If the process of scaling up your business has been a struggle, the key to your breakthrough might lie with the Ansoff growth matrix. No, it’s not a Russian action movie starring a Keanu Reeves look-alike.
It is a framework devised by the Russian American applied mathematician and business manager Igor Ansoff. In 1957 he gave business owners a lens through which they could plan the organic growth of their companies based on their specific product-market relationship.
Everybody is looking for sustained, accelerated growth. Taking into account current assets ( i.e. products & markets ) and future aspirations, you can receive a solid base from which to structure your own customized ladder to the top.
Learn how to take haphazard and chaotic efforts and turn them into a more efficient scaling operation. If you want a strategic plan for scaling up, the Ansoff growth matrix has four paths you can go down, all outlined below.
Of course, this range of options begs the following question:
Which Business Scaling Strategy In The Ansoff Matrix Is Right For You?
As we can see in the image above, the Ansoff growth matrix presents combinations of two factors – existing/new markets and products. Also note that the strategies are color-coded, corresponding to a risk grading.
Market penetration is the least risky, diversification the most, with market/product development sitting right in the middle.
We will go into more detail on each of these four strategies, discussing their possible risks, payoffs, and whether they might be a good fit for your scaling plan.
We will also give examples for each using a fictional company selling foam rollers. This will be done to:
- Give inspiration for future actions you might also undertake in the same scenario.
- Illustrate how the Ansoff growth matrix strategies needn’t be used in isolation, but can succeed one another to form a natural upwards trajectory.
In this approach you take an existing product in a market you are currently established in, to increase your share of it. It is also referred to as the “protect and build” strategy, hinting at its relatively safe, minimal risk nature.
This is when you want a robust, efficient sales funnel up and running and marketing campaigns to draw in more leads. We won’t do a full deep-dive here, but take a look at our past blog posts, as sales funnels & marketing campaigns are two of our main topics of discussion.
Here are a few quick suggestions to boost your market share:
- Facebook Lookalike Audiences. Simply take your existing buyer persona and tell Facebook to find similar people for your Ad campaigns. This is a reliable way to boost your visibility while ensuring a high conversion rate, since the new leads are already in your sphere of influence.
- Lead magnets. Offering value upfront makes the entire sales process more effective, and a great lead magnet can considerably boost word of mouth.
- Partnerships. Social Media influencers / Youtube channels / blogs / other companies. Tapping into existing and related audiences can push your outreach even further.
- Discounts. Take some time to design a theme for your sale, or make it coincide with a holiday, to make it more memorable and appealing.
Let’s take our example company. It’s just starting out, it has one product (a foam roller) and one distribution channel (an online store page).
Its market penetration strategy involves signing an endorsement deal with a top online fitness instructor to promote its product. To coincide with this, it temporarily reduces the price for a week. As a result of this visibility boost and discount preparation, sales are going up.
The next two strategies are very similar since they both:
1) Are a great way to reignite interest in your company when momentum is stagnating.
2) Carry a similar amount of risk when compared to market penetration and diversification.
Market development involves taking an existing product and entering a new market.
To be truly successful, the new market should be a segment of your existing one.
We recommend the following:
- Establish new sales channels. Open an online shop or a brick & mortar location. While there is some overlap between online and real-world shoppers, having a place to cater to each of them maximizes your potential.
- Focus your online outreach (SEO & Ads) on other cities/parts of the country and new demographics.
NOTE: You may need to adjust your product as well to make the move into a new market as successful as possible. This is particularly important for international expansion, where you have to consider local laws, design preferences, market expectations, etc.
Using the boost in sales, our fictional foam roller seller takes the opportunity to negotiate a deal and get their product into major fitness retail stores across the country. This way it reaches new potential customers and isn’t confined to the online space.
Through segmentation and market research, it discovers that a significant percentage of its client base is made up of physical therapists who are giving foam rollers to their patients. This could lead to two things:
1) A marketing campaign targeted at this segment of the market, with specialized jargon and emphasis on the medical benefits of the product.
2) Changes to the packaging to make it more instructional for the patients.
When you have a well-developed market presence, it’s time to capitalize on it by creating a new offering. It can be a product or service if you are a SaaS business. Keep feedback channels open and browse forums / social media groups to monitor discussions and identify complaints/wishes. Look for ways in which your product can serve an existing need.
Going back to our example, foam rolling the lower back is generally discouraged so the company makes self-massage devices in different shapes and sizes to target different muscle groups in the body. Foam rolling is also usually done on a mat, which is another product that perfectly complements the current product range.
Look to become the one-stop shop for your customers. The fewer trips they have to make to other places, the less friction there will be in their decision-making process.
The Diversification Strategy
By far the riskiest strategy in the Ansoff growth matrix, this is when you go into a new market with a new product. Only attempt this if you already have a healthy business and are looking to take it to the next level. To get a better idea of the benefits, let’s conclude our series of examples. Now that our fictional company has gone from selling foam rollers to catering to multiple segments of the market with a wide range of products, it wants to diversify and opens up a gym.
If the revenue from either business ever dries up or is affected by market-wide activity, the company as a whole will still remain afloat. It’s also a spot for cross-promotion as it can equip the gym with its branded products, encouraging people to use and remember them.
It also indirectly boosts its existing business. A successful gym will create more gym-goers, increasing the demand for quality foam rollers and mats.
Using all of the four strategies in the Ansoff growth matrix, we have taken a theoretical company selling foam rollers from just another fish in the pond to a stable enterprise able to sustain market fluctuations.
Risks Of The Ansoff Growth Matrix
Although the four strategies are graded for risk, the Ansoff growth matrix itself has a potential risk factor built into its design. The main criticism of the Ansoff growth matrix has been its apparent simplicity. It does not factor in the possible operations and counter-measures of the competition which could hinder your ability to move into new markets.
We still believe the Ansoff matrix provides a really solid base from which to structure your growth plan. If you wish to get as complete a strategy as possible, don’t hesitate to contact us right here. We will schedule a call right away and discuss how we can implement the Ansoff growth matrix in our strategy to help your business scale!