MARKET EXPANSION GRID

The Product Market Expansion Grid, also called the Ansoff Matrix, is a tool
used to develop business growth strategies by examining the relationship
between new and existing products, new and existing markets, and the risk
associated with each possible relationship. The matrix aids growth plans
through the introduction of existing or new products, in existing or new
markets.

The matrix is designed so that as a company plots it’s new and existing products
and markets, the amount of risk associated with that strategy corresponds with
its position on the grid. Developing a strategy with existing products and
markets is low in risk, but with new products and markets risk increases.

Product Market Expansion Grid Strategies

The Product Market Expansion Grid offers four main suggested

strategies: Market Penetration, Market Development, Product
Development, and Diversification.

Market Penetration Strategy:

The Market Penetration Strategy creates growth by focusing on introducing

current products to existing markets. In such instances, customers may be aware
of a product but for some reason are not purchasing it. This strategy is typically
used to achieve one or more of the following objectives.

 Increasing or growing the market share of current products with pricing

strategies, promotions, advertising and an increase in sales efforts
 Securing dominance of growth markets by identifying which markets
offer the best prospects for existing products
 Driving competitors out of a mature market with aggressive pricing and
promotional campaigns
 Increasing usage of a product by existing customers through special
offers and loyalty schemes
 For example telecommunication companies all cater to the same
market and employ a market penetration strategy by offering introductory
prices and increasing their promotion and distribution efforts.

Market Development Strategy :

The Market Development Strategy creates growth through the introduction of

current products to new markets. This strategy is used when a company has
identified markets that were previously unidentified or when it wants to expand
its market reach. Here too, there are a number of tactics to enter and develop a
new market for existing products.

 Focus can be turned to new and untapped geographical areas

 New pricing procedures can be used to attract new target audiences
 New distribution channels can be created to offer products in new ways
and to new customers
 For example, sporting companies such as Nike and Adidas recently
entered the Chinese market for expansion. The two firms are offering the
same products to a new demographic.

Product Development Strategy:

The Product Development Strategy is a growth tactic used when a company

introduces new products into existing markets. A company would typically use
this approach when current products are no longer selling. New competencies
and skills may be required by the company to successfully develop products.
This strategy is likely to be more expensive than the market focused tactics and
requires more time. Emphasis needs to be placed on a detailed analysis of
customer needs, research and development, and early introduction to ensure
products are first to market. The company can use the following methods to
stimulate growth.

 Adding new features to existing products

 Innovative and new technologies can be added to products or used to
improve products
 For example, automotive companies are creating electric cars to meet
the changing needs of their existing market. Current market consumers in
the automobile market are becoming more environmentally conscious.

Diversification Strategy:

The Diversification Strategy is used when new products are introduced to new
markets. Diversification is the most risky of all the approaches. This strategy
requires the highest amount of investment of both time and resources.

While this approach is likely to be the most costly, diversification offers a

company security and an advantage should it suffer in one sector of the business
because it can then rely on another. Ansoff reinforces that this strategy will
require the company to acquire new skills, techniques and possibly facilities.
Good feasibility studies and research are key to ensure a winning approach.

There are three diversification strategies that an organisation can consider:

concentric diversification, horizontal diversification, and conglomerate
diversification.

 Concentric Diversification – leveraging a company’s core technical

know-how to diversify its current products into new markets
 Horizontal Diversification – the introduction of products that are
unrelated to a company’s core products to existing markets
 Conglomerate Diversification – the purchasing of another company in
order to diversify
 For example, a leather shoe producer that starts manufacturing phones
is pursuing an unrelated diversification strategy.
How to Use the Product Market Expansion Grid

To make the most of the Product Market Expansion Grid, you’ll need to
understand where your best opportunities are given your current position, the
amount of resources you can expend, and how much risk your company is
capable of carrying.

While the grid is useful for understanding how to think of business growth
options, it stops short of explaining what actions you should take. Once you
have identified your position on the grid, what your internal capabilities are and
how much risk you can take on, the next stop is to conduct market research.
Adding in proper market research will transform this from a theory to
information you can take action on.