Diversification (marketing strategy)

The product-market matrix ( also Ansoff matrix, after its inventor Harry Igor Ansoff or Z- matrix ) is a tool for the strategic management of companies. You can serve a management ( = management ), which has opted for a growth strategy as a tool for the planning of this growth.

The original

The product-market matrix considers the potentials and risks of four possible product - market combinations:

Market penetration

The company is trying to grow in an existing market, by increasing the market share of existing products. This is done basically by increasing sales to existing clients, selling the products to new customers, attracting customers who have previously purchased from the competition, or a combination of these possibilities. This strategy poses a low risk, as they may use existing resources and capabilities. However, the growth is mostly limited: if the market is saturated, must be changed to a different growth strategy.

Product development

With this strategy, companies try with new products to satisfy the needs of their existing market ( innovation) or by developing additional product variants. This approach can be advantageous for companies whose strength rather refers to a specific group of customers than on specific products. Due to the necessity of having to acquire new skills and the uncertainty of success of the new development poses the product development significantly higher risk than the market penetration.

Market Development

The company tried the target audience for existing products by developing new market segments or new geographic regions (regional, national, international) to enlarge. This strategy is recommended for organizations that have their skills and philosophy more targeted to a specific product, than on a specific market. Through its expansion into a new, unknown market, however, the risk of this strategy is higher than that of a mere market penetration.

Diversification

The product diversification is the riskiest of the four considered growth strategies. It requires not only the development of a new product, but at the same time opening up new markets. You feasible in every case, however, justified by the chance of a high return on investment. Further advantages can be in the entry into a potentially attractive industry or in the reduction of the general business portfolio risk.

Depending on the degree of risk-taking, one can distinguish three types of diversification structure:

A) horizontal diversification: the extension of the existing product range is made with products that are related to the original nor a practical connection.

B ) vertical diversification (differentiation): This corresponds to the increase in the depth of the product line, either in the direction of a paragraph, thus a forward integration, or in the direction of origin of the products, this is a backward integration.

C ) lateral diversification: Here, the foray into entirely new market and product areas will be considered. The company needs to leave his traditional industry to invest in distant areas of business. There is here no relation to the previous fiscal. This form is considered in the Strategic Marketing also known as riskiest form. As a successful example of the introduction of Mannesmann end of the 80s can be seen in the mobile sector.

Extension of the concept

The following extension of the Ansoff matrix Philip Kotler shows with reference to Madique & Zirger a new approach to the growth of the market share.

This representation takes on wide definitions of the original model in the resulting five additional categories. Especially in industries with relatively short life cycles, the new model can be easily applied, since the difference between an existing and a new product can have significant proportions and are often generations of modified products between truly new ideas.

Criticism

The product-market matrix of Ansoff was the first analytical framework for strategy selection and the dominant strategic paradigm of the 60s and 70s. However, there are several factors that are not taken into account the model so that the predictive value following restrictions must be made:

• Generation of strategies is limited to growing markets and the extrapolation and pragmatic improvement of the current situation in a company.
• Internal strengths and weaknesses of working with this strategy, companies will not be revealed.
• The competition dimension, customer and competition- related aspects are left out.
• The coordination of the individual strategic business units is not considered in relation to the utilization of their resources and their risk situation.