Has your business experienced a growth plateau? Are you looking for ways to overcome that plateau? If so, there’s a good chance that you’ve become overwhelmed with information.
Search for ‘growth strategies’ on Google and you’ll find 18.6 million search results – it’s enough to give anyone a debilitating case of analysis paralysis. If you don’t know where to start, I would recommend Ansoff’s Matrix as a jumping off point for your growth planning. It’s a great way to identify broad strategies for growing your business before diving into specifics, while avoiding risks like overlooking certain strategies or selecting the wrong type of strategy.There are 18.6 million search results for ‘growth strategies’ on Google – it’s enough to give anyone analysis… Click To Tweet
Let’s take a look at the four components of Ansoff’s Matrix and how you can use them as a starting point for kick-starting growth.
What is Ansoff’s Matrix?
Igor Ansoff, the applied mathematician, business manager, and father of strategic management, developed Ansoff’s Matrix as a framework for executives, senior managers, and marketers to think more clearly about growth strategies. The framework helps devise a product-market growth strategy by focusing on four growth alternatives: Market penetration, market development, product development, and diversification.
Market penetration is a growth strategy whereby a business focuses on selling existing products into existing markets. For example, a furniture company may specialize in selling products online using pay-per-click advertising to drive sales. A market penetration approach would involve doubling their ad spend on the same pay-per-click ads, with the goal of capturing even more of the market than they’re currently addressing.
- Lowest risk – You already have a good idea of how existing products sell in existing markets and you’re leveraging existing resources and capabilities.
Perfect for: Companies that have a strong competitive advantage and/or operate in a market that is rapidly growing.
Market development is a growth strategy whereby a business focuses on selling existing products into new markets. For example, suppose that a restaurant has carved out a unique niche next to a specific big box retailer. A market development strategy might involve opening up additional restaurants in new locations next to the same big box retailer. You’re not changing the product, but you’re scaling revenue through new locations.
- Lower risk – Your core products or services aren’t changing and you’re still leveraging existing resources and capabilities to produce them.
- Growth potential – You have an opportunity to reposition the brand, try out new uses for the product, or expand into new geographical locations, which can translate to faster growth rates or higher profit margins.
Perfect for: Companies that operate in industries with high overhead costs, which makes it difficult and costly to change production technologies.
Product development is a growth strategy whereby a business focuses on selling new products to existing markets. For example, a consumer products company selling cosmetic and beauty products may survey their customers to find out what other kinds of products they’re interested in purchasing. The company may then launch a line of health and wellness products that appeal to the same audience as a way to grow revenue and expand.
- Lower risk – You have an existing customer base for the new products and effective marketing strategies in place for reaching them.
- Growth potential – You may introduce new products that have greater growth rates or higher profit margins than existing products.
Perfect for: Companies that operate in competitive markets where innovation is a necessity or those where products risk becoming commoditized.
Diversification is a growth strategy whereby a business focuses on selling new products to new markets. For example, an ecommerce firm with a large regional presence may determine that they are spending a lot of money on shipping and transportation. They may decide to build a transportation and logistics business alongside their ecommerce operations to lower these costs, even though it’s a completely different industry.
- Vertical integration – Vertically-integrated businesses can have synergies with existing businesses to provide a jumpstart for growth.
- Horizontal diversification – New products targeting existing customers represent an opportunity to diversify without the risk of a completely new venture.
- Diversification – New products that are unrelated to existing products and customers may provide greater diversification for the business as a whole.
Perfect for: Companies that could benefit from vertically-integrated businesses or those that wish to diversify their revenue.
How to Use Ansoff’s Matrix
Ansoff’s Matrix is used as a starting point for strategic planning. Rather than diving into a specific strategy right off the bat, the matrix helps you consider four growth alternatives before diving deeper into the details.
Here’s how to get started:
- Evaluate – Determine your company’s unique advantages and disadvantages. For example, your company may have high overhead costs that make it more difficult to change products but provide a higher barrier to entry for competitors.
- Identify – Identify which Ansoff Matrix categories work best given your company’s dynamics. For example, if your products are at risk of commoditization, then you may want to consider focusing on product development.
- Plan – Develop a specific plan using the Ansoff Matrix categories that you’ve identified. For example, if you’re considering product development, determine what specific products your customers would be interested in buying.
It’s usually best to focus on one strategy at a time, since implementing several strategies at the same time will make it difficult to see what caused the effect. But, there are cases when your organization may successfully target more than one of these categories at a time. For instance, you may decide to expand into new geographic locations and introduce new products at all of your locations at the same time if you’re doing each for a good reason.
The Bottom Line
I highly recommend using Ansoff’s Matrix when analyzing different growth strategies for your business. By looking at each of these four categories, you can come up with specific areas where you can look to build new growth strategies before diving into the details. This can help you avoid many problems, like using the wrong type of growth strategy for your business.
At Trajectory, we have helped countless entrepreneurs get more out of their businesses by overcoming growth plateaus and streamlining their operations. Contact us today for a free 30-minute consultation and learn how we can help implement these ideas and others.