When it comes time to expand, business owners may struggle to figure out what that means. Growth can take many forms, from launching a new product to opening a store in a new neighborhood to going after a new customer segment.
A product market grid can help you think through these options to find the expansion strategy that’s right for your business.
What is a product market grid?
A product market grid is also known as an Ansoff Matrix. It was developed by Igor Ansoff in the 1950s and published by Harvard Business Review as a way for leaders to understand the ways in which to grow their businesses. A product market grid can help inform decisions around product development, distribution, marketing and even hiring.
This is what a product market grid looks like. The grid shows four different growth strategies and their associated level of risk. These strategies are:
- Market penetration: A business would increase sales of an existing product to an existing market.
- Product development: A business would introduce a new product to an existing market.
- Market development: A business would enter a new market with its existing products.
- Diversification: A business would introduce a new product to a new market.
Using a product/market matrix allows a business to plan ahead, whether that means allocating resources for boosting the sales of existing products, developing new products or creating a strategy for branching out entirely. The grid is best used to understand your business growth options, but it won’t tell you what actions you should take.
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Diversification is considered high risk and high reward.
How to use the product market grid
The best use of a product market grid is as a framework for evaluating your options for expansion. The grid isn’t a crystal ball; it won’t tell you what to do next, but it can help you think through some of the challenges and opportunities that expansion holds.
To use the Ansoff Matrix, start with the market penetration quadrant. Imagine increasing your sales of an existing product to an existing market. This is the lowest-risk approach to growth. Essentially, your business will attempt to gain market share. Increasing your market penetration can be achieved by decreasing prices to attract new customers, running a promotion, increasing distribution or acquiring a competitor in your same space.
Sometimes, the market conditions aren’t right for market penetration. There’s only so often you can run a discount before you devalue your product offering. If that is the case, you may pursue product development. While slightly riskier, product development allows you to tap into any insights you have about your existing customers to deliver something new and exciting. For instance, if your customers love your bike equipment, consider offering triathlon gear or branching out into other sporting goods.
If product development isn’t your area of expertise, consider taking the market development approach. Bringing an existing product to a new market requires planning and customer research. However, it doesn’t need to be complicated. A new market can be developed by distributing to a new neighborhood, tapping new distribution channels or trying a new pricing model to attract different customer groups. For instance, you can partner with a small business in your community to offer an adjacent product (think a bicycle shop selling coffee beans from your cafe).
Finally, diversification: bringing a new product to a new market. Diversification is considered high risk and high reward. On one hand, diversification requires a high degree of research and investment to get what is essentially a new business off the ground. On the other hand, diversification helps guard your business in times of turmoil. When one product goes out of favor, you have another product line to fall back on.
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There’s no single right answer when it comes to a growth strategy. Business owners must consider elements such as costs, risk and their type of product or customer. Your investors or lenders may also have a say in how your business expands. At the end of the day, do your research, understand the competition and do what fits your brand best.
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