The brand growth strategy matrix is a simple method for visually representing the options a company can use in order to increase its market growth. The matrix considers two dimensions, products and markets, and considers whether they are new or existing. This results in four distinct growth strategies: market penetration (existing market and existing product), market development (new market and existing product), product development (new product and existing market) and diversification (new product and new market).
The market penetration strategy is the most conservative growth strategy, but it is also the most difficult. It is conservative because it relies on a current market and current customers. This means that there is a low risk of failure, but it is also difficult to achieve growth through this strategy because you must rely on a limited market without anything innovative to offer. In order to achieve greater market penetration, a firm will need to sell more to the existing customer base.
The market development strategy is slightly riskier. It involves taking an existing product and developing a new market for it. There are two types of market development: demographic and geographic. Developing a new demographic environment involves finding new customers in the same geographic area. For example, if a company sells ice cream in Ohio to commercial customers it could expand demographically by selling to consumers in Ohio as well. Geographic market development involves expanding to a new area; for example, exporting products to a new country.
Product development is essentially the opposite of market development. Instead of developing a new market for an existing product, the company creates a new product for an existing market. The risks of this strategy are moderate, because the company knows the market, but developing a new product can be uncertain. An example of this would be if an accounting firm that provides auditing services to corporate clients expanded its products to include financial consulting services to the same clients.
Diversification is the riskiest of growth strategies. It involves creating a new product for a new market. It is risky simply because there are many more uncertainties than any of the other strategies. A company pursuing this strategy must learn about a new market while simultaneously developing a new product for this market. An example of diversification would be if an American computer hardware company whose sales are all domestic decided to enter the software market in a foreign country.