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A growth strategy is a plan to increase a business’s size and value. It defines how you will win a race against your competition and identifies the most efficient way of reaching your strategic objectives. What’s more, it will apply to many areas in your business, from sales to finance, to people and technology. Without defined operational milestones or OKRs coupled with your growth strategy will struggle to have an effect.
The Ansoff Matrix – The 4 Growth Strategies
A simple framework to use when looking at your business growth challenges is the Ansoff Matrix. Ansoff was Russian American applied mathematician and business manager. A little like ‘business 101’, and dating back to 1957, it does still prove valuable today when you are assessing how to move your business forward, or simply get a better understanding of what your business may have actually experienced. Ansoff’s Matrix has two axes: one focuses on the product, and the other on the market.
Market penetration is considered a low-risk strategy. A company using market penetration will attempt to expand the sales volume of their current products in their already established markets to increase their total market share.
Often confused with market development, market penetration encourages brand loyalty and customer retention by using marketing material to engage customers using existing products or services. You can do this through price reductions or bundles, for example, those lure customers away from competitors or create higher-quality creative content that generates more quality leads. Or, you can explore ways to target existing customers and audiences through new products and services.
Market development is a higher-risk strategy that might yield significant returns. You should only consider this strategy when you already possess enough capital and resources to do so. Unlike market penetration, market development is about expanding or retargeting. This could mean taking an existing product to a new audience or market, or even altering your product into something new and shifting your focus to new customers altogether.
To create a market development strategy, you should conduct extensive market research to identify market segments – small batches of people in a larger population grouped by labels. You can build these segments around identifiers like location, age, income, or industry. Once you’ve selected your ideal market segment, you need to create a marketing and branding strategy that advertises your existing product or service to attract a new type of customer.
Product development is a strategic approach to growth that focuses on creating and commercialising new products. It’s not about expanding your customer base by targeting new markets. Instead, it’s improving your product line to attract more clients in your existing market segment.
Diversification is the riskiest of the four growth options. This strategy involves introducing a new product into an entirely new market, in which you may have minimal experience. This could include deploying products in new geographic areas and translating the benefits of your products to the local population. Without support from growth marketing experts, failure is a distinct possibility, although the potential of a high payoff may be worth the risk.
Not perfect, but useful
Used by itself, the Ansoff matrix could be misleading. It does not take into account the activities of competitors and the ability of competitors to counter moves into other industries. It also fails to consider the challenges and risks of changes to business-as-usual activities. An organization hoping to move into new markets or create new products (or both) must consider whether they possess transferable skills, flexible structures, and agreeable stakeholders.
Some schools of thought believe that the use of strategic management tools such as the Ansoff Matrix can result in an overuse of analysis. In fact, Ansoff himself thought about this and it was he who first mentioned the now famous phrase “paralysis by analysis”. Make sure that you do not fall victim to procrastination caused by excessive planning.
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