The Product-Market Matrix, also known as the Ansoff Matrix, is a very useful tool to identify and analyze a company’s business expansion opportunities.
This matrix illustrates the four distinct strategies that Ansoff envisioned for enhancing a company’s business: market penetration, market development, product development, and diversification.
The matrix has two product dimensions, two market dimensions, and four quadrants, as shown in Figure 1.
Within these two dimensions four strategies can be developed:
- Market penetration: the company aims to sell its current products in an existing market. The strategy seeks to increase its presence where it already operates.
- Market development: the company wants to sell its existing products in a new market. This strategy should include markets like the current one and project the expansion of its business. It needs to consider factors like geographical location and maturity.
- Product development: the development of new products in existing markets. This can be done through improvements in product and technology.
- Diversification: the development of new products for new markets. This strategy seeks innovation, which inevitably creates risks, as the company is venturing into unknown territory.
Figure 2 illustrates the four strategies placed in the matrix.
Now that you know each of the strategic alternatives, in terms of market and/or product development, of the Ansoff Matrix, you can go ahead and apply them in your company.