Many of the conversations I have with clients and my network are about growing their business and the best strategies for growth.
Often, I share with them the Ansoff Matrix:
This, deceptively simple, matrix outlines the four key strategies that most organisations can choose from when it comes to growth (and it can even be used to help you decide how to shrink or consolidate).
I’m going to quickly run you through the Ansoff Matrix and how you can use it to help shape your thinking when it comes to growth / consolidation / shrinking your business.
The Ansoff Matrix strategies and how to choose from them
Strategy: Existing products / services to existing markets
Perceived risk: Low but could lead to, over time, stagnation
Unless your market is saturated already with providers of your particular service, this is the lowest risk strategy. You already know your market place. You know what they want, what they need, how to meet those needs with your products. Your product is developed, it works well, segments in your market place knows it and like it.
This is a good strategy if you know you can get more clients from your current markets as you can just get on with it – no need for market research or costly product development.
Strategy: Existing products / services to new markets
Perceived risk: Medium
If you have a robust product or service which you think will translate to another market place, this is a great strategy to follow.
I often recommend this strategy as it means you are not putting all your ‘eggs’ in one market / basket. Meeting the needs of different markets can help spread your business risk and, if or when one market slows down or crashes, you at least have income from another one.
However, before you approach a new market the three key words are: research, research and research. While there might be commonalities with the current market that you sell into, you need to know what the differences are and ensure your marketing strategy to the new market isn’t just a ‘copy and paste’ job. The road to marketing hell is paved with companies that thought this would work (it doesn’t).
Strategy: New Products / services to existing markets
Perceived risk: Medium
You know your clients in your current market place really well. In fact, so well, you have identified another want or need of theirs which isn’t being met. So, you decide to develop a new product to meet that need.
This strategy, like Market Development, is good for spreading your business risk. If your A Product is no longer needed, you at least have B product.
Before you embark on this strategy though, make sure you are developing a product that does actually meet the needs of your market place, and which won’t damage or negatively impact your current product or service’s reputation.
Also, make sure you have the time and money to spend on New Product Development (NPD) – this is often an investment which can take time to pay back.
And, just to be really boring, the three key words when it comes to NPD are: research, research and research.
Strategy: New Products / services to new markets
Perceived risk: High
All change! Totally new! Fun! Excitement! Scary! Risk! Risk! Risk!
This strategy is the most risky as you are operating in an unknown market and developing a new product or service at the same time. The potential to get it wrong is high, so market research is key and strong new product development is vital.
However, this is a great strategy if you want to have very separate and distinct arms of your business.
Take Virgin Cola; when that failed, did Virgin Atlantic suddenly become less needed or lose its reputation? No, because while the two businesses have the same ‘owner’, they are so different, one could fail without heavily impacting the other.
Diversification is also a great way to explore and experiment but you have to make sure you do so in a way that doesn’t negatively impact your current business.
How to use the Ansoff strategies to consolidate or shrink your business
When it comes to consolidation or shrinking, unless you are in a very niche sector and the risk of running dry on new clients is high, Ansoff often leads to the conclusion of very tight Market Penetration.
By that, I mean selling more of the same to current clients and selling to similar clients. This allows the business to purposefully shrink back to what it should know and be good at. Much depends on your business and situation so do assess it all carefully.
Every business is different and operating in a different market place, so you have to choose the right strategy for you, your management team, your business, your market.
Typically, I advise people to take a split approach to growth; working on market penetration while adopting market development or product development at the same time. This works if you still have a market place to sell to and a product / service to sell.
If, as has happened to so many recently, your current business model has had to stop then market penetration is the wrong option; often it is Product Development or Market Development that is best to focus on as it will allow you to get money in quicker than Diversification.
Whatever strategy or mixture of strategies you choose, remember: research, research, research. Assumptions and following your nose will get you so far – but hard facts and data will get you further.
About the author
Kara Stanford is a Strategic Marketing Consultant, working out of North East Hampshire, UK.
If you’d like help making Strategic decisions for your business, then do get in touch to arrange an initial conversation.