Market penetration
Existing products, existing markets. Win more share.
- How
- Marketing, product improvements, pricing
- Risk
- Lowest, in our view
The Ansoff matrix, four ways to grow, worked
The Ansoff matrix, also called the product/market expansion grid, sorts a company's growth options by whether the products and the markets are existing or new. Market penetration sells existing products in existing markets. Market development takes existing products to new markets. Product development brings new products to existing markets. Diversification, new products in new markets, is the most ambitious and carries higher risk. Igor Ansoff developed it in the 1950s. Soreno, an AI voice interview practice app for consulting, investment banking and other finance candidates, runs a free growth strategy case with no sign-up, where you decide where a company's growth should come from, and full mock cases with scored feedback.
Updated
- The axes
- Products and markets, existing or new
- Four boxes, one growth option in each
- Origin
- Igor Ansoff, 1950s
- Harvard Business Review, 1957
- Worked case
- 4 options, 1 growth goal
- Invented by us, every number shown
- Free practice
- No sign-up
- A full growth strategy case with a timer
What is the Ansoff matrix?
Virginia Commonwealth University's marketing textbook describes the product/market expansion grid, also known as the Ansoff matrix, as a tool for finding growth opportunities by looking at existing and new products and markets. It credits Igor Ansoff, who developed it in the 1950s. In our reading, the further a box sits from what the company sells today, the more the company has to learn.
Market development
Existing products, new markets. Sell them somewhere new.
- How
- New regions, new customer groups, new channels
- Risk
- A market you don't know yet
Product development
New products, existing markets. Sell your customers more.
- How
- New products, extensions, improvements
- Risk
- A product you haven't made yet
Diversification
New products, new markets. The most ambitious move.
- How
- Related or unrelated to today's business
- Risk
- Higher, both sides are unfamiliar
Worked example: Brightwell Dairy (ours)5 steps
Brightwell Dairy, an invented regional dairy with $500 million of revenue, wants to add $100 million of revenue in five years. Where should that growth come from? This case and every number in it are invented by Soreno for practice.
Size the goal
$100 million, 20% growth
$100 million on $500 million is 20% growth in five years. Say it as a number before you list options, so each option can be judged by how much of the gap it closes.
One option per box
Four options, sized
Market penetration: win more of its home region's milk sales, 3 more share points of a $1.5 billion market, so $45 million a year by year five. Market development: sell its milk in the next state over, 4% of a $1 billion market, so $40 million a year by year five. Product development: launch oat drinks through its grocers, 10% of a $300 million market, so $30 million a year by year five. Diversification: sell plant-based cheese to restaurants, 5% of a $200 million market, so $10 million a year by year five.
Order by risk
Closest to home first
Penetration uses the products, plants and grocers Brightwell already has. Oat drinks reuse its grocers and its brand. The next state needs new distribution. Plant-based cheese for restaurants is new on both sides and adds only $10 million, 10% of the goal.
Add it up
$115 million against $100 million
Penetration and oat drinks add $75 million, short of the goal. The next state adds $40 million, for $115 million in all, a 15% cushion in case one option falls short.
Recommend
Three boxes, not four
Start penetration and oat drinks now, plan the next state for year two and drop diversification. The main risk: the 3 share points in the home region may have to be bought with lower prices, so test the margin before committing.
What each strategy meansFrom two university textbooks
From Virginia Commonwealth University's and the University System of New Hampshire's open textbooks.
Penetration
More share of the market you have
Increasing market share for existing products in existing markets, often through marketing campaigns, product improvements and pricing. The New Hampshire chapter notes firms often lean on advertising for it.
Market development
Existing products, somewhere new
Entering new markets with existing products: new regions or new groups of customers. A new retail channel counts too, the New Hampshire chapter says, like Starbucks selling its beans in grocery stores.
Product development
New products for the customers you have
Introducing new products to existing markets, using the customers and distribution channels the company already has.
Diversification
New on both sides
New products in new markets. VCU calls it the most ambitious growth strategy, with higher risk because both the product and the market are unfamiliar. It can be related to the current business or unrelated.
The source
Ansoff, Harvard Business Review, 1957
The New Hampshire chapter cites H. I. Ansoff's article Strategies for Diversification in Harvard Business Review, 1957, for market penetration, market development and product development, and notes a firm can use one, two or all three.
From Virginia Commonwealth University: Strategic Planning and University System of New Hampshire: Corporate-Level Strategies.
How do you use the Ansoff matrix in a case interview?
