Product/Market Grid
(Ansoff)

Market Penetration, Market Development, Product Development, Diversification. Explanation of Product/Market Grid of Igor Ansoff. ('57)

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. 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.
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:
   • 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.

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 a Three Dimensional Business Definition is superior to the Model of Ansoff.

Product/Market Grid Forum

Ansoff admirer - UK

Turbulence, Planning and Paralysis

"Igor Ansoff (1918-2002) was (one of) the first to recognize that the amount of strategic 'turbulence' (~pace of change) was increasing and to devise a structured strategic planning process to cope with this. But he also coined the humorous term 'paralysis by analysis', by which he warns for an excessive over-emphasis on strategic analysis and planning."

4

Nachiketa - IND

Ansoff Matrix

"The Ansoff matrix is a better way to know about market and products. With the Ansoff model any company can design its market or product strategy per market scenario."

0

John - USA

Ansoff Matrix Applications

"The Products/Markets grid helps in differentiating between game changing & orbit changing moves of an organisation from a strategy perspective."

18

Pieter - NL

Risks of Diversification

"Typical risks of a Diversification strategy in the Ansoff Grid are: 1. requires a company to acquire new skills, new techniques and new facilities 2. Insufficient management know-how 3. Insufficient management span of control 4. May require risky acquisitions 5. Loss of brand focus or credibility."

18

Pieter - NL

Risks of Product Development

"Typical risks of a Product Development strategy in the Product Market Grid by Ansoff include: 1. Uncertainty of new technology 2. Teething troubles of the new products. 3. Time pressure due to competition."

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Pieter - NL

Risks of Market Development

"Typical risks in the Ansoff framework of a Market Development strategy are: 1. New markets may be different then expected (especially in new geographic markets with culatural differences). 2. Costly mofifications may be required."

1

Pieter - NL

Risks of Market Penetration

"Typical risks of a Market Penetration strategy in the Ansoff Growth Strategies model are: 1. May lead to a price war with a competitor with the same strategy. 2. Low pricing could be detrimental to the perceived brand value and to the company reputation."

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