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4 Strategies for Product Expansion 

As customer needs shift, new technology emerges, and new players enter the market, companies will need to evaluate their product offerings to stay relevant and grow. Even the most successful companies will see their growth begin to slow as they research market saturation.  To stay relevant, many companies invest in a product expansion strategy to build new offerings or enhanced products. 

Product expansion can be a core lever to growth, but there are different strategies businesses can employ. The right path for product expansion depends on your company’s resources, capabilities, and the interest and demand of your chosen markets. 

What Is Product Expansion?   

Product expansion involves increasing a company’s product capabilities and market share. This can be through any combination of enhancing current products into existing markets, expanding existing products into new markets, building new products for existing markets, or even creating new products to sell into new markets.  

Companies invest in product expansion to increase their market share, expand their capabilities and competitive advantage, and achieve their goals. The various expansion strategies companies follow depend on their unique situation, current product portfolio, resources, business goals, and target markets.  

Why Product Expansion is Important  

Product expansion offers many benefits, including:  

Increased market share and revenue  

With improved products and expanded portfolios, companies can increase sales and revenues with more customers to sell to and stronger market positioning.   

New opportunities  

By addressing gaps in the product, adapting to new or shifting needs, or leveraging new technology, companies can build a more competitive offering that aligns with customer needs and become a market leader.  

Stronger competitive positioning  

By investing in product growth, companies can offer enhanced capabilities to outsell competitors and lure away customers.  

Strategies for Product Expansion  

Many businesses reference the product market expansion grid (also known as the Ansoff Matrix) to determine which product strategies to pursue. The matrix lists the four options based on whether companies want to invest in new or existing products or markets.  

 

Market Penetration (Existing Products in Existing Markets)  

If there is potential to grow, the first path companies choose for product expansion is increasing a product’s current share of the market. The focus could be on fine-tuning existing products to better align with customer needs and preferences, increasing brand and product awareness, adjusting marketing and sales strategies —any combination of tactics that strengthen and grow their market position.  

As a market penetration strategy involves operating in a known market with an established product, it costs the least, takes less time, involves less risk, and is more likely to succeed. However, companies will need to do their due diligence by conducting in-depth research into their target market. Without a current understanding of the market and by operating and investing in assumptions, companies are more likely to struggle and often fail to grow.  

What you need to know:  

  • Total addressable market: How much room is there to grow?  
  • Current market penetration: How saturated is the market?   
  • Current market dynamics and evolving market trends: What market limiters or trends will impact success?  
  • Customer satisfaction: How satisfied are customers with our brand and product?  
  • Product attitudes and usage: How are customers using our products, and does the product address their needs?  
  • Brand health and product awareness: How well-known is our brand and product capabilities?  
  • Competitive landscape: Who are our current and potential competitors, and how do we compare?   

  

Market Development (Existing Products in New Markets)  

If their current market is oversaturated, many companies explore new and adjacent markets that may be a good fit for their products. However, as new markets have different dynamics and customers, companies will need to understand the new market and adjust their products to fit. 

What you need to know:  

  • Total addressable market: How big is the market?  
  • Current market dynamics and evolving market trends: What market limiters or trends will impact success?  
  • Qualitative interviews: What do customers in this new market want in a product?  
  • Competitive landscape: Who would be our competitors, and how would our proposed product compare?  
  • Product testing: How does this new market use our products, and what elements need to change?  
  • Message Testing: What sales and market messaging will resonate with this new audience?  

  

Product Development (New Products in Existing Markets)  

Companies that want to expand their offerings into an existing market will focus on building new products to grow their portfolio and competitive advantage. Serving a new offering to existing customers has several advantages, including an established market presence and an understanding of market and customer needs. However, companies will need to test their market assumptions and ensure the product they build is viable and in demand.  

What you need to know:  

  • Brand Equity: How well-known and influential is our brand name?  
  • Competitive landscape: Who would be our competitors, and how would our proposed product compare?  
  • Product portfolio review: How will our new product align with our existing offerings?  
  • Feature and concept conjoint analysis: What products and features are of the greatest interest to our customers?  
  • Customer segmentation: What are the distinguishing traits of the customers of our new product?  

   

Diversification (New Products in New Markets)  

Companies looking to expand or shift will invest in building products for new markets. The companies that chose this strategy either have significant resources they can invest in expansion or are struggling with products in their current market and need to identify a new path to growth.  

A diversification strategy has the highest risk and will require extensive product investment in the form of market and product development research. It can also involve mergers and acquisitions or hiring new talent to increase the success of entering a new market or support the development of a new product.  

What you need to know:  

  • Market analysis: What are the characteristics and dynamics of the new market?  
  • Customer insights: Who are the customers, and what are their needs and preferences?  
  • Product development: What products are in demand and viable?  
  • Brand health: What is the health of our brand, and what investments do we need to increase awareness and competitive positioning for this new market and product?  

 

Finding the Right Product Investment Mix  

 A company’s product investment rarely falls into just one category. Instead, they will choose a combination of paths weighed by their existing products, resources, and opportunities.  

For example, Company A might still have room to grow in its current market, but changing customer needs in an adjacent market has created a new opportunity. Not wanting to lose market share in their current market but also become an early entry into the new market means they will need to develop a strategy that allows them to tackle both at once.  

To find the right balance for your company, evaluate your current capabilities, potential resources, and opportunities and weigh them against the company’s goals.  

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