Ansoff Product/Market Grid

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 Ansoff Product/Market Grid has two dimensions: products and markets. Over these 2 dimensions, four growth strategies can be formed:

• Market penetration or operating plans,
• 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 Ansoff 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).

Ansoff Product/Market Expansion Grid is a portfolio-planning tool for identifying organization growth opportunities. In order to grow, an organization has to consider both its markets and its products.  A market penetration strategy suggests that growth is possible by achieving a deeper penetration (sell more) of its present product within a present market.  An organization could sell more of its current product(s) to its current customers, attract competitors’ customers, or convince non-users to begin using the product, thereby increasing its existing market share. Another growth alternative is to try and identify new markets for its present products.  By employing a market development strategy, an organization might identify new markets for its product by determining potential user groups for its current products, seeking additional distribution channels in its present locations, or offering its product for sale in new geographic locations, either domestic or international. 

Another alternative is to develop new products for an existing target market.  Through a product development strategy, an organization might create an augmented, or entirely new, product in order to stimulate the current markets and create new ones.  Finally, an organization could consider diversification as a growth strategy.  The organization develops new products to sell to new markets.  Also, it could involve acquiring or starting businesses outside current markets.

The Ansoff Product-Market Grid shown above may help you to clarify your thoughts about the direction that diversification could take you. Sales targeting can help to spot market gaps. By focusing on specific market sectors and sub-sectors, new markets may be found for existing products. The research needed for targeting can uncover demand for new or changed products within existing markets. Customer surveys can also point to changing demand for new products.

The grass on the other side of the fence often does look greener! But that may be because it has taken skills and resources to get it looking that way. Be certain that you either have these, or can acquire them, before leaping over the fence!