Product-Market Combinations (Ansoff)

The options for growing a company, according to Ansoff, are market penetration, market development, product development, and diversification (Ansoff 1966, p. 132). Using a market penetration strategy, the company aims at increasing its market share with existing products in markets in which it is already present. It attempts to win new customers or increase sales among existing customers. This alternative comes into play primarily in glutted markets, such as the detergent market in Europe. The basic idea behind a market development strategy is the search for new markets for existing products by addressing new target groups or supplying additional regions. The product development strategy introduces new products to existing markets. The replacement of video cassettes with DVD (digital versatile disks) is an example of this strategy. With diversification strategies, the potential for success lies in bringing new products to new markets. There are three types of diversification: horizontal, vertical, and conglomerate. In the case of horizontal diversification, the products are on the same step of the value chain. The aim here is achieving economies of scope by transferring core competencies to other areas. Here an example would be a watchmaker entering the market for time clocks. A vertical diversification strategy relates to prior or following steps in the value chain. An example of backward integration is when a producer of mobile devices sets up its own chip production facilities. Forward integration is when the same producer opens its own retail outlets for its products. The outstanding feature of conglomerate diversification is that there are no relationships between the new and the old markets, as for example an insurance company purchasing shares of a food producing firm. The primary argument in favor of this approach is that it spreads risk (Bea/Haas 2001, pp. 167-168).