The Product Market Expansion Grid Explained

Created by the father of strategic management, Igor Ansoff, the Product Market Expansion Grid is used by many Fortune 500 companies such as Philips, IBM, and General Electric.   

First, he was an applied mathematician and then an economist. Ansoff later became a planning specialist (and eventually vice president) for Lockheed, where he gained experience in analyzing the complexities of business. 

From there, he left to teach at the Carnegie Institute of Technology, where he wrote “Corporate Strategy,” the first of many books that set him apart as one of the world’s most influential management thinkers.   

Through his accomplished career and ground-breaking books, Igor Ansoff’s contributions to corporate strategic planning remain prominent in academia and beyond. 

The Product Market Expansion Grid is one such contribution to corporate strategic planning that can be used by any company looking to develop strategies to grow a business.  

What is the Product Market Expansion Grid?

The Product Market Expansion Grid, also called the Ansoff Matrix, is a tool used to develop business growth strategies by examining the relationship between new and existing products, new and existing markets, and the risk associated with each possible relationship. 

The matrix aids growth plans by introducing new products in existing or new markets.  

Improve your new or existing SaaS products by making them user-friendly with WalkMe’s onscreen guidance system.

  The matrix is designed so that as a company plots its new and existing products and markets, the risk associated with that strategy corresponds with its position on the grid. 

Developing a strategy with existing products and markets is low risk, but risk increases with new products and markets.  

What Are Product Market Expansion Grid Strategies?

The Product Market Expansion Grid offers four main suggested strategies: Market Penetration, Market Development, Product Development, and Diversification.  

Market Penetration Strategy: Existing Products + Existing Markets = Low Risk

The Market Penetration Strategy creates growth by introducing current products to existing markets. In such instances, customers may be aware of a product but are not purchasing it for some reason. 

This strategy is typically used to achieve one or more of the following objectives: 

• Increasing or growing the market share of current products with pricing strategies, promotions, advertising, and an increase in sales efforts
• Securing dominance of growth markets by identifying which markets offer the best prospects for existing products
• Driving competitors out of a mature market with aggressive pricing and promotional campaigns
• Increasing usage of a product by existing customers through special offers and loyalty schemes

Market Development Strategy: Existing Products + New Markets = Some Risk

The Market Development Strategy creates growth by introducing current products to new markets. This strategy is used when a company has identified previously unidentified markets or wants to expand its market reach.  

Here, too, there are several tactics to enter and develop a new market for existing products:   

• Focus can be turned to new and untapped geographical areas
• New pricing procedures can be used to attract new target audiences
• New distribution channels can be created to offer products in new ways and to new customers

Product Development Strategy: New Products + Existing Markets = Some Risk

The Product Development Strategy is a growth tactic when a company introduces new products into existing markets. A company typically uses this approach when current products are no longer selling. 

The company may require new competencies and skills to successfully develop products.   This strategy will likely be more expensive than market-focused tactics and need more time. 

Emphasis needs to be placed on a detailed analysis of customer needs, research and development, and early introduction to ensure products are first to market. 

The company can use the following methods to stimulate growth:

• Adding new features to existing products
• Innovative and new technologies can be added or used to improve products.

Instantly increase user engagement of your software products with WalkMe’s onscreen guidance.

Diversification Strategy: New Products + New Markets = High Risk

The Diversification Strategy is used when new products are introduced to new markets.  Diversification is the most risky of all the approaches. This strategy requires the highest investment in both time and resources.   

While this approach is likely the most costly, diversification offers the company security and advantage should it suffer in one business sector because it can then rely on another. Ansoff reinforces that this strategy will require the company to acquire new skills, techniques, and possibly new facilities. Good feasibility studies and research are key to ensuring a winning approach.   

There are three diversification strategies that an organization can consider: concentric diversification, horizontal diversification, and conglomerate diversification: 

• Concentric Diversification – leveraging a company’s core technical know-how to diversify its current products into new markets.
• Horizontal Diversification – the introduction of products that are unrelated to a company’s core products to existing markets
• Conglomerate Diversification – the purchasing of another company to diversify

To grasp these three diversification strategies better, consider this example: 

In concentric diversification, a company making glass jars for the food industry enters the construction market by producing glass bricks. 

In horizontal diversification, the glass manufacturer expands by offering specialized cement products for constructing glass brick walls. 

In conglomerate diversification, the glass manufacturing company acquires a colored dye manufacturer to enhance the coloration of its glass products.  

How to Use the Product Market Expansion Grid

To make the most of the Product Market Expansion Grid, you’ll need to understand where your best opportunities are given your current position, the amount of resources you can expend, and how much risk your company can carry.   

While the grid is useful for understanding how to think of business growth options, it stops short of explaining what actions you should take. Once you have identified your position on the grid, your internal capabilities, and how much risk you can take on, the next stop is conducting market research. 

Applying proper market research will transform this from a theory to information you can act on.