product-market matrix

Product-market matrixclick for a larger image
Fig. 69 Product-market matrix. A matrix showing four major strategies for growth.

product-market matrix

A framework for highlighting and analysing the various growth opportunities open to a firm which are used by corporate planners in formulating the firm's BUSINESS STRATEGY.

Fig. 69 shows the matrix which depicts products on one axis and markets on the other. By way of example let us consider a firm currently specializing in the production of rayon in the UK, a man-made fibre which is currently sold to UK textile fabricators to be made up into clothing. The matrix indicates that the firm has four main strategic possibilities open to it to develop its business (a fifth option, that of VERTICAL INTEGRATION, is closely linked with strategy (a):

  1. it can seek to achieve a greater penetration of its existing MARKET, increasing its share of the textile fabrication market by various competitive means – low costs and prices, product differentiation (see COMPETITIVE ADVANTAGE). However, if the firm is already a dominant supplier, or if the market itself is in the mature phase of the PRODUCT LIFE CYCLE, growth opportunities are strictly limited (see HORIZONTAL INTEGRATION);
  2. the firm can aim to develop new markets for its existing products, capitalizing on the firm's production expertise. In our example, the firm could adapt rayon for use as a packaging material for products such as crisps and cigarettes, or the firm could globalize its operations by selling rayon into international markets (see MULTINATIONAL ENTERPRISE);
  3. the. firm can seek to develop new products for its existing markets, exploiting the firm's marketing strengths. Our rayon firm could, for example, add other synthetic fibres to its product range, or blend together rayon with natural wool to create ‘hybrid’ fabrics of various strengths and textures for use by clothiers. This strategy, however, suffers from the same general limitations as strategy (a) above;
  4. the firm could aim to diversify (see DIVERSIFICATION) away from its existing activity by developing new products for new markets. The rayon firm might decide that the clothing industry overall had too little long-term growth potential, or that it had become too competitive to make decent profit returns. In this case, DIVESTMENT of its original business interests or a gradual move away from rayon production into, say, the electronics industry may be considered. This is generally the highest-risk strategy since it takes the firm furthest away from its core expertise in production and marketing. For this reason, merger and takeover (EXTERNAL GROWTH) rather than ORGANIC GROWTH is often the most viable way of developing entirely new business interests for the firm. See BOSTON MATRIX.
Product-market matrixclick for a larger image
Fig. 159 Product-market matrix.

product-market matrix

a matrix for analysing the scope for change in a firm's product-market strategy. Fig. 159 shows the matrix, which depicts products on one axis and markets on the other. A firm seeking to achieve profit and growth in changing market conditions has four major strategies available:
  1. more effective penetration of existing markets by existing products, increasing the firm's market share;
  2. development of new markets for its existing products, capitalizing on the firm's production strengths;
  3. development of new products for its existing markets, exploiting the firm's marketing strengths;
  4. development of new products for new markets, that is, DIVERSIFICATION. This is generally the highest-risk strategy since it takes the firm furthest from its production and marketing expertise. See also BOSTON MATRIX, PRODUCT MIX.
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