In our previous blog article we introduced the Ansoff Matrix as a simple way for business leaders to quickly think about the risks of growth, but it can be expanded linking marketing its general strategic growth.
The original Ansoff Matrix had 4 quadrants with Products / Services on the x axis and on the y axis were markets, both showing existing and new products/ services and markets. Strategic marketers now use a 9 box grid for a more sophisticated analysis. This change introduces “modified” products between existing and new ones (for example, a different filling for your cakes rather than launching a confectionary bar). Also it introduces “expanded” markets between existing and new ones (for example, opening another office in a new city rather than expanding internationally).
This is useful as it shows the difference between product extension and true product development, and also between market expansion and venturing into genuinely new markets (see below).
Market Penetration Strategy – This strategy involves selling more to current customers and to new customers who can be thought of as being in the same marketplace. There are four approaches you can adopt when implementing this strategy, namely
- Maintain or increase the market share of current products
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors
- Increase usage by existing customers
Market Development Strategy – A market development strategy involves selling your existing products into new markets. There are a variety of ways that this strategy can be achieved, including:
- New geographical markets
- New product dimensions or packaging
- New distribution channels
- Or the creation of a new market segment by means of different pricing.
One of the biggest dangers of this strategy is the risk of alienating your current customers.
Product Development Strategy This growth strategy requires changes in business operations, including a research and development (R&D) function that is needed to introduce new products to your existing customer base. There are 3 approaches:
- The new product is closely associated with current products
- It matches current customers’ purchasing habits
- Or it reinvents or refreshes the existing product.
Many businesses outsource product development by simply buying in an existing product from another manufacturer and putting their own name on the packaging.
Diversification Strategy – A diversification strategy achieves growth by developing new products for completely new markets. For a business to adopt such a strategy it must have a clear idea of what it expects to gain in terms of its growth. It also needs to make an honest assessment of the risks involved. The 3 approaches to diversification are:
- Full diversification, this approach is the most risky as you are offering a totally new product or service to an unknown market
- Backward diversification, your business decides to diversify by offering a product or service that relates to the preceding stage of your current product or service
- Forward diversification, your business diversifies into the products or services that relate to a later stage that follows your current offering.
The output from the matrix is a series of suggested growth strategies that serve to set the direction for the business strategy. Each of these options carries a certain amount of risk and involves some investment.
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