cf. the Boston Matrix.


     --------------------------
     |           |            | existing
     |  Market   |   Product  | 
     |Penetration|Development |        
     |           |            |      
     |           |            | 
     |-------------------------     market
     |           |            |     
     | Market    |Diversifying|  
     |Development|            |  
     |           |            |  
     |           |            | new
     --------------------------
      existing            new
               product

The above is Ansoff's matrix, a form of product portfolio management. Each of a firm's products can be placed into one of the categories above.

Market penetration is trying to drive an existing product deeper into an exisiting market. This involves increasing market share, usually in one of these ways -

  1. Persuading existing customers to buy more of the product by increasing their usage. This may be accomplished by becoming more environmentally friendly, putting recipe suggestions on packaging or suggesting "frequent use" on their products (common on shampoo).
  2. Taking customers away from competitors by using penetration pricing (pricing products low to lure customers away from other companies), destroyer pricing (putting prices so low that competitors will be put out of business. The prices are too low to be sustained and will be put back up again once competitors are defeated).
  3. Finding new customers altogether by expanding the market.
This strategy is used most commonly by firms because it is the least risky.

Market development involves putting an existing product into a new market. This can be achieved by -

  1. Repositioning the product by changing the image or perceived quality, usually by marketing. An example of this is Land Rover, which used to be a farmer's vehicle but is now aimed squarely at suburbia.
  2. Moving into a totally new geographic region, domestically or abroad.
This is more risky than market penetration because it involves moving into a new market about which the company has little knowledge.

Product development is just as risky as market development, perhaps more so because more capital will probably be needed in research and development. It involves introducing a new product into an existing market, and some aspect of the product or its marketing mix needs to be differentiated from that of the existing products to make it viable and obtain a competitive advantage. This can be done by -

  1. Developing entirely new products, risky indeed. The company will need to do a lot of research into the area and hope its reputation of products past will help get it a foothold. An example is when Mars released Mars ice-cream.
  2. Making a change to an existing product and relaunching it.

Diversification involves launching a new product in a new market. Richard Branson is an expert at this, and he needs to be - it's the riskiest way a business can go about making a living. It can also be the most rewarding, as a fresh perspective on a market can often pay huge dividends and deliver a huge competitive advantage to a smart and able company. A lot of research is needed to get things right, and perhaps consultancies will be called in to help educate the business about its new challenges.

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