Sales Loves MarketingA product matrix, better known as the Ansoff matrix, is a simple grid for choosing how to grow. It asks two questions: are we selling existing or new products, and to existing or new markets? The answers give four strategies, each with a different level of risk.
Where does the Ansoff matrix come from?
Igor Ansoff, a mathematician and business manager, set out the product-market idea in his 1957 Harvard Business Review paper "Strategies for Diversification". The four-box grid built on that idea carries his name. Read our longer guide to the Ansoff matrix.
What are the four strategies?
| Existing products | New products | |
|---|---|---|
| Existing markets | Market penetration (lowest risk) | Product development |
| New markets | Market development | Diversification (highest risk) |
Market penetration
Sell more of what you already sell to the customers you already serve. Typical moves are pricing changes, more promotion, better quality or winning customers from competitors. It is the safest option because you know both the product and the market. See strategies for market penetration.
Market development
Take existing products to new customers: a new country, a new industry or a new segment. It needs little product work, but you must learn the new market. The risk is moderate.
Product development
Build new products for the customers you already have. It relies on your brand and customer relationships but needs research, development and launch effort. The risk is also moderate.
Diversification
Launch new products in new markets. You have to learn both at once, so this is the riskiest option. Diversification can be related to what you already do, or completely unrelated.
An example from B2B software
A company sells scheduling software to dental clinics in the Netherlands.
- Market penetration: run a referral programme to win more Dutch clinics.
- Market development: launch the same product for clinics in Germany, or for physiotherapy practices.
- Product development: add online payments for its existing dental customers.
- Diversification: build accounting software for hotels.
The matrix doesn't pick the answer. It makes the trade-off between growth and risk visible, so the team can discuss it.
What are the limits of the Ansoff matrix?
- It ignores what competitors are doing and how attractive each market is.
- It doesn't check whether the company has the skills, money or structure to carry out a strategy.
- The lines can blur. A new product often attracts new customers, so product development and diversification can overlap.
Use it alongside market research, financial plans and tools such as the product life cycle.
Ansoff matrix vs BCG matrix
The two are often confused. The Ansoff matrix compares growth strategies. The BCG growth-share matrix, popularised by Boston Consulting Group in 1970, sorts a company's existing products by market share and market growth into stars, cash cows, question marks and dogs.
Related terms
Frequently asked questions
What are the four strategies of the Ansoff matrix?
Market penetration sells more of your existing products to your existing market. Market development takes existing products to new markets. Product development creates new products for your existing market. Diversification launches new products in new markets.
Which Ansoff strategy is the riskiest?
Diversification, because the company has to learn a new product and a new market at the same time. Market penetration is the least risky, since both the product and the customers are already known. Market development and product development sit in between.
Is the Ansoff matrix the same as the BCG matrix?
No. The Ansoff matrix compares growth strategies by product and market. The BCG growth-share matrix, popularised by Boston Consulting Group in 1970, sorts a company's existing products by market share and market growth into stars, cash cows, question marks and dogs.