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Ansoff's Product-Market Matrix

Ansoff’s product/market growth matrix suggests that a


business’ attempts to grow depend on whether it
markets new or existing products in new or existing
markets.

The output from the Ansoff product/market matrix is a


series of suggested growth strategies which set the
direction for the business strategy.
These are described below:

Selecting a Product-Market Growth Strategy

Market penetration

Market penetration is the name given to a growth


strategy where the business focuses on selling existing
products into existing markets. Market penetration
seeks to achieve following main objectives:

 Maintain or increase the market share of current


products – this can be achieved by a combination
of competitive pricing strategies, advertising, sales
promotion and perhaps more resources dedicated
to personal selling
 Restructure a mature market by driving out
competitors; this would require a much more
aggressive promotional campaign, supported by a
pricing strategy designed to make the market
unattractive for competitors
 Increase usage by existing customers – for
example by introducing loyalty schemes

A market penetration strategy is very much about


“business as usual”. The business is focusing on
markets and products it knows well. It is likely to have
good information on competitors and on customer
needs. It is unlikely, therefore, that this strategy will
require much investment in new market research.

The market penetration strategy is the least risky since


it leverages many of the firm's existing resources and
capabilities. In a growing market, simply maintaining
market share will result in growth, and there may exist
opportunities to increase market share if competitors
reach capacity limits. However, market penetration has
limits, and once the market approaches saturation
another strategy must be pursued if the firm is to
continue to grow.

Market development

Market development is the name given to a growth


strategy where the business seeks to sell its existing
products into new markets. There are many possible
ways of approaching this strategy, including:

 New geographical markets; for example exporting


the product to a new country
 New product dimensions or packaging
 New distribution channels (e.g. moving from
selling via retail to selling using e-commerce and
mail order)
 Different pricing policies to attract different
customers or create new market segments
 Market development is a more risky strategy than
market penetration because of the targeting of
new markets.

The development of new markets for the product may


be a good strategy if the firm's core competencies are
related more to the specific product than to its
experience with a specific market segment.

Product development

Product development is the name given to a growth


strategy where a business aims to introduce new
products into existing markets. This strategy may
require the development of new competencies and
requires the business to develop modified products
which can appeal to existing markets.
A product development strategy may be appropriate if
the firm's strengths are related to its specific customers
rather than to the specific product itself.

In this situation, it can leverage its strengths by


developing a new product targeted to its existing
customers.

Similar to the case of new market development, new


product development carries more risk than simply
attempting to increase market share.

A strategy of product development is particularly


suitable for a business where the product needs to be
differentiated in order to remain competitive.

A successful product development strategy places the


marketing emphasis on:

 Research & development and innovation


 Detailed insights into customer needs (and how
they change)
 Being first to market

Diversification
Diversification is the name given to the growth strategy
where a business markets new products in new
markets. Diversification is the most risky of the four
growth strategies since it requires both product and
market development and may be outside the core
competencies of the firm. In fact, this quadrant of the
matrix has been referred to by some as the "suicide
cell".

However, diversification may be a reasonable choice if


the high risk is compensated by the chance of a high
rate of return. Other advantages of diversification
include the potential to gain a foothold in an attractive
industry and the reduction of overall business portfolio
risk.

For a business to adopt a diversification strategy, it


must have a clear idea about what it expects to gain
from the strategy and an honest assessment of the
risks. However, for the right balance between risk and
reward, a marketing strategy of diversification can be
highly rewarding.
Diversification can be expanding into a new segment of
an industry that the business is already in, or investing
in a promising business outside of the scope of the
existing business. Ansoff pointed out that a
diversification strategy stands apart from the other
three strategies. The first three strategies are usually
pursued with the same technical, financial, and
merchandising resources used for the original product
line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.

Expansion of the existing product line with related


products is one such method adopted by many
businesses. Adding tooth brushes to tooth paste or
tooth powders or mouthwash under the same brand or
under different brands aimed at different segments is
one way of diversification. These are either brand
extensions or product extensions to increase the
volume of sales and the number of customers

The strategies of diversification can include internal


development of new products or markets, acquisition of
a firm, alliance with a complementary company,
licensing of new technologies, and distributing or
importing a products line manufactured by another
firm. Generally, the final strategy involves a
combination of these options. This combination is
determined in function of available opportunities and
consistency with the objectives and the resources of
the company.