ANSOFFS PRODUCT MARKET MATRIX

The Ansoff Product Market Matrix provides a framework for thinking about different
options for growth. In essence, the matrix is built around the idea that a growth
strategy may focus on either existing or new products and either existing or new
markets. This Matrix produces four broad growth strategies.
First, market penetration. Market penetration means trying to sell more of the
existing product in the existing market. To do this an organisation may try to
persuade existing users to use more, persuade non users to use, or attract consumers
from competitors. There are many examples of the marketing tactics that would
support a market penetration strategy. For example, promotional offers such as air
miles are designed to encourage existing customers to make greater use of their credit
cards. Similarly in Malaysia, Public Bank offers a free mobile phone to new and
existing customers for its Ace Account subject to a certain minimum balance. This
again is an attempt at market penetration by encouraging new purchases from existing
and new customers. Usually a market penetration strategy is more appropriate when
the market still has room to expand. In a mature market where most likely buyers
have already bought the product market penetration is more difficult because the
organisation will need to attract customers direct from competitors. And this is often
more difficult than trying to attract new customers to the market. In the UK the
market for current accounts is largely saturated. One or two of the newer entrants
such as the internet bank Smile have tried to follow a market penetration strategy by
actively encouraging customers of other banks to switch their account. But most
providers appear to be focussing their efforts on retaining customers and exploiting
opportunities to cross sell.
Second, market development. Market development involves the organisation trying
to identify new markets for its existing product. Most commonly this strategy is
associated with expansion into new markets geographically. For example, when
American International Group became the first foreign insurer to obtain a license to
operate in China it was engaging in a market development strategy via geographical
expansion. In the US Morgan Stanley was originally established as an investment
bank. The Glass-Steagall Act prevented an expansion into other domestic markets
and so Morgan Stanley grew primarily by overseas expansion. However, deregulation
has also meant that in many markets a movement into new segments is an important
approach to market development. For example, following its conversion from
building society to bank the UK based Alliance and Leicester pursued a market
development strategy by expanding its banking services into corporate markets.
Third, product development. Growth through product development means developing
related products and modifying existing products to appeal more effectively to current
markets. The diversity of new mortgage products that have become available in the
UK market, examples of modifying existing products to make them attractive to
current markets. The history of American Express is dominated by a series of
examples of product development. Initially the company focused on money orders,
travellers cheques and foreign exchange. In 1958 it issued its first charge card.
Subsequently the company the also launched a credit card, targeting both new and
existing charge card customers. Nivea has also used product development to expand
its markets launching for example a deodorant range and also facial cleansing wipes.

A production development strategy relies heavily on good service design, packaging,

promotion and exploiting the company reputation to attract consumers to a new
product.
The fourth growth strategy is one of diversification; this tends to be considered one of
the most risky as it involves moving into both new products and new markets. Risk
associated with diversification can be reduced where companies choose to enter
related markets where they can leverage existing strengths and capabilities. For
example, Coca Cola diversified by moving into energy drinks and water. Dell into
flat screen TVs and Nivea into beauty care products for men. Unrelated
diversification tends to be more challenging although it does reduce the extent to
which an organisation is dependent on a particular broad market sector and provides
new sources of growth. A classic example of successful and unrelated diversification
is the Virgin group, with its expansion from music into air travel, financial services,
trains and cosmetics.
The Ansoff Matrix is a compact and straightforward way of thinking about different
growth options. As with any techniques it does not provide specific answers but it
does provide a structured way for an organisation to think about the different options
that maybe open to it.