The Ansoff Matrix: a legendary tool, but with two logical problems

John G Dawes
Ehrenberg-Bass Institute for Marketing Science
Comments and feedback welcome.
John.Dawes@marketingscience.info
February 2018

Abstract
The Ansoff Matrix has been widely taught as part of business education for over 50 years.
It portrays growth options as a 2 x 2 matrix of options, with one axis representing products
(existing / new) and the representing markets (existing / new). Two logical problems arise from
the matrix. Both problems relate to assumptions or interpretations pertaining to newness. If we
assume a new product really is new to the firm, in many cases a new product will simultaneously
take the firm into a new, unfamiliar market. In that case, one of the Ansoff quadrants, namely
diversification, is redundant. Alternatively, if a new product does not necessarily take the firm
into a new market, then the combination of new products into new markets does not always
equate to diversification, in the sense of venturing into a completely unknown business - which
the model, and many subsequent interpretations of the model in textbooks, assumes.

Keywords: Ansoff Matrix, Growth, Diversification, New Product Strategy.

Electronic copy available at: https://ssrn.com/abstract=3130530

 The Ansoff Matrix: a legendary tool, but with two logical problems

Introduction
The Ansoff Matrix will be familiar to almost anyone who has done a business strategy or
marketing strategy course in the last 50 years. It has prominently featured, and still features, in
marketing strategy / planning texts (e.g. Hollensen, 2010, McDonald and Wilson, 2011) and
business planning and strategy texts (e.g. Campbell et al., 2011). The Matrix is a simple tool for
strategic planning. It portrays business growth options as a 2x2 matrix with axes being products -
existing and new; and markets - existing and new. By market, Ansoff meant the product’s
mission, i.e., “the job which the product is intended to perform” (Ansoff, 1957 p.
113). Combining the 2x2 axes creates four potential strategies. These are summarized below, the
quotes are taken from Ansoff (1957) together with additional interpretation.

Market penetration: “increasing volume of sales to its present customers or finding new
customers, without departing from an original product-market strategy” (p. 114). In other words,
selling more of the same product to the same market.
Product Development: “retains the present mission and develops products that have new and
different characteristics” (p. 114). In other words, selling new products to the same market.
Market Development: “adapt its present product line to new missions” (p.114). In other words,
find a new market for the same product or one with minimal adaptation.
Diversification: “a simultaneous departure from the present product line and the present market
structure” (p. 114). That is, selling new products into a new market.

Ansoff made use of an example in the original 1957 publication to illustrate the basic idea of the
matrix. The example was an aircraft manufacturer currently producing planes for commercial
aviation. The physical item, namely an airplane, was the product. Its current mission was said to
be commercial passenger aviation, that is, transporting consumers. Adapting the companies’
passenger planes to transport cargo was stated as an example of a market development
strategy. That is, the altered product was very similar to what the business made already, but a
new market (a vehicle to transport air cargo rather than people) was found for it.

A problem with subjectivity

Firstly, a potential issue with the use of the matrix is the subjectivity involved in determining what
constitutes one strategy versus another. Using Ansoff’s example, for example, one could argue
that an aviation company would sell its planes to airlines, many of which operate in the
commercial passenger market, but would also offer airfreight. In which case the client list for the
airplane builder’s cargo planes might be many of the same airlines it currently sells to. Therefore
the product mission - providing a transport vehicle to commercial airlines - would hardly change
at all, but the product itself would be arguably different (planes with no passenger seats or

Electronic copy available at: https://ssrn.com/abstract=3130530

windows, but rather, full of cargo bays). Therefore, the example used by Ansoff to illustrate a
market development strategy might therefore arguably be classified as a product development
strategy if we consider the altered aircraft a new product. Alternatively, if we did not classify the
altered aircraft as new (which is a reasonable proposition, since it might only entail internal
modifications), then this strategy might even be considered a market penetration strategy, if the
major clients, namely airlines, offered passenger transport and airfreight. These issues highlight
the subjectivity involved in using the Ansoff matrix. The next section illustrates other issues with
the Matrix, using a typical example of its use in a marketing textbook.

A second example of the use of the Matrix

Kotler et al (2007, p.90-91) provide this example of how the Ansoff Matrix can be used, using the
consumer goods multinational Unilever. The interpretation of the matrix in the example, and the
resultant strategies, are consistent with Ansoff’s original descriptions. The example is then
utilized to highlight two logical inconsistencies in the matrix.

Kotler et al (2007 p.90-91) suggest that Unilever Foods could potentially consider four growth
strategies:

Market penetration – more sales to present customers without changing products. For example,
cutting the price of its branded margarine or increasing its advertising.

Market development – identifying new markets for current products. For example, review
demographic groups such as kids, teenagers, young adults - to see if any of these groups could be
encouraged to buy, or buy more of Unilever’s ice cream. Or, restaurants, food services or
hospitals to see if sales to these buyers could be increased. It is notable that whilst these authors
portray this as a market development, it is quite likely Unilever would already sell to all of these
groups or client types so why this is cast as identifying new markets is unclear.

