Key Idea: The Ansoff matrix sorts the ways a business can grow by two questions: is the product new, and is the market new? This topic is the four strategies, how risky each is, and how to choose.
Existing products
- Market penetration: sell more to the same customers, like a loyalty card.
- Market development: sell the same product to new customers, like crackers to delis.
- The lowest-risk moves.
New products
- Product development: a new product for existing customers, like a gluten-free loaf.
- Diversification: a new product in a new market, like a pizza van at festivals.
- Diversification carries the most risk.
Choosing
- Compare cost, return and risk with the case's figures.
- Check the business has the skills and capacity.
- The matrix names the options; it does not choose.
Porter's generic strategies (HL)
- Cost leadership: the lowest cost in the market, like Goldcrust's $2.20 loaf.
- Differentiation: something customers pay more for, like Maison Duval's $6 croissant.
- Focus: either one, in a narrow segment; avoid being stuck in the middle.
The words to know
| Word | Means | Do not confuse with |
|---|---|---|
| Market penetration | selling more of existing products in existing markets | market development |
| Market development | selling existing products in new markets or to new segments | product development |
| Product development | selling new products to existing markets | research and development |
| Diversification | selling new products in new markets | a wider product range for the same customers |
| Cost leadership | competing by having the lowest costs in the market | simply charging a low price |
| Differentiation | competing by offering something customers value and will pay more for | product development |
Name the box from the case (new or existing product, new or existing market), then weigh its risk and return with the figures given.
Exam-style question
Harvest Lane Foods offers to sell Lena's crackers in its 80 delis and farm shops: about 4,000 packets a month, leaving $0.75 a packet. Lena's would need a second cutting machine costing $20,000. Explain one advantage and one disadvantage for Lena's Bakery Ltd of this market development.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Important: Saying 'this is market development' earns little. Say why it is low or high risk for this business, with its figures, and what could go wrong.
Tap each card to check yourself.
A loyalty card for regulars: which strategy? Market penetration. The same loaves, sold more often to the same customers.
A gluten-free loaf in the same shops? Product development. A new product for existing customers.
A pizza van at summer festivals? Diversification. A new product in a new market: the highest risk.
Why is diversification the riskiest? The business knows neither the product nor the customers.
One limitation of the Ansoff matrix? It shows risk but no figures, and ignores what rivals will do.
A shop in Dunmore selling the same loaves? Market development. Existing products in a new place.
Which Porter strategy fits Lena's Bakery? (HL) Differentiation focus: better bread for one town, at $3 a loaf, not the lowest price.
Exam tips
- Two questions decide the box: new product? new market?
- Risk rises from penetration to diversification.
- Weigh cost, return and risk with the case's figures.
- Check capacity and skills before recommending growth.
- The matrix names the options; your judgement chooses.