There are a multitude of growth strategies that may leave you scratching your head and wondering which ones would be the best for your business. But apart from having the right tools and framework in your arsenal, it’s crucial to begin your assessment with the fundamentals, and determine which strategies would help you carry out your marketing campaign.
The Ansoff Matrix
Igor Ansoff, the father of strategic management, proposed the Ansoff Matrix, which is made up of 4 growth alternatives with new and existing products on one axis, and new and existing markets on another.
In your quest for business growth, the decision-making process may be grounded on 2 levels:
- Whether your business should penetrate new markets or stay with its existing ones
- Whether your business should expand its product offerings, or retain its existing ones
Ansoff’s Market Matrix illustrates these as:
Source: Lighter Capital
In this blog, we’ll dive deeper into each of the 4 growth strategies mentioned above so you can better gauge which ones to use for your business.
- Market Penetration
The goal of market penetration is to boost sales for an existing product within an existing market — entailing a lesser degree of risk when compared to other strategies, because it avoids the significant obstacles that can be encountered when attempting to enter a new market. Surely, any company would want to gain a majority of the market share, just like Apple Inc. did back in 2017 — measuring market penetration will simply help you formulate a strategy for doing so. Market penetration should preferably be determined quarterly, or perhaps after an ad campaign to measure its impact.
You can calculate for your market penetration rate using the following formula:
(Number of Customers/Size of Market) x 100 = Market Penetration Rate
So suppose that 50 million users own a Dell laptop in a country with 300 million people. The computation for the market penetration would be:
50/300 x 100 = 16.67% penetration rate
Based on the calculation above, Dell has a 16.67% market share, which means 83.33% of the total market is still up for grabs by other laptop makers. Always aim for a 10-40% penetration rate, as this is considered to be the ideal range for business products, and between 2-6% if you’re selling consumer goods. Although these figures are estimations, they can provide insight into how many customers are buying your specific product and your ability to meet revenue forecasts.
- Market Development
Once you’ve determined your market penetration rate, you’ll need to focus on methods of execution for your marketing strategy — this is where market development comes into play.
Market development tactics usually include paid advertising, direct sales outreach efforts, and social media campaigns to grow existing markets and attract more prospects in new ones. Other strategies might come in the form of discounts, product bundles, and exclusive sign-up vouchers for software products. It slightly differs from market penetration in terms of the risks involved — market development is riskier than increasing existing market penetration because of the need for gaining traction in a new (possibly unfamiliar) market.
To illustrate this concept, let’s imagine a company with a large market share for a software product, but a much smaller presence in web-based applications. A possible strategy would be to come up with a new product offering and create a more targeted campaign to increase your market share for web-based services. Here are some best practices for you to consider:
- Enhance your product’s usability and existing features; encourage improvisation and innovation among your customer base through an open-feedback initiative
- Expand into new regions of a country or into foreign markets (depending on your resources and saturation of the new market you’d enter)
An example of a company that used a market development strategy in its early stages is Facebook. Before it became the social network giant that it is today, Facebook initially catered to an audience made up mainly of college students. As it grew in popularity over the years, the company had to explore more user bases and enter new markets, eventually getting into gaming, content creation, and opening the platform to eCommerce and advertising. They focused heavily on user behavior, providing people with different personalized experiences while still offering the same core product.
- Product Development
You can’t assume that customers will always want to use your product — people are always on the lookout for something new. The objective of product expansion is to launch new products or services into existing markets to drive sales and revenue growth. This can be done by gathering feedback from your customers about new products they’d be interested in, if they want existing features augmented, or if they want a new version of your current product developed. Investment in R&D is a crucial aspect of product development, particularly in the tech world where innovation is the key to growth.
Microsoft provides us with an example of a well-executed product development strategy, having leveraged partnerships with stakeholders, scientists, and engineers to achieve product innovation. Since undergoing digital transformation in 2014, Microsoft boosted its AI and cloud-computing capabilities, and its decision to offer open-source software has given it an edge over its competitors.
Has your company experienced immense growth in its early stages, only to plateau over time? Perhaps it’s time to reignite growth and generate new leads through diversification — a high-risk growth strategy that could also reap high rewards if properly used.
HubSpot is an example of a diversification strategy success story. After starting off as a software solutions company targeting small businesses, they shifted to enterprise-level solutions by overhauling their software capabilities to meet demand. The company’s revenue skyrocketed, earning them an ARR of $15.6 million in 2010, with its current market value amounting to almost $900 million.
Diversification can be used as a temporary survival technique, but it can also be the means to achieve long-term growth. Here are some variations of this strategy:
- Horizontal diversification strategy – expanding your existing product range; least risky diversification strategy
- Vertical diversification strategy – expanding into the space you’re currently operating in; forward vertical diversification takes place when a business moves forward in the supply chain towards a customer; backward vertical diversification happens when a business moves backwards in the supply chain, relying solely on itself for supply
- Lateral diversification strategy – tapping into a new market you have no history of operating in; developing a new product different from your core one for an unexplored market (works best for established brands)
All 4 strategies mentioned above have a proven track record, but the trick is to find the one that best suits your company. A business that’s still in its early stages usually can’t start with a diversification strategy and is likely to achieve greater success by working with an existing product and market. Ultimately, only you will know which option best meets your needs, but adopting one of these strategies could help your business reach the next level.