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Corporate strategy: Ansoff's Matrix
Edexcel IAL Business · WBS13 Business decisions and strategy
Once a business knows its objectives it needs a strategy: a long-term plan to achieve them. Ansoff's Matrix is a framework for choosing a growth strategy by asking two questions: new or existing products, and new or existing markets?
The four strategies
| Existing products | New products | |
|---|---|---|
| Existing markets | Market penetration (lowest risk) | Product development |
| New markets | Market development | Diversification (highest risk) |
Ansoff's Matrix. Risk rises as the business moves away from what it already knows.
What each involves
- Market penetration: sell more of existing products to existing markets, for example through promotion, loyalty schemes or lower prices. Low risk because the business knows its products and customers, but growth is limited if the market is saturated.
- Market development: sell existing products to new markets: new countries, new customer segments or new channels. Risk comes from not knowing the new customers, rules and competitors.
- Product development: sell new products to existing customers, using brand loyalty and market knowledge. Risk comes from research costs and the chance that the product fails.
- Diversification: new products for new markets. Highest risk because both are unfamiliar, but it spreads risk across markets and may offer the greatest growth. It can be related (connected to current activities) or unrelated.
Using and judging Ansoff
Ansoff helps managers think about risk and resources before committing. Its limitations:
- It does not tell a business which option to choose, only the risk involved; that depends on objectives, finance and the competitive environment.
- It simplifies: many strategies are a mix, and 'new' is a matter of degree.
- It ignores competitors' reactions and the external environment, so it should be used alongside SWOT, PESTLE and Porter's five forces.
- The risk of each option differs between businesses: market development may be low risk for a firm with overseas experience.
Worked example
A UK-based bakery chain plans to sell its existing range in shopping centres in the Gulf states. Identify the strategy and explain one risk.
- The products already exist: existing products.
- The Gulf states are a market the chain does not yet serve: new market.
- So this is market development.
- Risk: tastes, regulations and rents differ, and local rivals know the customers better, so sales may be lower than forecast.
Answer: Market development; the main risk is a lack of knowledge of the new market.
Check yourself
- A soft drinks firm runs a loyalty app to get its current customers to buy its existing drinks more often. Which strategy is this?
- Market development
- Market penetration
- Product development
- Diversification
Show answer
Market penetration. Existing products, existing customers.
- A car maker launches an electric version of its best-selling model to its current customers. Which strategy is this?
- Market development
- Market penetration
- Diversification
- Product development
Show answer
Product development. A new product sold to the existing market.
- A clothing brand sold only in shops starts selling the same range online to customers overseas. This is
- product development
- market development
- diversification
- market penetration
Show answer
market development. Existing products in new markets (new countries and a new channel).
- Which Ansoff strategy carries the highest risk?
- Market penetration
- Market development
- Diversification
- Product development
Show answer
Diversification. Both product and market are unfamiliar.
- Why might a business choose diversification despite its risk?
- To spread risk across different markets and reach new sources of growth
- Because it needs no new knowledge
- Because it is always the cheapest option
- To focus on its existing customers
Show answer
To spread risk across different markets and reach new sources of growth. Diversification reduces dependence on one market.
- Which is a limitation of Ansoff's Matrix?
- It cannot be used by large businesses
- It only applies to service businesses
- It shows the risk of each option but does not say which option is best
- It requires financial statements to work
Show answer
It shows the risk of each option but does not say which option is best. The choice depends on objectives, resources and the environment, which the matrix leaves out.
- Explain why market penetration is usually the lowest-risk strategy in Ansoff's Matrix.
Show answer
The business already knows its products and its customers, so it has the experience and market knowledge to predict demand, which makes failure less likely.. Mention that both product and market are existing, and that the business therefore has knowledge or experience.
Sources
Last updated 8 November 2026. Spotted a mistake? Tell us.