The founding father of Strategic Management, Ansoff, stated that there are 4 methods to grow your business. Ansoff’s 2×2 matrix consists of new and existing markets on one axis and new and existing products on the other. The matrix identifies market penetration strategy, diversification strategy, product development strategy, and market development strategy as the main processes to attain maximum growth for any business. Ansoff’s matrix can be used to manage the scope of the businesses’ portfolio. Using it, you can identify which strategy is most beneficial and less risky for your business. The growth decisions you make will have a long-term impact on the business. Hence, it requires an in-depth analysis of the portfolio before decisions can be made. Both product development and market development can allow a business to continue growing.
What is Market Development
Market development strategy allows a business to develop its current market rather than identifying a new one. They will investigate market segments for their current products allowing them to reach a larger audience. Companies can target customers who have not purchased in the current market segment, or view and locate customers in the new market segment. A company will conduct market research, including segmentation analysis. Once you have identified the segment, you wish to pursue then you can create an advertising strategy.
Market development requires presenting current products to a new market; it can help a business in its growth phase to sell their product in an untapped market. These untapped markets may involve different customer groups, for example, change your advertising to target women aged 30-40 to men of similar age. Other businesses may choose to enter a new domestic market, expanding regionally to different cities or towns. Entering foreign markets is another option that companies may choose. As long as they conduct comprehensive market research, they can acquire a large number of customers through international expansion, but this may be an expensive option. Rebranded products can also help break into new markets.
Risk’s within Market Development
On the other hand, when entering new markets, companies will have to measure whether existing products will attract new target audiences. Market research on this can be expensive, and the return on investment can be low. However, it is seen as low risk if a business is only exporting rather than setting up new operations, which comes with its own set of risks.
A business will also start to consider pricing, because market development may require substantial capital investment, as they may have to adopt penetration pricing. Over time, the cost of market development may be high, while the risk of market penetration is relatively small.
When entering a new market, your strategy depends on your own business goals. You can choose to develop your business slowly, or you can choose a more aggressive growth strategy. The plan is fundamental to the strategy’s success, without proper planning you could leave your business vulnerable.
What is Product Development
Another of Ansoff’s 4 methods is product development. It refers to all the stages in bringing a product from conception through to its release to the market. A new business will begin by developing their product. However, for existing businesses this is where they introduce new products into existing markets. This method also carries a high risk and rests on the success of the product in their current demographic. Like market development, the business will have to carry out market research, to understand whether the new products can appeal to existing markets. This strategy is suitable for businesses that need to differentiate their product for competitiveness.
The path to product development will be different for each business. It typically incorporates identifying the market’s need; using research and development to develop products that help the existing market. Businesses must quantify the opportunity; do competitors have very similar products and will investing this money ultimately benefit the business? Spending time conceptualising the product and validating the solution can take some time. Following this, the team will spend time road mapping, planning how long the release to the public may take. Then developing the minimum viable product (MVP), releasing the MVP to consumers and measuring its success. Following this, the business will work in iterations following user feedback till the product reaches completion.
Risks within Product Development
The future success of your business is dependent on your products staying relevant. We now live in a world where product development life cycles are becoming shorter to keep up with customer expectations. In order for you to stay in the marketplace, you must come out with innovative products.
One of the many reasons a business may introduce a new product is because they are facing competition, to counter this competition they explore a new market for their existing product. Both of these options involve risks. The risks involved with developing a new product rest heavily on the ability of a business being able to develop products that their existing market wants and the impact on sales. If customers move to the new product then they have achieved the objective of pleasing customers however, it does not provide much growth for the business. As the new products simply replace the sales of the original product.
A product typically experiences four stages of growth from its conception when it is introduced to consumers until it exits the market. At the growth stage, a product is when a business will typically begin to introduce market development to continue to acquire new customers. Using the methods defined above they can continue to increase revenue without spending a lot of money. However, nearing the end of the life cycle when a product enters maturity and hopefully before the decline stage, a business will begin to think about ways that they can continue garnering revenue through introducing a new product. Producing new products can be very expensive and can take a long time so a business will need to properly analyse this before.
If a business is not creating a new product, they could acquire a competitor’s product and merge their resources that meet the needs of their consumers, this method of product development is cost-effective due to the sharing of resources. Another popular method is the formation of partnerships with other businesses to gain access to other distribution channels.
To conclude the success of Market Development and Product Development is dependent on your business’s needs. What works for one business may ultimately not work for you. Analysing your customers is step one in making the decision. Without this, you cannot calculate the risks and make a strong decision. If your business is its early stages, you may find that Market Development is your best option. However, if your product is entering a decline, maybe it is time to refresh your product offering.