Product Development: How to Create a Market Product Grid?
Are you looking to grow your business? There are many ways to achieve this, but which approach is best for your venture?
The market product grid, also known as the Ansoff Matrix, helps companies visualize the risks of expansion and develop effective growth strategies.
This tool assists in making informed decisions about marketing, distribution, and product development.
It was first introduced by H. Igor Ansoff in the Harvard Business Review in 1957 and has since become a fundamental part of business school curricula worldwide. Kickstart your growth strategy with this guide to the market product grid.
Table of Contents
What is a Market Product Grid?
The Ansoff Matrix, or product-market expansion grid, is commonly referred to as a market product grid. It’s a strategic tool designed to help businesses identify and evaluate growth opportunities by analyzing existing and new products, markets, and associated risks.
The market product grid outlines four primary strategies for growth:
• Market Penetration: Growth is achieved by increasing sales of existing products in existing markets.
• Market Development: Revenue grows by introducing existing products into new markets.
• Product Development: Growth comes from launching new products in existing markets.
• Diversification: Expansion occurs by developing new products for new markets.
Market Product Matrix: What’s The Point?
A market product grid is a framework that connects market segments of potential buyers with a company’s product offerings or marketing strategies. It provides a clear structure for planning growth initiatives.
Within this framework, businesses evaluate new and existing products, define sales strategies, and assess potential risks. If you’re unsure about your next steps, this grid can guide you toward a tailored growth plan.
How to Create a Market Product Grid?
Crafting a market product grid can be simplified into a two-axis model:
- The x-axis represents products (existing and new),
- and the y-axis represents markets (existing and new).
To effectively utilize this matrix, business leaders must have a clear understanding of the most promising opportunities based on their company’s current position. This requires assessing available resources and establishing an acceptable level of risk tolerance.
Typically, strategic leaders begin with the market penetration quadrant, focusing on selling more of their existing products in existing markets. This quadrant is the safest starting point, as it aims to increase market share without venturing into uncharted territory.
This approach carries lower risk since it avoids unfamiliar markets or products, keeping the company’s operational scope consistent.
However, challenges such as heightened competition, economic conditions, or regulatory constraints may limit further market penetration. In these cases, companies may pursue product development, introducing new products to their existing markets.
This strategy increases risk by requiring innovation, but businesses can reduce this risk by building on existing technologies rather than starting from scratch. It may still demand additional investments in talent, tools, or research and development.
Alternatively, some companies opt for market development, bringing existing products into new markets. This requires detailed planning and customer research but can be streamlined by:
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- Expanding into new geographical regions.
- Adjusting pricing strategies to attract different customer segments.
- Establishing new distribution channels.
Finally, the boldest growth strategy is diversification: launching new products into new markets. While this involves significant risk, the rewards can be substantial. Diversification helps protect a business from market downturns or product obsolescence by spreading its exposure.
Though it requires heavy investment in research, distribution, and marketing, successful diversification can yield significant long-term benefits.
What are the Four Product Market Expansion Grid Strategies?
The market product grid is built on two axes: the x-axis represents products (existing and new), and the y-axis represents markets (existing and new). To leverage this matrix effectively, businesses must identify the best opportunities based on their current position, budget, and risk tolerance.
1. Market Penetration:
Market penetration is often the first step for strategic leaders. It focuses on increasing sales of existing products in existing markets to gain market share.
This strategy carries lower risk because it leverages familiar products and markets, maintaining the company’s current operational scope.
2. Product Development
When market share growth is stalled by competition, economic factors, or regulations, companies may turn to product development. This involves creating new products for existing markets.
While riskier than market penetration, this strategy can be managed by enhancing existing technologies rather than building entirely new ones. However, it often requires investment in new talent, tools, or production capabilities.
3. Market Development
Market development involves introducing existing products to new markets. This requires careful planning and customer research but can be simplified by:
• Expanding into new regions;
• Adjusting pricing to appeal to new customer segments;
• Creating new distribution channels.
4. Diversification
Diversification is the riskiest strategy, involving the introduction of new products to new markets. However, it offers significant potential rewards.
By diversifying, a business can safeguard itself against market declines or product obsolescence. Though it demands substantial resources for research, marketing, and distribution, the payoff can be considerable.
What’s Your Business’s Growth Strategy?
Choosing the right growth strategy requires careful evaluation. The market product grid is an invaluable tool, but success depends on analyzing costs, risks, and the specifics of your products and customer base.
Partnering with manufacturing or distribution experts can simplify the process of entering new markets.
Risk tolerance varies between mature businesses and startups, and highly competitive industries demand in-depth market research to succeed.
Using the product market grid, you can define a growth strategy tailored to your business. Leaders must weigh costs, risks, and customer dynamics. Collaborating with a manufacturer or distributor can ease the transition into new markets.
Startups may embrace higher risks than established firms, and breaking into saturated industries requires a deep understanding of market conditions. Research is key.
