The Product-Market Growth Matrix, also known as the Ansoff Matrix, is a business framework that has proven to be very useful in business unit strategy processes to determine business growth opportunities. The Product-Market Matrix has two dimensions: products and markets.
Over these 2 dimensions, four growth strategies can be formed.
Growth Strategies in the Product-Market Growth Matrix
- 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.
- Market Development. Sell more of the same products or services in new markets. These strategies 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.
- 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.
- 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:
- 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.
- Vertical diversification. The company moves into the business of its suppliers or into the business of its customers.
- 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.
- Conglomerate diversification. This occurs when there is neither technological nor marketing synergy and this requires reaching new customer groups. Sometimes used by large companies seeking ways to balance a cyclical portfolio with a non-cyclical one.
This framework 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 a Three Dimensional Business Definition is superior to the Model of Ansoff.
Igor Ansoff (December 12, 1918 – July 14, 2002) was a Russian American, applied mathematician and business manager. He is known as the father of Strategic management. He is known worldwide for his research in three specific areas:
- The concept of environmental turbulence;
- The contingent strategic success paradigm, a concept that has been validated by numerous doctoral dissertations; and
- Real-time strategic management.
He has consulted with hundreds of multinational corporations including, Philips, General Electric, Gulf, IBM, Sterling and Westinghouse.Business frameworks like Product-Market Growth Matrix are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.