The Ansoff matrix (Igor Ansoff, 1957) is a growth planning tool that crosses existing and new products with existing and new markets. It gives four strategies: market penetration (lowest risk), market development, product development and diversification (highest risk).
The four Ansoff strategies
| Strategy | Products / markets | Risk | How it is done |
|---|---|---|---|
| Market penetration | Existing / existing | Lowest | Win market share or increase usage: pricing, promotion, loyalty schemes, better distribution. |
| Market development | Existing / new | Moderate | Sell current products to new geographies or customer segments, or through new channels. |
| Product development | New / existing | Moderate | Launch new or improved products for current customers. |
| Diversification | New / new | Highest | Enter new markets with new products. Related (including vertical integration) or unrelated (conglomerate). |
Each Ansoff strategy in more detail
Market penetration
Selling more of what you already sell to the customers you already have. Tactics include price promotions, loyalty schemes, more advertising, better distribution and buying a competitor in the same market. It is the lowest-risk option because the organisation knows both the product and the customer, but growth is limited once the market is saturated, and aggressive tactics can trigger a price war.
Market development
Taking existing products to new markets: new countries, new customer segments (for example from consumers to businesses) or new channels (online, wholesale). The product risk is low but the market risk rises: the organisation must learn new customers, regulations and competitors. Porter's Diamond and a country PESTEL help assess new countries.
Product development
New or improved products for existing customers. It uses customer knowledge and brand loyalty, but needs research and development, new capabilities and carries the risk that the product fails.
Diversification
New products in new markets: the highest risk because both are unfamiliar. Related diversification builds on existing capabilities, including vertical integration (backward into supply, forward into distribution) and horizontal moves into complementary products. Unrelated (conglomerate) diversification spreads risk across unconnected businesses but rarely creates synergy, and markets often value conglomerates at a discount.
How risk rises across the matrix
Risk increases as you move away from what the organisation knows. Market penetration uses existing knowledge of both products and customers. Market and product development each add one unknown. Diversification adds two. In the exam, use this to justify why a risky option needs more evidence, a pilot, or a partner before full commitment.
How to use the Ansoff matrix in the SBL exam
- Generate options. Use the four boxes to list realistic growth options from the case, not textbook examples.
- Classify each one. Say which box it sits in and what that means for risk.
- Evaluate. Test each option for suitability (does it fit the position?), acceptability (will stakeholders accept the risk and return?) and feasibility (are the resources there?).
- Recommend. Pick one, explain why, and say how to reduce its main risk.
Remember Ansoff is about growth direction. Pair it with Porter's generic strategies, which explain how to compete, and with the method of growth: organic, acquisition or alliance.
Worked example: a heritage charity
For the March 2025 pre-seen, Historic Places:
- Market penetration: better membership benefits and digital marketing to raise visits.
- Market development: international tourism partnerships and school and university programmes.
- Product development: virtual site tours, online history courses, themed events.
- Diversification: hiring out sites as exclusive event venues.
A strong answer would then weigh the reputational risk of over-commercialising a charity against the need for new income.
Limitations
- It oversimplifies: "new" and "existing" are a spectrum, not two boxes.
- It ignores competitors' reactions and the method of growth.
- It says nothing about whether the organisation has the resources to succeed.
Real-world Ansoff matrix examples
| Strategy | Example |
|---|---|
| Market penetration | A supermarket chain cutting prices and expanding its loyalty scheme to win share from rivals in its home market. |
| Market development | A UK retailer opening stores or a website in a new country with its existing ranges. |
| Product development | A smartphone maker launching a smartwatch for its existing customers. |
| Related diversification | A car manufacturer moving into vehicle finance and insurance, or buying a parts supplier (backward vertical integration). |
| Unrelated diversification | A conglomerate with businesses in airlines, finance and media, with little operational link between them. |
Ansoff vs Porter's generic strategies
Ansoff answers where to grow (which products and markets). Porter's generic strategies answer how to compete (on cost or differentiation, broadly or in a niche). A complete SBL recommendation often needs both, plus the method of growth. Use the BCG matrix when the question is about an existing portfolio rather than new growth.
Ansoff and the method of growth
Ansoff tells you which direction to grow. SBL tasks often also ask how. Each direction can be pursued in three ways:
| Method | Advantages | Disadvantages |
|---|---|---|
| Organic growth | Full control, keeps the culture, spreads cost over time | Slow, has to build capability from scratch |
| Acquisition | Fast, buys market share, skills and brands | Expensive, integration and culture risk, often overpays |
| Joint venture or alliance | Shares cost and risk, gives access to a partner's knowledge | Shared control, possible conflict and leakage of know-how |
Diversification into a new market is usually the strongest case for an acquisition or alliance, because the organisation lacks the knowledge to grow organically. Market penetration is usually organic.
Common SBL exam mistakes
- Listing the four boxes with textbook examples instead of options from the case.
- Recommending diversification without addressing its higher risk or the resources needed.
- Forgetting to evaluate. Generating options is only half the marks.
- Ignoring stakeholders: a growth option the board or regulator will not accept fails the acceptability test.
FAQs
What is the Ansoff matrix?
A two by two strategic planning tool, published by Igor Ansoff in 1957, that shows four ways to grow: market penetration, market development, product development and diversification, based on whether products and markets are existing or new.
Which Ansoff strategy is the riskiest?
Diversification, because the organisation moves into both new products and new markets where it has little experience. Market penetration is usually the lowest risk.
What is the difference between related and unrelated diversification?
Related diversification stays within or next to the current industry, such as moving up or down the supply chain (vertical integration). Unrelated, or conglomerate, diversification enters a business with no clear link to the current one.
How is the Ansoff matrix used in ACCA SBL?
To generate and classify growth options for the case organisation, then evaluate each one, for example with suitability, acceptability and feasibility, before recommending one.