The Ansoff Matrix and Porter’s Five Forces are strategy tools that appear in A Level Business decision-making questions. Students who memorise the diagrams but never apply them tend to score low. Here is how each model works and how to use it in an answer.
The Ansoff Matrix
The Ansoff Matrix shows four growth strategies based on whether a business sells existing or new products in existing or new markets.
| Existing products | New products | |
|---|---|---|
| Existing markets | Market penetration (lowest risk) | Product development |
| New markets | Market development | Diversification (highest risk) |
Examples
- Market penetration: a local restaurant runs promotions to attract more customers in the same area.
- Product development: the same restaurant launches a new menu.
- Market development: it opens in another city.
- Diversification: it starts selling packaged food nationally.
Evaluating Ansoff
Higher risk can bring higher returns, but diversification needs more investment and may fail. The right strategy depends on finance, competitors, skills and the size of the market.
Porter’s Five Forces
This model assesses how attractive an industry is by looking at five pressures:
- Threat of new entrants: low barriers mean more competition.
- Bargaining power of suppliers: few suppliers can push up costs.
- Bargaining power of buyers: powerful customers push prices down.
- Threat of substitutes: alternatives reduce demand.
- Competitive rivalry: intense rivalry reduces profit.
Using Both Models Together
Five Forces helps a business judge the market it is in, and Ansoff helps it choose how to grow. For example, high rivalry in an existing market may push a business toward product development or market development. Compare with SWOT and PEST analysis for internal and external factors.
Limitations
Both models are simplified and static. They do not show how conditions change over time, and they depend on accurate information about the market.
Exam Tips
Always name the strategy or force, link it to the business in the case, and give a justified recommendation. “Which strategy should it choose?” demands a judgement, not a definition.
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Frequently Asked Questions
What are the four strategies in the Ansoff Matrix?
Market penetration, product development, market development and diversification.
Which Ansoff strategy has the highest risk?
Diversification, because it involves new products in new markets.
What are Porter’s Five Forces?
Threat of new entrants, supplier power, buyer power, threat of substitutes and competitive rivalry.
Are these models in the A Level Business syllabus?
They are commonly covered in strategy topics at A Level. Check your syllabus code (9609) for the exact content.
