The Ansoff Matrix

In one paragraph

Igor Ansoff's grid: you can sell existing products to existing markets, existing products to new markets, new products to existing markets, or new products to new markets. Risk rises as you move away from what you already know.

Market penetration — more of what you already sell, to the people you already sell to. Safest, because you know both the product and the customer. Achieved through more usage, more frequency, taking share, or better retention.

Market development — existing products, new markets. New geography, new segment, new channel. You know the product; you are learning the customer.

Product development — new products, existing customers. You know the customer; you are learning the product. Often the natural route for a business with strong relationships.

Diversification — new product, new market. Both unknowns at once, and by far the riskiest. Related diversification (adjacent to what you do) is less dangerous than unrelated.

The most overlooked box is the first one. Selling more to existing customers has no acquisition cost, no learning curve, and the highest hit rate — and it is boring, which is why businesses skip it and go looking for something new.

How to actually use it

• Before launching anything, ask what penetration you have left. Most businesses have not asked their existing customers for more, and it is the cheapest revenue available.
• If you are considering diversification, name which of the two unknowns you are more confident about — that tells you whether you are really doing product development or market development, which are both safer.

Where it breaks down

• Risk ordering is a generalisation. A well-understood adjacent product can be safer than pushing a saturated existing market.
• It says nothing about how to do any of the four, or about competitor response.

If you are being examined on it

Name the quadrant, justify it against the business's resources and market, and state the risk. Recommending diversification for a business with no cash is a common trap.

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