The marketing strategy of developing new products and selling them in new markets is referred to as

In a now classic Harvard Business Review article, Ansoff (1957) identified four strategies for business growth. These four strategies also identify four basic types of marketing plans and the types of investments and activities associated with each. The strategies are defined by whether the focus is on new or existing products and new or existing markets.

1. Market Penetration Strategy

When a firm focuses on selling its current products to existing customers, it is pursuing a market penetration strategy. The marketing activities that will dominate in this type of marketing plan are those that emphasize increasing the loyalty of existing customers so that they are not vulnerable to loss to competitors, attracting competitors’ customers, increasing the frequency of product use, and converting nonusers into users.

Increasing awareness through marketing communications and increasing availability through expanded distribution are common marketing activities in this type of plan. Identifying new use occasions and new uses for a product may increase usage frequency or convert current nonusers into users. For example, the advertising campaign for orange juice that has the tagline “It’s not just for breakfast anymore” was an effort to expand usage. Price promotions might be used to encourage competitors’ customers to try the firm’s product if there is reason to believe that such a trial will result in repeat purchases. Loyalty programs can be very effective in retaining existing customers. This strategy reduces risk by relying on what the firm already knows well—its existing products and existing customers. It is also a strategy where investments in marketing should pay back more quickly because the firm is building on an existing foundation of customer relationships and product knowledge.

2. Market Development Strategy

The efforts to expand sales by selling current products in new markets are referred to as a market development strategy. Such efforts may involve entering new geographic markets, such as international markets. Creating product awareness and developing distribution channels are key marketing activities. Some product modification may be required to better match the needs of the local market. For example, as fast food restaurants have moved into international markets, they have often changed their menus to better match the food preferences of customers in local markets. Expanding into a new market with an existing product carries some risk because the new market is not well known to the firm and the firm and its products are not well known in the market. The return on marketing investments in such a strategy is likely to be longer than for a market penetration strategy because of the time required to build awareness, distribution, and product trial.

3. Product Development Strategy

Creating new products to sell to existing customers, a product development strategy, is a common marketing strategy among firms that can leverage their relationships with existing customers. For example, American Express has been able to leverage its relationships with its credit card customers to also sell travel-related services. Similarly, cable television companies have expanded their offerings into Internet and telephone services. Research and development activities play a dominant role in this strategy. The time required to develop and test new products may be long, but once a product is developed, creating awareness, interest, and availability should be relatively rapid because the firm already has a relationship with customers. A product development strategy is also riskier than a market penetration strategy because the necessary product may not be possible to develop, at least at a cost acceptable to customers, or the product developed does not match the needs of customers.

4. Diversification Strategy

A diversification strategy involves taking new products into new markets. This is really the creation of a completely new business. This is the riskiest of strategies and the strategy likely to require the most patience in waiting for a return on investment.

Contributed to Branding Strategy Insider by: David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

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The Ansoff Model is a matrix that helps marketing leaders identify business growth opportunities for their marketing strategies in a challenging market

What is the Ansoff Model?

Also referred to as the Ansoff matrix, due to its grid format, the Ansoff Model helps marketers identify opportunities to grow revenue for a business through developing new products and services or "tapping into" new markets. So it's sometimes known as the ‘Product-Market Matrix’ instead of the ‘Ansoff Matrix’.

The Ansoff Model's focus on growth means that it's one of the most widely used marketing models. It is used to evaluate opportunities for companies to increase their sales through showing alternative combinations for new markets (i.e. customer segments and geographical locations) against products and services offering four strategies as shown.

How to use the Ansoff Matrix

Strategic questions that can be answered using the matrix include:

• Market Penetration: How to sell more of your existing products or services to your existing customer base?
• Market Development: How to enter new markets?
• Product and Development: How to develop existing products or services.
• Diversification: How to move into new markets with new products or services, increase your sales with your existing customer base as well as acquisition.

You may be executing more than one of these strategies depending on the stage in your business,

My best practice tip is to use Ansoff at least once a year in strategic planning for your business to identify potential new markets, new products as well as product development opportunities.

To evaluate the suitability of these strategies, issues to consider for each of these:

1. Market Penetration: change your opening hours of your store, reduce order processing times, showcase entire product portfolio etc.
2. Market Development: Does your research on your market share in your existing sectors back up potential demand for you to considering entering new markets? Considering search intent for services in different markets, for example, using Google Keyword Planner or Ubersuggest can also inform this. Can your company support this with existing resources?
3. Product and Development: Can you you develop new products, perhaps using cheaper manufacturers, improved quality, updated packaging. Again market research to ask potential customers and influencers for feedback can help here.
4. Diversification:  Assess expertise, technical know-how. Can you move into a new market with a new product offer using the skills in your business? Do you have a strong management team to support it.

Essential marketing models

In our free, illustrated guide to 16 classic planning models diagrams we explain what they are and give examples of why and how to apply them in business.

Access the Essential marketing models for business growth

 Examples of how the Ansoff Matrix can be applied to recession digital marketing strategy

The Ansoff matrix is useful for developing online strategies too, for example...

• For Market Development strategy. RS Components a supplier of a range of MRO (maintenance, repair and operations) items, found a new online market when they launched their site, with 10% of their web-based sales to individual consumers rather than traditional business customers. It also uses the website to offer additional facilities for customers placing large orders online.The UK retailer Argos found the opposite was true with 10% of website sales being from businesses when their traditional market was consumer-based. EasyJet also has a section of its website to serve business customers.
• Product development: – e.g. online trade magazine Construction Weekly diversified to a B2B portal Construction Plus which had new revenue streams. Similarly, music and book publishing companies have found new ways to deliver products through a new development and usage model such as subscription and pay-per-use. Retailers can extend their product range and provide new bundling options online also.
• Diversification: Ryanair offers it customers discounts if they book car hire with Hertz car rentals.  

To find out more how to review these strategies, read our free Models Guide which explains how to use the strategies for some of the following objectives.

• 1. Market Penetration: market share growth, customer loyalty improvement and customer value improvement.
• 2. Market Development: use of online channels to sell into new markets at low cost. Sell existing products to new market segments and different types of customers.
• 3. Product development: Use the web to add value to or extend existing products or services.
• 4. Diversification: into related business, unrelated business, upstream integration with suppliers, downstream integration with intermediaries.

What to watch for?

For fairly new businesses, perhaps it's wise to focus on no more than two strategies, which could be Market Penetration and over time move to Market Development.

The RACE Framework

Looking for a data-driven marketing strategy to help you acquire and retain more high-value customers? Our popular RACE Framework empowers marketers and managers with a step-by-step strategic marketing planning structure. Integrated across plan - reach - act - convert - engage, you can break down your marketing activities to set objectives and measure your results at each stage of your marketing funnel.

The RACE Framework is all about making the most of your customers' experiences of your business, whether that's new or existing markets, new or existing products, planning your marketing strategy around the customer journey makes sense. Find out more.

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The Original Reference Source for the Ansoff Model

Ansoff, H. I. (1957). Strategies for Diversification. Harvard Business Review. (Vol. 35 Issue 5, Sep/Oct).  p113-124.

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