Product development – offering modified or new products to current markets. Unilever Food’s
products could be offered in new sizes, new packaging, or launch new products such Flora
cholesterol lowering margarine. Note that in this example the products are new, but quite within
the scope of Unilever’s product line and production and marketing competencies.

Diversification – as stated by Kotler et al (2007 p.90-91), under this strategy Unilever could start
up or buy businesses entirely outside its current products and markets. For example the company
could move into the growing health and fitness industry, which includes gym equipment, health
foods and slimming programs.

We now discuss two logical inconsistencies in the Ansoff Matrix that are made apparent by this
example. In short, they are:

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1. If the definition of a new product encompasses ‘mildly’ new-to-the-firm additions such as a
food company adding new package sizes or product formulations, then the strategy of
diversification, defined as new products and new markets, is not necessarily a “break with past
patterns … and an entry onto new and uncharted paths” (Ansoff, 1957), nor necessarily inherently
risky.

2. If a firm develops, acquires or sells a really new product – that is, something as yet unfamiliar
to the firm, arguably this simultaneously takes the firm into a new market. In which case the
matrix cell of diversification is redundant.

These points are now discussed in more detail.

Diversification ?
In the Kotler example above, it is suggested Unilever could develop new products – incrementally
new - to sell into its existing markets, customer groups or segments. The strategy is therefore new
products / same segments, which equates to a product development strategy. However, the
problem with this logic is that if we accept that new products can be incrementally new, then the
strategy of diversification – a combination of new products and new markets – is not necessarily a
risky break with past patterns. To re-iterate the Unilever example: the product development
strategy involves new sizes or packaging; and the market development strategy is chasing
additional sales in demographic groups or institutional buyers. Therefore the combination of new
products (product development strategy), and new markets (market development strategy) –
which the matrix classifies as diversification – should logically involve both these initiatives. But
doing these initiatives in tandem does not sound like a marked break with the past, nor highly
risky.

However, offering new sizes or altered products to different client groups does not at all resemble
the actual example given by Kotler et al of diversification for Unilever. Rather, their example
involves venturing completely outside Unilever’s scope of business expertise, to try running gyms
or selling fitness equipment. It appears that when authors such as Kotler et al use the term new
products for the product development strategy, they consider mildly different products but when
they consider new products for the diversification strategy, they use examples of completely
different products to what the firm currently sells. This may be because the original definition of
diversification by Ansoff included the idea that it necessarily involved a risky break from the past.

Really New Products ?

One might argue that the example of new products given by Kotler et al – packaging or formula
changes – are rather trivial and therefore do not constitute ‘new’. Therefore, let us now consider
Unilever Foods launching product that is much more ‘new’ – to it. Suppose Unilever Foods

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decided to sell Vitamins. At face value, according to Ansoff, this is a new product development
strategy – new product with different characteristics, same markets (consumers, grocery retailers
and so on). The logical problem that arises now is that there is an assumption that a business can
venture into quite a different product without its market changing. Arguably, Unilever knows
nothing about the vitamin market, and the needs, wants or influences of consumers when
purchasing vitamins. It could learn about these issues, by hiring relevant staff and doing research,
but the key point is by launching or adding a really new product to the business, the company has
simultaneously moved into a new market. In which case the diversification quadrant of the
Ansoff Matrix is redundant.

To summarise, there are two logical inconsistencies embedded in the Ansoff matrix

1. If we accept new products can be incrementally new, then the combination of new products
and new markets does not necessarily equate to a risky break from the past, as elucidated by
Ansoff (1957) and echoed by other authors (Gilligan and Wilson, 2009, Westwood, 2005).
2. If we reject the notion that new products can be incrementally new, and must be really new (to
the firm) then it is very likely that developing or adding such a really new product simultaneously
takes the firm into a new market, in which case there is no need for a separate strategy called
diversification.

These shortcomings, as well as the apparent subjectivity involved in classifying the various
Ansoff strategies, should be recognized by the academics who include the Ansoff Matrix in their
marketing or strategy curriculum.

References

Ansoff, H I (1957), "Strategies for diversification", Harvard Business Review, Sept-Oct, 113-124
Campbell, David, Edgar, David & Stonehouse, George (2011), Business Strategy: an
Introduction, Palgrave Macmillan, Australia
Gilligan, Colin & Wilson, Richard (2009), Strategic Marketing Planning, Elsevier, United
Kingdom
Hollensen, Svend (2010), Marketing Planning A Global Perspective, McGraw Hill, United
Kingdom.
Kotler, Philip, Brown, Linden, Adam, Stewart, Burton, Suzan & Armstrong, Gary (2007),
Marketing, Pearson Education Australia, Frenchs Forest.
McDonald, Malcolm & Wilson, Hugh (2011), Marketing Plans, how to prepare them how to use
them, John Wiley & Sons, United Kingdom.
Westwood, John (2005), The Marketing Plan Workbook, Kogan Page, London.