If you’ve done any studying around business or marketing, you will remember Ansoff’s Growth Matrix. For those of you who weren’t quite so “lucky”, let me quickly go through it and show you why it is a highly useful tool to help guide your growth planning and therefore your small business marketing.
The matrix has four boxes:
1. Market penetration = Existing markets buying current products
2. Product development = Existing markets buying new products
3. Market development = New markets buying current products
4. Diversification = New markets buying new products
Where are you now?
If you are still an early stage business, you are almost certainly in the Market Penetration box. You’ve identified a product (or service) and you are working to maximise the size of your client base. You are probably selling to clients who are similar in nature, or need. Your customer base may be across multiple geographical areas, but it if you deliver a service that involves your time, you are almost certainly selling within a fairly tight geographical region. This is simply because of the time, and cost, involved in travelling to other areas.
Moving boxes as a small business growth strategy
The decision to move into a different box, from Market Penetration, is a big one. It is a big commitment and can come with some risk, dependent upon which box you are considering. The decision to move boxes should be guided by your answers to the following questions…
1. Have you maximised sales of your current products to your existing markets?
The answer to this question is almost certainly no. Unless you are the market leader for your region, there will always be the opportunity to sell more. If you are struggling, a market development or product development strategy may work for you. It will depend on whether you believe you know the product or the market more.
2. Are your competitors dominant in your existing markets?
If you were late into the market, it is likely that there are a number of dominant players. They will make it difficult for you to develop your market share, so a different box may be a good alternative for you.
3. Are there products you can sell to your existing market?
If you’re in the technology market, for example, there is always a new product to sell. Many will be updates of what you are already selling them, so that doesn’t count, but there will be alternatives:
- If you’re an MSP selling on-premise solutions, Cloud would certainly count as new product, as would telecoms.
- If you’re selling cost savings, are you providing a full range of utilities, plus telecoms or connectivity?
These are just a couple of examples of how moving into the Product Development box may be a good small business growth strategy. However, try not to go too far away from your core products. If you currently provide software solutions, trying to add office furniture to your portfolio is probably a first step too far.
4. Can you properly serve additional markets?
A new market can be one of two things: a new geography – selling in Birmingham, to add to Bristol, for example. Or it can be a new sector – selling to the hospitality sector as well as the leisure sector. If you want to sell to this new sector, can you say you know enough about the sector and their needs to be able to generate sufficient sales within that sector? Developing a good knowledge of the new target market is vital if you want to sell existing products into a new market.
The route through the boxes
Businesses rarely go from Market Penetration to Diversification. Why? It’s simply too much of a risk. Trying to sell products you have little experience of to markets you have limited knowledge of is a gamble. A gamble that most businesses wouldn’t take.
Product or Market Development?
Truth be told, most companies do some of both. Over time, new products appear to sell to existing markets. At the same time, the reach of businesses, particularly in our digital world is constantly extending and orders come in from around the country, or even around the world. “Accidental” market development, however, often means a lower profit margin. Getting your product, or service, to different parts of the world can mean an impact on delivery costs. Customers may not want to pay a premium (at least that’s the way they see the increased costs) to get your product. You then have to decide whether you want to deliver, or not.
If, as a business, you are looking to grow, you will almost certainly have to move into a new box. It doesn’t mean you are leaving the old box behind. Over time, it will actually mean you are working with multiple sets of boxes. One set for each product or market. As you grow you simply move again.
If you are looking to grow your business, consider which is going to be the best first step: product or market.
Of course, if you would like to discuss this in more detail and see how we can help you develop the right small business growth strategy for business, call us on 020 8634 5911 or click here.