Having a fantastic technical solution is only the first step in creating value. As well as the technical case, you need to make the business case. Part of building that business case is to identify the market.
There are four fundamental strategies to consider when it comes to business growth. Igor Ansoff encapsulated these neatly in his work Corporate Strategy. Although published in 1965, this simple matrix has stood the test of time and remains relevant to businesses today.
What are the growth opportunities for your business and how can you make the most of them? Let's look at the Ansoff matrix through the eyes of a company that sells bananas, Bananas 'R' US.
1. Market Penetration
This is probably the strategy that most people are familiar with. It involves selling more of the same products to the same customers. Essentially this strategy seeks revenue growth by increasing the number of customers and/or increasing the dollars each customer spends. Bananas 'R' US sells bananas to elephants.
"Let’s convince every elephant to double their daily banana intake." BANANAS ‘R’ US
"We need to persuade more elephants to eat bananas" – they cannot live on peanuts alone." BANANAS ‘R’ US
Market penetration strategies
"What will happen to our business if elephants become extinct?" BANANAS ‘R’ US
Businesses such as airlines tend to focus on this strategy. They are keen to increase their ‘market share’. Each company seeks to have a greater share of the market than their competitors, with a view that this will improve their profitability. However, this strategy really only works well when both the products and the customers are largely fixed. If discounting is the only approach used, this can create a race to the bottom in terms of pricing and can damage profitability in the market as a whole. This strategy doesn’t consider the opportunity to expand into new markets, or to develop new products.
2. Market Development
The Market Development strategy involves selling your existing products into new markets. This approach is higher risk than market penetration, as it may involve some investment in market expansion without any guarantee of success. Mediating that risk is the fact that this strategy uses existing products, so there are no associated product development costs.
"Will giraffes eat bananas? We’re not sure, but we should give it a go, after all, we know bananas." BANANAS ‘R’ US
Market Development strategies
Market development can be achieved through a simple acquisition or takeover. If you already own one business, you might purchase a second, existing business in another town that expands your geographical market, without offering any new products or services in either one. This would be relatively low risk if compared to opening a new businss where there has never been one before. This growth approach generally requires access to capital. However, some of the other examples listed above require little or no additional funds and can be undertaken relatively easily.
"There’s a banana stand for sale in Timbuctoo. Make them an offer!" BANANAS ‘R’ US
3. Product/Service innovation
Introducing a new product or service takes investment of time and money. Time may need to be invested in staff training, to ensure that your customers receive the best advice on the new product. Deciding on the best product or service to provide for your existing customers requires good knowledge of who these customers are and what they need or want.
By focusing on existing customers, you can spend some time learning more about these customers to establish the most effective offering. While time and effort may be required, there are often new products or services a business can implement without significant capital investment.
"Most of our customers are elephants (and a few monkeys). What else could we sell to elephants?" BANANAS ‘R’ US
Product and service innovation strategies
"Every elephant needs a watch. After all, they don’t like to forget, and we know elephants." BANANAS ‘R’ US
Diversification is generally seen to be the most risky of all the growth strategies. It involves developing new markets with new products. This means that you would have no experience with the product or with the customers that are likely to purchase it. While the risks are there, this strategy can also give you an important first mover advantage, if no-one else has serviced this need before. You may be able to establish yourself as a leader in this area long before anyone else takes it on and this will usually allow you to charge a price premium.
"These giraffes have never even seen a watch before. They’ll be so excited, they’ll all want one." BANANAS ‘R’ US
While this is the most risky of the four strategies and may involve considerable cost to implement, companies taking a long-term view may find growth benefits in using a unique approach. Engaging with customers that you may not otherwise see and earning about these customers to retain their loyalty will help to sustain your growth well into the future.
"Do you think we need to change our name?" BANANAS ‘R’ US
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