You can use the Ansoff Matrix as a strategic framework to understand what growthstrategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growthstrategy can be derived from whether the market is new or existing, and whether the product is new or existing.
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Ansoff matrix in a nutshell
According to the Ansoff matrix, you can evaluate a growthstrategy based on whether you’re trying to grow in an existing market with an existing product (market penetration).
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).
Market penetration
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 usually might move along two lines:
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.
Market development
Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products. Companies utilize the market development strategy to discover new potential buyers of their products or services.
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.
Product development
Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.
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.
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.
Diversification
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.
Indeed, to build a viable business model, over time, a company needs to look into its core business but also beyond it.
This is the logic of using market expansion as a strategy for having the business thrive in the long term.
Companies can move toward market expansion in a tech-driven business world by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
This connects to the framework of disruptive innovation, and what Clayton M. Christensen labeled Innovator’s Dilemma.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In short, a property business strategy must also include a future vision, where the company needs to move beyond what current customers want.
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.
To prevent short-term optimizations from killing the business in the long run.
The marketing mix is a term to describe the multi-faceted approach to a complete and effective marketing plan. Traditionally, this plan included the four Ps of marketing: price, product, promotion, and place. But the exact makeup of a marketing mix has undergone various changes in response to new technologies and ways of thinking. Additions to the four Ps include physical evidence, people, process, and even politics.
In a traditional sense, a proper marketing mix is made of four growth levels: price, product, promotion, and place.
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!
A value proposition is about how you create value for customers. While many entrepreneurial theories draw from customers’ problems and pain points, value can also be created via demand generation, which is about enabling people to identify with your brand, thus generating demand for your products and services.
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.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
Ansoff matrix vs. BCG matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
Both Ansoff and BCG matrices are prioritization tools when it comes to a business development strategy.
The Ansoff matrix looks at business development via four primary strategies: market penetration, market development, product development, and diversification.
The BCG Matrix looks at the various business units to classify them under four main categories:
The aim of the BCG matrix is to move toward a success sequence. Where cash generated by so-called cash cows needs to be invested back in question marks that, over time, must become stars.
And the other main aim of the BCG Matrix is the prevent the disaster sequence, where cash from cash cows gets allocated and invested in question marks that turn into dogs.
Thus, the BCG Matrix looks into ways to generate positive product investment loops to ensure that financial resources from current cash cows can be used to generate new stars’ products.
While avoiding the negative loop, where the cash printed by cash cows, over time, only generates dog products.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
Key Highlights
Ansoff Matrix:
A strategic framework developed by Igor Ansoff to understand growth strategies based on market and product context.
Four growth strategies in the Ansoff Matrix: Market Penetration, Market Development, Product Development, and Diversification.
Market Penetration:
Grow by increasing market share in the current market with existing products.
Achieved through selling more to existing customers or expanding the customer base.
Example: Google’s consistent growth in search market share.
Market Development:
Grow by expanding into new markets with existing products.
Make products available in new markets and geographies.
Example: Facebook’s gradual traction model, starting with universities and expanding to different niches and markets.
Product Development:
Grow by developing new products for the existing market.
Develop new products that benefit the same customer base.
Example: Instagram experimenting with new features to gain traction within the social media market.
Diversification:
Grow by developing new products for new markets, going beyond current market boundaries.
Can be related diversification (adjacent market) or unrelated diversification (far beyond existing market).
Example: Apple launching the iPhone, creating a whole new category (smartphone) beyond the existing music player market.
The Ansoff Matrix and Growth Strategies:
Growth strategies should balance short-term and long-term growth to prevent long-term failure.
Focus on both the practical side and demand generation side of the value proposition.
Utilize alternatives to the Ansoff Matrix like Porter’s Five Forces, SWOT Analysis, BCG Matrix, Balanced Scorecard, Blue Ocean Strategy, GAP Analysis, Scenario Planning, etc.
Ansoff Matrix vs. BCG Matrix:
Both are prioritization tools for business development strategies.
Ansoff Matrix focuses on four strategies, while BCG Matrix classifies business units into categories (cash cows, pets, question marks, and stars) to identify investment priorities and prevent negative loops.
The Ansoff Matrix helps you expand your product growthstrategy 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).
What does Ansoff Matrix measure?
The Ansoff Matrix is really a prioritization tool for your growthstrategy, 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.
The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.
You can use the Ansoff Matrix as a strategic framework to understand what growthstrategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growthstrategy can be derived from whether the market is new or existing, and whether the product is new or existing.
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.
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A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
