Product growth strategies the Ansoff matrix

The development of new products provides an opportunity for growing the business. One of the clearest ways of identifying the variety of growth options available to a business is using Ansoff’s (1968) directional policy matrix. It combines two of the key variables that enable a business to grow: an increase in market opportunities and an increase in product opportunities. Within this matrix, new product development is seen as one of four available options. Each of the four cells considers various combinations of product-market options. Growth can be achieved organically (internal development) or through external acquisition. Each of the cells is discussed below.

Market penetration

Opportunities are said to exist within a business’s existing markets through increasing the volume of sales. Increasing the market share of a business’s existing products by exploiting the full range of marketing-mix activities is the common approach adopted by many companies. This may include branding decisions. For example: increase the usage of cornflakes by promoting it as a snack to be consumed at times other than breakfast.

Market development

Growth opportunities are said to exist for a business’s products through making them available to new markets. The company maintains the security of its existing products but opts to develop and enter new markets. Market development can be achieved by opening up new segments. For example: luxury car brand decides to enter the small car market. Similarly, companies may decide to enter new geographic areas through exporting.

Product development

Growth opportunities also exist through offering new or improved products to existing markets. Virtually all companies try to ensure that their products are able to compete with the competition by regularly improving and updating their existing products. This is an ongoing activity for most companies.

Diversification

Opportunities for growth exist beyond a business’s existing products and markets. This option is significant if the business moves into product areas and markets in which it currently does not operate.

Many companies try to utilise either existing technical or commercial knowledge base. For example, knowledge of the electric lawnmower market enabled Flymo to diversify into a totally new market. Introduction of GardenVac products led to the creation of the “garden-tidy” product market. Moreover, many companies identify diversification opportunities through acquisition. For example, in the UK, some of the privatised electric companies have purchased significant holdings in privatised water companies. The knowledge base being utilised here is the commercial know-how of the provision of a utility service.

Additional opportunities for diversified growth exist through forward, backward and horizontal diversification. A manufacturer opening retail outlets is an example of forward integration. Backward integration is involvement in activities that are inputs to the business, for example a manufacturer starting to produce components. Horizontal diversification is buying up competitors.

Trott, P., 2008. Innovation management and new product development. Pearson education.

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