In our experience, interviewers want the matrix's logic when a client asks how to grow, not a drawing of it. Here is what separates a strong answer.
Size the goal first
A growth target turned into a number tells you how many boxes you need. One option rarely closes a large gap.
Put a number in every box
Market size times the share you could reach gives each option a value. A box with no number is a brainstorm, not an answer.
Order by distance from today
The further an option is from today's products and customers, the more it has to prove. Say why each one is closer or further.
Leave it out on profit problems
Skip it when the problem is falling profit, not growth, or when the client has several businesses competing for money. Use a profit tree or the BCG matrix there.
6 case questions where the Ansoff matrix helps
Each of these asks how a company should grow. Under each is what a strong answer does.
Find the growth
A growth goal, several ways to reach it.
A gym chain wants to double its revenue in five years. How would you approach the problem?
Sizes the gap, then sorts options into the four boxes: more members at today's gyms, new cities, new formats, new customers, each with a number. Practice it, see a model answer
A regional bank's customer growth has stalled. How would you structure the problem?
Asks first why growth stalled, then compares winning more local customers with new products for current ones and new regions. Practice it, see a model answer
Brainstorm ways a movie theater chain could grow its revenue.
Sorts the ideas into the four boxes: more visits from today's moviegoers, new audiences, new things to sell them and moves further out, then sizes the biggest two. Practice it, see a model answer
New products or new markets
One box, judged in depth.
A consumer goods company is deciding whether to launch a premium pet food line. How would you structure the decision?
Treats it as product development: are these the customers the company already reaches, how big is the premium segment and can it win a profitable share? Practice it, see a model answer
A furniture retailer with 60 stores wants to start selling online. How would you structure the decision?
Treats it as a new channel for existing products, sizes the online sales and checks how many come from the stores' own customers. Practice it, see a model answer
A software company is launching a new analytics add-on for its existing customers. How would you set the price?
Treats it as product development: which current customers would pay for it, how many of them and what it is worth to them. Practice it, see a model answer
What mistakes do candidates make with the Ansoff matrix?
The ones we hear most in growth cases.
Four boxes, no numbers
Filling every box with ideas and never sizing any of them. Size each one, even roughly.
Using it on a profit problem
If revenue is fine and costs are rising, growth options answer the wrong question. Start with the profit tree.
Treating diversification as the bold answer
Both the product and the market are new, so it carries the most risk. Recommend it only when the closer boxes can't reach the goal.
Skipping whether the market is worth it
Market development is market entry. Check the new market's size, rivals and profit, using five forces if the industry is unfamiliar.
Forgetting the cost of share
Penetration often means lower prices or more marketing. Check the margin on the extra sales, not just the revenue.
Decide where growth comes from out loud
Soreno's AI interviewer runs a full case, hands you market sizes when you ask, pushes back on your riskiest option and scores the session. Start your free week.
Questions people ask
What is the Ansoff matrix?
A 2 by 2 grid that sorts growth options by whether the products and markets are existing or new: market penetration, market development, product development and diversification. It is also called the product/market expansion grid.
Who created the Ansoff matrix?
Igor Ansoff, in the 1950s. The University System of New Hampshire's open textbook cites his 1957 Harvard Business Review article, Strategies for Diversification.
Which Ansoff strategy is the riskiest?
Virginia Commonwealth University's textbook calls diversification the most ambitious option, with higher risk because both the product and the market are unfamiliar. In our view it is the riskiest of the four, and market penetration is usually the safest, since nothing about the product or the customer changes.
What is the difference between related and unrelated diversification?
Related diversification moves into a new industry with important similarities to the current one, like Disney buying ABC. Unrelated diversification moves into one with no important similarities, like Coca-Cola buying Columbia Pictures in 1982.
What is the difference between the Ansoff matrix and the BCG matrix?
The Ansoff matrix lists ways to grow. The BCG matrix compares businesses a company already owns, by market growth and relative share, to decide where money goes. Our BCG matrix guide works one through.
Should I draw the Ansoff matrix in a case interview?
Rarely. Use its four options to make sure your growth ideas cover existing and new products and markets, then size each one. The interviewer wants the numbers and the order, not the grid.
Is the Ansoff matrix the same as SWOT?
No. A SWOT takes stock of where a company stands today. The Ansoff matrix sorts where it could grow next. A SWOT can tell you which Ansoff box plays to your strengths.
What are the limits of the Ansoff matrix?
In our view, two. It shows where growth could come from but not whether it pays, so size each option and check its margin. And it leaves out rivals, so for a new market check who is already there and how they would respond.