Module 6

Ansoff’s Product-Market Expansion Grid

Existing Products New Products
Existing Markets
Market Penetration
Strategy
Product Development
Strategy
New Markets
Market Development
Strategy Diversification Strategy
Market Penetration Strategy
• The company is not interested in new products/product lines
• The company is not interested in new customer segments
• Goal is to increase sales of existing products without losing current
profit levels
Market Penetration Strategy
• If the market is growing, this goal can be achieved by
• Getting more first-time users to purchase a product
• Increasing the product usage of existing customers (customers buy
in larger quantities)
• Increasing the frequency with which existing customers purchase a
product (customers buy more often)
• If the market is saturated, this goal can be achieved by increasing
market share
Market Penetration Strategy
• A company may try to increase its share using its marketing resources
• Tactical actions to increase market share: price cuts, increased
advertising
• It is difficult to sustain market share gained through such
marketing tactics
• A better approach is to build a sustainable competitive advantage
• Trying to increase market share at the expense of competitors will
likely result in competitor responses
Market Development Strategy
• Reaching out to new customers with existing products
• Geographic expansion is an example, where a company enters a new
geographic market
• New markets can be identified based on non-geographic
characteristics as well
• Using a variety of segmentation variables helps marketers identify
new markets
Product Development Strategy
• Introducing new products to existing customers
• A new product for a company does not necessarily mean a new
product to the market
• New products are important in order to be able to respond to
changes in the market
Product Development Strategy
• Trends in market that stimulate product innovation
• Consumer preferences
• Competitors
• Technological advances
• Companies that fail to respond to changes in the market face the risk
of product obsolescence
• Marketing myopia: focusing on selling the existing products and
failing to notice the changes in the market
Product Development Strategy
• Not all innovations are successful
• There is a high risk a new product will fail
• There are many reasons why a new product fails, including:
• The product lacks useful/meaningful uniqueness
• Poor marketing
• Unforeseen high product costs
•…
Product Development Strategy
• How to avoid new product failures
• A six-step approach
• Ideally, poor product ideas are screened out earlier (it becomes more and more costly
later)
• 1 – Idea acquisition: A new product idea can come from many sources, including
customer feedback, market research, and R&D
• 2 – Initial screening: A new product idea is assessed using various benchmarks.
Successful products fit well with the internal strengths of a company and satisfy the needs
of the
market.
• 3 – Business analysis: Future sales, profits, and costs are estimated. Various methods
can be used for estimation.
• 4 – Product development: The idea is turned into a physical entity. A prototype is
developed and tested at this stage.
• 5 – Market testing: Advantage: Can save a company money before the product launch.
Disadvantage: Competitors may gain important business knowledge.
• 6 – Product introduction: Product is introduced to the market.
Diversification
• Targeting new customers with new products
• Related diversification: There is synergy between the existing business
and the new business
• Unrelated diversification: There is no synergy between the existing
business and the new business
• Unrelated diversification is riskier
Vertical Integration
• Increases a company’s control over the supply chain
• Can take two forms:
• Forward integration: e.g.: when a producer purchases the retailer
• Backward integration: e.g.: when a producer purchases the
supplier