Product/Market Grid
The product/market grid of
Igor Ansoff is
a model that has proven to be very useful in business unit strategy processes to
determine business growth opportunities. The product/market grid has two
dimensions: products and markets.
Over these 2 dimensions, four
growth strategies can be formed:
- market penetration,
- market development,
- product development, and
- diversification.
Market Penetration:
Company strategies based on
market penetration normally focus on changing incidental clients to regular
clients, and regular client into heavy clients. Typical systems are volume
discounts, bonus cards and customer relationship management.
Market Development:
Company strategies based on
market development often try to lure clients away from competitors or introduce
existing products in foreign markets or introduce new brand names in a market.
Product Development:
Company strategies based on
product development often try to sell other products to (regular) clients. This
can be accessories, add-ons, or completely new products. Often existing
communication channels are leveraged.
Diversification:
Company strategies based on
diversification are the most risky type of strategies. Often there is a
credibility focus in the communication to explain why the company enters new
markets with new products. This 4th quadrant (diversification) of the
product/market grid can be further split up in four types:
- horizontal diversification
(new product, current market)
- vertical diversification
(move into firms supplier's or customer's business)
- concentric diversification
(new product closely related to current product in new market)
- conglomerate diversification
(new product in new market).
Although already decennia old,
the product/market grid of Ansoff remains a valuable model for communication
around business unit strategy processes and business growth.
Ansoff Matrix
(Also known as the Product/Market
Expansion Grid)
For a whole
variety of reasons, there are times when as an individual or in business you
want or need to expand or change your field or market. In business, you might
need to achieve economies of scale, make more money for investors, or gain
national or even global recognition of their brand. As an individual, you may
want to change company, or even career.
Having decided
that you want to grow your business or career, you�ll have hundreds of ideas
about things you could do. For your business, this means new products, new
markets, new channels, or new marketing campaigns. For your career, it means new
skills, new roles, and even new industries.
That�s
great! But which ones should you choose? And why?
Using a strategic approach,
such as the Ansoff Model or Matrix, helps you evaluate your options and choose
the one that suits your situation best, and gives you the best return on the
potentially considerable investment that you�ll need to make.
Understanding the Tool
The Ansoff Matrix was first published in the Harvard Business Review in 1957,
and has given generations of marketers and small business leaders a quick and
simple way to develop a strategic approach to growth.
Sometimes
called the Product/Market Expansion Grid, it shows four growth options for
business formed by matching up existing and new products and services with
existing and new markets, as shown in Figure 1 below.
The Matrix
essentially shows the risk that a particular strategy will expose you to, the
idea being that each time you move into a new quadrant (horizontally or
vertically) you increase risk.
The Corporate Ansoff Matrix
Looking at it from a business perspective, staying with your existing product in
your existing market is a low risk option: You know the product works, and the
market holds few surprises for you.
However, you expose yourself to a whole new level of risk either moving into a
new market with an existing product, or developing a new product for an existing
market. The market may turn out to have radically different needs and dynamics
than you thought, or the new product may just not work or sell.
And by moving two quadrants and targeting a new market with a new product, you
increase your risk to yet another level!
Personal Ansoff
Looking at it from a personal perspective, just staying where you are is
(usually!) a low risk option.
Switching to a new role in the same company, or changing to a similar job with a
company in the same industry is a higher risk option. And switching to a new
role in a new industry has an even higher level of risk.
This is shown
in figure 2, below.
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Tip 1:
Interpret this according to your circumstances. For example, an
accountant may find it easy to switch from one industry to another. But
a salesman doing this might lose contacts that would take a while to
rebuild.
Tip 2:
Don't be too scared by risk - if you manage risk correctly (for example,
by researching carefully, making contingency plans, arranging insurance,
and suchlike) and "calculate" it well, then it can be well worth taking
quite large risks. |
How to Use the
Tool
Use of the
tool is straightforward:
-
Start by
downloading either our free
Corporate Ansoff or
Personal Ansoff worksheet. Then plot the approaches you�re considering
on the matrix. The table below shows how you might classify different
approaches.
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Market
Development
Here, you�re targeting
new markets, or new areas of the market. You�re trying to sell more of
the same things to different people. Here you might:
-
Target different
geographical markets at home or abroad
-
Use different sales
channels, such as online or direct sales if you are currently
selling through the trade
-
Target different
groups of people, perhaps different age groups, genders or
demographic profiles from your normal customers.
|
Diversification
This strategy is risky:
There�s often little scope for using existing expertise or achieving
economies of scale, because you are trying to sell completely different
products or services to different customers
Its main advantage is
that, should one business suffer from adverse circumstances, the other
is unlikely to be affected.
|
|
Market
Penetration
With this approach,
you�re trying to sell more of the same things to the same people. Here
you might:
-
Advertise, to
encourage more people within your existing market to choose your
product, or to use more of it
-
Introduce a loyalty
scheme
-
Launch price or
other special offer promotions
-
Increase your sales
force activities, or
-
Buy a competitor
company (particularly in mature markets)
|
Product Development
Here, you�re selling more things to the same people. Here you might:
-
Extend your product
by producing different variants, or packaging existing products it
in new ways
-
Develop related
products or services (for example, a domestic plumbing company might
add a tiling service � after all, if they�re plumbing in a new
kitchen, most likely tiling will be needed!)
-
In a service
industry, increase your time to market, customer service levels, or
quality.
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-
Manage
risk appropriately. For example, if you�re switching from one quadrant to
another, make sure:
-
That you research the
move carefully;
-
That you build the
capabilities needed to succeed in the new quadrant;
-
That you�ve got plenty
of resources to cover a possible thin period while you�re developing and
learning how to sell the new product, or are learning what makes the new
market tick; and
-
That you have firstly
thought through what you have to do if things don�t work out, and that
failure won�t �break� you.
Tip:
Some marketers use a nine-box grid for a more sophisticated analysis. This adds
�modified� products between existing and new ones (for example, a different
flavor of your existing pasta sauce rather than launching a soup), and
�expanded� markets between existing and new ones (for example, opening another
store in a nearby town, rather than going into online sales).
This is useful as it shows the difference between product extension and true
product development, and also between market expansion and venturing into
genuinely new markets (see Figure 3). However, be careful of the three �options�
in grey, as they involve trying to do two things at once without the one benefit
of a true diversification strategy (escaping a downturn in one product market).
References
http://www.valuebasedmanagement.net/methods_productmarketgrid.html
http://www.marketing-magic.biz/archives/archive-marketing/gap-analysis.htm
http://www.mindtools.com/pages/article/newTMC_90.htm |
