be used as alternatives to the Ansoff Matrix.
The Ansoff Matrix helps you expand your product growth strategy by leveraging four key strategies: product development (expand new products for existing markets), market penetration (expand existing products for existing markets), diversification (expand by creating new products for new markets), and market development (leverage on existing products to develop new markets).
The Ansoff Matrix is really a prioritization tool for your growth strategy, which enables you to understand whether it makes sense to leverage existing products and markets to grow the business or to leverage on new products and markets to do the same.
Other Strategy Frameworks