While companies can grow sales through corporate-level actions such as diversification (e.g., purchasing another company) or strategic business unit-level actions such as the integrative growth strategies of backward or forward integration, the principal ways that companies can grow the sales of a brand are captured in the "product-market growth matrix."
Before any company can create a marketing plan for a brand, they must know what their growth strategy is.
This is the modified product growth-matrix. Click on each growth strategy for more complete explanations and examples.
The product-market growth matrix was created by Igor Ansoff in 1957 as a way to think about how a company could increase its sales. It is found in most marketing and strategic management textbooks (although the discussion and examples vary greatly). With a few important modifications it can be very useful as a guide for brand or product managers who are interested in increasing brand sales.
To simplify, consider a brand and a product to be the same thing, i.e., a named product (brand). Unless discussing the product life cycle—where product will refer to product category—this will make it easier to understand and use the product-market growth matrix.
Each separately-named product in a product line can be considered a different product. For example, Cheerios and Honey Nut Cheerios are two products. But some brands cover multiple "models," as in automobiles. Honda Civic is a brand (separate from Honda Accord), but Honda Civic DX and Honda Civic LX are models of the brand. The keys to understanding this distinction are where the marketing focus is and how brand management is organized. The Honda Civic is marketed separately from the Honda Accord, probably using different product management groups for each brand. But this would not be the case for different models of Civic or Accord any more than it would be the case for different package sizes of Cheerios.
What is different in our use of the product-market growth matrix concept is the cell on new products for new markets. This is called here product diversification—not just diversification—to signify that it is an aspect of product management decision making, not corporate decision making.
A company would pursue product diversification only if the product managers (possibly the group product managers or managers of the strategic business unit that the product is in) wanted to grow sales in this way. In other words, like other cells in the product-market growth matrix, it is a way to manage a brand—in this case by basically redefining "brand" strategy. In some cases, product diversification may even result in a new brand management group.
Getting new products and markets straight
The first thing to remember is that the product-market growth matrix is always used from the point of view of a company. So a "new" product is one that is new to the company, not necessarily to the market. When Mercedes-Benz brought out their SUV, the M-Class, it was an example of product development because they had never sold an SUV before. Before considering what constitutes a new market, let's look more closely at what new products are.
A new product is simply any modification of a current product. The modification could involve no change in brand name, a new brand name that is a "brand extension" or a new brand name with a separate identity.
For example, Duracell added the feature of a battery-life indicator to its batteries, but didn't change the name under which the product was sold nor did the feature itself have a special name. The feature was described on the packaging and in advertising copy, but not "named." However, sometimes a product is modified and the modification or new feature is named to bring more attention to the feature. American Express added a new feature to all of its charge and credit cards called Private Payments, which allowed its customers to use randomly-generated numbers for each separate purchase occasion rather than their card number itself. Both are examples of product development.
Sometimes a company thinks it can better serve a market by creating a brand extension. Duracell did this when they created a new line of batteries called Duracell Ultra. Fiskars, on the other hand, decided to create a separate brand identity for their lower-priced alternative to Fiskars scissors and named the new product DuraSharp. These are both examples of product development too.
A new market is also defined in terms of the company's point of view: one that is new to the company. The current market that the company is selling the brand in has a certain market potential. A new market would be any market that expands that potential because it offers the company a chance to market to a new customer base or to its current customer base with new uses for the product.
The key is to define the target market for a company or brand. Then ask whether some proposed marketing plan or product adds potential customers to that target market.
Gap, Inc. launched a new retail chain named Forth & Towne aimed at women over 35 (who were not Gap's target market for any of their three then-existing brands: Gap, Old Navy and Banana Republic). It was reported that Gap, Inc. hoped the new chain would "help it attract a different set of customers." But there was simply not enough commonality among "over 35" consumers or difference from Gap's current customers to sustain the brand.
Since the point of view is a company (i.e., specific brand) and since any one product must be either new to the company or not, the first thing to do is decide which "side" of the product growth matrix a company's strategy is on. For a new product, the only two options are product development and/or product diversification. For a current product, the only options are market penetration and/or market development. Note the "and/or." The strategy for a current product, for example, could be both market penetration and market development, if, say, the company was both advertising in certain media to current customers and, at the same time, advertising in different media to a new customer base. Similarly, the strategy for a new product could involve both product development and product diversification.
Summary of the marketing logic