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What is the Product/Market

Grid? Description

What is the Product/Market

Grid? Description

The Product/Market Grid of 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.

four growth strategies in the Product/Market Grid

1. Market Penetration. Sell more of the same products or services in current markets. These

strategies normally try to change incidental clients to regular clients, and regular client into

heavy clients. Typical systems are volume discounts, bonus cards and Customer Relationship

Management. Strategy is often to achieve economies of scale through more efficient

manufacturing, more efficient distribution, more purchasing power, overhead sharing.

2. Market Development. Sell more of the same products or services in new markets. Thesestrategies often try to lure clients away from competitors or introduce existing products in

foreign markets or introduce new brand names in a market. New markets can be geographic or

functional, such as when we sell the same product for another purpose. Small modifications

may be necessary. Beware of cultural differences.

3. Product Development. Sell new products or services in current markets. These strategies

often try to sell other products to (regular) clients. These can be accessories, add-ons, or

completely new products. Cross-selling. Often, existing communication channels are used.

4. Diversification. Sell new products or services in new markets. These strategies 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. On the other hand diversification

strategies also can decrease risk, because a large corporation can spread certain risks if it

operates on more than one market. Diversification can be done in four ways:

o Horizontal diversification. This occurs when the company acquires or develops new

products that could appeal to its current customer groups even though those new

products may be technologically unrelated to the existing product lines.

o Vertical diversification. The company moves into the business of its suppliers or into

the business of its customers.

o Concentric diversification. This results in new product lines or services that have

technological and/or marketing synergies with existing product lines, even though the

products may appeal to a new customer group.

o

Conglomerate diversification. This occurs when there is neither technological normarketing synergy and this requires reaching new customer groups. Sometimes used

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by large companies seeking ways to balance a cyclical portfolio with a non-cyclical

one.

Although the Product/Market Grid of Ansoff is already decennia old, it remains a valuable model for

communication around business unit strategy processes and business growth. The Matrix is also

known as: the Ansoff Matrix, the Product Market Expansion Grid, and the Growth Vector Matrix.Derek F. Abell has suggested that aThree Dimensional Business Definition is superior to the Model

of Ansoff.

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