A Product/ Market Grid is a marketing strategy tool used in the product aspect of marketing. Choosing the right products are key to a successful marketing strategy. (The Ansoff product/ market matrix is a useful strategy tool, as you can see in the image below).
The product/ market grid
The product/ market grid or Ansoff Matrix you see above was developed by Igor Ansoff in 1950 and originally published in the Harvard Business Review as a strategy businesses should use in determining growth opportunities for their products. The matrix identifies opportunities based on whether you expand your current products by selling more of them or finding a new market for your products. The company can also develop new products that either fit its existing market or for new markets. The risk goes up with these decisions, such that, in order of risk you have:
- market penetration
- market development
- product development
Rewards are often tied to risk, so that’s something else to consider. For instance, Steve Jobs was ousted from the company he founded when a former Pepsi executive argued for a faster, cheaper version of their flagship brand, Lisa, instead of going with Steve Jobs’ suggestion of departing from the flagship brand in favor of something new that took advantage of changing technology. When Apple brought Jobs back a few years later (after the Lisa strategy failed), he developed the now ubiquitous Macintosh line of computers. He further advanced the brand before his death by fearlessly using diversification to move into iPods, iPhones, and other brands.
Underpinning this decision about product strategy is the assumption that you know the market for your product as well as other potential markets out there for your company. And, that relies on the related concepts of marketing segmentation, targeting, and positioning, which we discuss below.
What is Market Segmentation?
Marketing segmentation is the process of dividing a population, which by its very nature is full of diversity, into more homogeneous subgroups based on criteria that reflect meaningful differences to the organization. Segmentation is accomplished through an analysis of the population such as cluster analysis or by surveying current customers to uncover similarities. You can’t do segmentation based on what you think customers are like, although social media can help in a faster and less invasive fashion by analyzing characteristics common among your followers.
A market segment is normally determined by one or a combination of consumer factors, including:
- Demographic factors – such as age, gender, religion, income, education
- Geographic factors – country, region, neighborhood
- Psychographic factors – likes, dislikes, values
- Behavioral factors – usage occasions, usage rates
Here’s what a recent HBR article had to say about new criteria for market segmentation
In today’s economy, each brand appears to sell effectively to only certain segments of any market and not to the whole market.
Sound marketing objectives depend on knowledge of how segments which produce the most customers for a company’s brands differ in requirements and susceptibilities from the segments which produce the largest number of customers for competitive brands.
Traditional demographic methods of market segmentation do not usually provide this knowledge. Analyses of market segments by age, sex, geography, and income level are not likely to provide as much direction for marketing strategy as management requires.
A Target Market is the market segment or market segments a firm chooses as the focus of its marketing efforts for a particular product or product line. So, while segmentation looks at the market as a whole, targeting selectively focuses on one or more segments that have the need, money, authority, and desire to purchase products like the ones you sell. The process looks a little like the one below.
In the past, target markets were pretty generic, comprised mainly of demographic and geographic differences between groups as these characteristics were easily and cheaply captured from census data or short surveys. They also suffered from poor development and too much seat-of-the-pants thinking that often resulted in target markets that didn’t match the potential of the product and, in some cases, were downright racist and sexist.
Today, we commonly build what are called Market Personas to better reflect the important criteria necessary to optimize marketing programs, such as:
- key decision variable
- the problem they need to solve
- media frequently used
- demographic variables
- geographic variables
As you can see, a market persona is a far better tool for building a successful marketing strategy for this group of consumers. We know where to publish campaigns, what to say in the campaign, and how to position our product to this group.
If we identified several segments we wanted to target, we’d develop individual personas for each segment and then develop campaigns designed to reach individual personas. These personas then guide nearly every decision the marketing manager makes in building a successful marketing strategy, such as how to apportion his/her marketing budget and messaging likely to impact consumption decisions in each market.
A Product Market Grid is a perfect tool to help a firm select the most appropriate target market because it helps you determine:
- Consumption of products by market segment
- Sizes of various market segments (if entered into the grid)
- Identify markets suitable for product development (innovation)
Target marketing is also a clear guide in developing new products for new markets or focusing existing products on new markets by mapping trends in consumer culture over time. In the HBR article referenced above, the author shows how segmentation variables impacted marketing decisions across 10 product markets.
As an example, the author refers to research conducted in the watch market, where value was the dominant decision variable on which to segment consumers. He found:
- Approximately 23% of the buyers bought for the lowest price (value segment #1).
- Another 46% were bought for durability and general product quality (value segment #2).
- And 31% bought watches as symbols of some important occasion (value segment #3).
Using this information, as a watch manufacturer, you might manufacture a line of watches with each watch designed based on the value perceived by a different segment or you might focus on just one of the segments. Your product/ market decision then guides the message you create to attract the target market(s) chosen. For instance, if you choose value segment 3, your message might show a woman in expensive jewelry and an evening gown getting into a Rolls while wearing your watch. Your decision impacts where you show your ad campaign, focusing on upscale magazines and using social media influencers that reflect this wealth. Finally, you might choose to flight your campaigns (run them during certain time periods versus continuous ads that run all the time) to correspond with major charity and social events that attract high-income individuals such as the Met Gala and Academy Awards, as well as around holiday gift-giving occasions, like Valentine’s Day.
How to create a market segment using the product market grid
1. The first step in creating a successful marketing strategy is identifying demographic, geographic, psychographic, and behavioral factors of the marketplace that might impact product choice – in this case, elements might include: price consciousness, health consciousness, desired mouth-feel, adults, children, male, female, etc.
2. Then, map existing products identifying who the primary market and secondary market is for each (there may also be a tertiary market).
3. Design marketing strategies based on who the primary consumer is for each product. The brand might create separate strategies for the secondary market. For instance, men are the primary consumers of larger sandwiches. The advertising message should reflect this by including other interests men have, such as sports, and feature images of men in advertising this sandwich.
4. Determine whether some products might have a profitable secondary market. For instance, the drive-through is primarily used by men. Maybe featuring the convenience or safety of not having to take kids out of the car added to a marketing campaign designed to increase the appeal of this product among women. A common new market involves moving a product from a niche market to a larger target market. For instance, Mexican foods make a successful transition, for the most part, from one ethnic market into the population at large. In fact, Mexican food is popular among 86% of US residents as of 2018 and shows up in the high 70s or low 80s in popularity in much of the western world.
Other uses of the product market grid
So far, we mainly discussed how to develop a successful marketing strategy when you want to grow the sales of an existing product. Let’s delve into strategies for expanding into new product markets.
As mentioned earlier, these strategies carry more risk than expanding your product market. That explains why, by far, most new product strategies involve modifications to existing products and, in many cases, these fall into the “new and improved” strategy versus truly innovative products. Yet, the rewards to companies and to society at large are much greater for innovations. Just think about how many products we use every day didn’t exist a decade ago. Two decades ago?
The recent collapse of the crypto market shows just how rewarding (and dangerous) innovation is. Those who invested early and got out of crypto markets early, made millions while those behind crypto recently filed for bankruptcy costing investors and creditors millions of dollars in real money.
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