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What are the key factors to consider when choosing between different growth strategies?

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If you want to grow your business, you need to have a clear vision of your target market, your product range, and your competitive advantage. One tool that can help you with this is the Ansoff matrix, a framework that categorizes four types of growth strategies based on the level of risk and innovation involved. In this article, we will explain how to use the Ansoff matrix and what factors to consider when choosing between different growth strategies.

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1 What is the Ansoff matrix?

The Ansoff matrix is a 2x2 grid that shows four possible combinations of market and product expansion: market penetration, product development, market development, and diversification. Market penetration means increasing your market share in your existing market with your existing products. Product development means creating new or improved products for your existing market. Market development means entering new markets with your existing products. Diversification means creating new products for new markets. The matrix helps you evaluate the potential and feasibility of each option based on your current situation and goals.

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Ikoabasi Akpan

Business Transformation I Multi-Industry Expert I Revenue Accelerator I Strategic Business Solutions I Driving Growth for Organizations
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A critical evaluation of organizations resources is crucial in determining an appropriate growth strategy. Organizations resources can be a unique source of sustained competitive advantage and growth.

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Manoj Periyasamy

Pharma | Global Markets | Growth Strategy | Analytics
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While a framework provides a great way to start structuring a process to carve out a growth strategy it is critical to understand the organization from a 360 perspective. Having organizational awareness is important in maneuvering a framework that works for the organization. Being well informed on the organization as much as possible across the different functions is key to make the best out of the Ansoff framework.

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2 How to use the Ansoff matrix?

To use the Ansoff matrix, you need to assess your current position in the market and your product portfolio, and use the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to identify the opportunities and challenges of each growth strategy. For each strategy, you should consider how attractive the market or product opportunity is, how much investment and resources are required, how compatible it is with your core competencies and values, how risky it is in terms of competition, regulation, and customer acceptance, and what the expected outcomes and benefits of the strategy are.

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3 Market penetration strategy

Market penetration is the least risky and most common growth strategy, which involves increasing your sales and customer loyalty in your existing market with your existing products. To do this, you can develop more effective marketing and promotion efforts, offer discounts, incentives, or loyalty programs, enhance customer service and satisfaction, build long-term relationships with customers, and leverage your distribution channels and partnerships. Market penetration is a good strategy if you have a strong market position, a loyal customer base, and a competitive advantage; however, it can be difficult if the market is saturated, the demand is low, or the competition is fierce.

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Nima Ghafari

Senior Product Manager @ LinkedIn | JD, Ex-Uber
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While market penetration is often seen as low-risk, that is not always the case. Aggressive discounts can cannibalize sales and eat profit margins while conditioning customers to lower prices. Good examples of this risk materializing can be found globally in the food delivery and ridesharing space.

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4 Product development strategy

Product development is a more innovative and risky growth strategy that involves creating new or improved products for your existing market. To do this, you should conduct market research and customer feedback, invest in research and development, explore new features, functions, or designs, launch new product lines or extensions, and differentiate your products from your competitors. Although this strategy can be beneficial if you have a high-quality product, a strong brand image, and a loyal customer base, it can also be costly, time-consuming, and uncertain if the market is dynamic, the customer needs are changing, or the competition is strong.

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Christina Trampota
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Let's add in the disruptor perspective here: The main way to grow in an economic manner is often via product led growth, where the product looks at it through the full cycle of acquisition, expansion, conversion and retention. Developing a quick prototype and or test version of a new product concept is always ideal, and with more low code and no code platforms available, this is increasingly cost effective, prior to testing/verifying/measuring the true value in the markets.

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5 Market development strategy

Market development is an innovative and risky growth strategy that involves entering new markets with existing products. This could include expanding geographic reach, targeting new segments or niches, adapting products to different customer needs or preferences, exploring new distribution channels or platforms, and building new partnerships or alliances. Market development is a good strategy if you have a unique or superior product, a strong brand reputation, and a large potential market. However, it can also be challenging, complex, and costly if the market is unfamiliar, diverse, or competitive.

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Joe Spector

Founder & CEO @ Dutch Pet, Inc. | Telehealth for Pets
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New geographic markets also come with a different set of laws and create additional legal fees and or have additional legal considerations. New markets also have different logistic demands, different payment infrastructures. Seasonality in different markets could also impact how your product or service is used in that new geography.

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6 Diversification strategy

Diversification is a risky and radical growth strategy that involves creating new products for new markets. You can do this by developing new technologies or capabilities, acquiring or merging with other businesses, diversifying your product portfolio or services, exploring new industries or sectors, and creating new value propositions or business models. This strategy is beneficial if you have a high level of innovation, expertise, and resources as it can help reduce dependence on one market or product, increase profitability, and create a competitive edge. However, it can also be very risky, uncertain, and difficult if the market is unknown, volatile, or hostile.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the key factors to consider when choosing between different growth strategies?

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1 What is the Ansoff matrix?

2 How to use the Ansoff matrix?

3 Market penetration strategy

4 Product development strategy

5 Market development strategy

6 Diversification strategy

7 Here’s what else to consider

Competitive Analysis

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