The Ansoff Matrix is also known as the Product Market Expansion Grid, the Growth Vector Matrix and the Product Market Matrix H. Igor Ansoff first published the now well-known growth vector matrix or product-market matrix in the Harvard Business Review in the Sept/Oct edition of 1957
This matrix is one of the most popular matrices and is used to identify the basic alternatives strategies, which are options for a firm wanting to grow.
The matrix is based on consideration of the implications of change in the product (technology) and / or the market and is perhaps the simplest and most basic statement of the strategic alternatives open to a firm who desires growth.
A common thread is a relationship between present and future product-markets, which would enable outsiders to see where the firm is heading and to give guidance to inside management.
Common thread is based on three factors - The product market scope, the growth vector, which indicates the direction in which the firm is moving, and the competitive advantage.
Product-market strategy is the route chosen to achieve company goals through the range of products it offers to its chosen market segments. The product-market matrix or growth vector is seen as part of the strategy process and this expansion grid concept is linked to the objectives and the overall determination of strategy.
A Gap analysis is a technique to help the firm establish to what extent its current strategies and product-market mix will enable it to achieve its goals
Ansoff provides an overview of the corporations overall position and from this the analyst would assess the positioning of the products on the Product-market matrix and develop strategies, using the matrix, for growth.
The x-axis of the matrix refers to the products of the firm and they are classified as being either present/existing or new. The y-axis refers to the markets being assessed and they are classified as present or new, where present refers to existing.
The four quadrants represent the four different types of growth strategy available to a firm - Market penetration, product expansion and market expansion represent expansion strategies while diversification is a new and more risky area for companies to enter
Market penetration is an effort to increase company sales without departing from an original product-market strategy at the expense of competitors
Market development involves the identification of new potential users by extension of existing products
Product development retains the present or existing market and develops products that have new and different characteristics so as to improve the performance of the market
Diversification is the most risky of all the approaches as it signifies entry into new unknown territory. It calls for a simultaneous departure from the present product line and present market structure.
The Ansoff matrix used in conjunction with the Gap analysis is a useful tool in assessing which strategy to follow in order to achieve the objectives of the firm.
Adding the category of ‘Related’ to the matrix broadens the classification of products and markets and is not as rigid as the original matrix