How to choose a Growth Strategy (The Ansoff Matrix)
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When I did my MBA, we covered the Ansoff Matrix, and it is a key element in understanding how you will grow your company or your business. And the great thing about it, is that it is a simple concept that can be applied easily.
I include it in this series of posts as it gives structure to your thinking. Coupled with Eugene Schwartz’s 5 stages of market awareness and sophistication it gives you a tremendous tool-set to construction your growth strategy.
To model different growth strategies, Igot Ansoff created a simple matrix – as shown with this article – that allows a company or business to focus its strategy to acquire new customers.
By considering ways to expand via existing and new products, existing markets and new markets, there are 4 combinations.
Those four growth strategies are market penetration, market development, product development and diversification.
It gives you the answer to “what should I be focussing on now?”
Please refer to the image of this blog post to see the Ansoff Matrix I refer to.
In summary, the four strategies can be set as:
Market Penetration – you want to achieve growth with existing products in your current market segments, aiming to increase your market share.
Market Development – growth will be achieved by targeting your existing products to new market segments.
Product Development – you will develop new products targeted to your existing market segments.
Diversification – you will grow by diversifying into new businesses by developing new products for new markets.
Selecting your growth strategy
Market penetration is the least risky. You will be using existing resources and capabilities. Market share can be expanded if competitors reach limits. The problem is that when the market is saturated, there are few opportunities to expand further. At this point another strategy must be adopted.
Market development is the pursuit of additional market segments or demographic/geographic regions. If your core competencies are related more to your product (rather than the market segment) then this is a particularly good strategy. However, the risk is larger than the previous strategy because of the unknowns held within a new market.
Product development is more attuned to you if your core competencies are related to your customers (market) than your product. This is because the product can developed to satisfy the customer’s desires. Especially their unsatisfied desires. Again, it comes with more risk than just market penetration.
Diversification is, as you would expect, the most risky. But can reap the greatest rewards. It has, it is worth mentioning, been referred to by many as the “suicide cell”! However, if the rate of return outweighs the level of risk, then this is a strategy that must be considered. Because you have the chance to establish a position in a new market (refer back to Schwartz’s levels of market sophistication here). By being the first, you will get the greatest rewards by far.
Whilst this topic could have – and indeed has – entire books devoted to it, I hope you see that you must have a strategy in mind.
It is no good planning just for today, but instead always be considering where you are heading. How does what you are considering today fit in with your long term strategy? Does it make sense?
It is all too easy to waste time, money and effort on acting too late, or heading in the wrong direction.
So consider your market(s), consider your product(s) but always have in mind your overall growth strategy.
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