A business growth strategy enables companies to expand and grow their business. It is the goal of most businesses to make more sales and revenue. Using the Ansoff matrix, we will explore the four strategies that can be deployed for business growth and the level of risk involved in implementation.
What is a Growth Strategy?
A growth strategy consists of all the steps a business carries out in order to expand and generate more revenue. Having an effective growth strategy protects your business to a large extent from pitfalls through the generation of increased profit, opportunities, larger market share, and overall business expansion.
With a good growth strategy, businesses are better able to understand where they are and where they are going and how they can get there. This creates a clear path to achieving business goals and ensures that employees are on the same page.
Before deciding on a strategy that is perfect for your business, think of the answers to these questions:
Who is my target audience?
Knowing your target audience ensures you focus your marketing effort on the right people, thereby avoiding wastage. People often say their target audience is everyone, which is impossible. There are particular groups of people that want your product and you can find them through careful research. You can do this by asking some questions like who are my current customers, who are my competitors’ customers, what are the benefits and features of my product, what kind of person is likely to buy from me, and what are their values?
Who are my competitors?
There are different ways to find your competitors, from a Google search to social media down to asking your customers. Sometimes it’s just plain obvious who they are. Once you have found your competitors you want to conduct a competitor analysis. With this analysis, you can compare their strengths and weaknesses with yours in order to find ways of improving your business and outdoing your competitors.
What is my value proposition?
Your value proposition is what sets you apart from the competition. It is the reason why customers should buy from you.
You may already know what it is but a good way to confirm would be to ask your customers what they enjoy the most about your service; why do they keep coming back? There lies your answer. You can then take this information and amplify it in your sales copies. Also, watch this video by Geoffrey Moore where he discusses his template for figuring out your value proposition.
How does my business make money?
Your business could have multiple streams of income, and while some streams may generate tonnes of income for you, others may not. Understanding your sources of income can help you identify what works so you can optimise it in order to generate even more revenue while getting rid of what doesn’t work.
What am I trying to achieve?
Without properly defining your goals, it becomes difficult to stay on track. But setting KPIs ensures your goals stay top of mind by measuring and tracking what works and what doesn’t. Business goals should also be SMART: Specific, Measurable, Achievable, Relevant, and Time-based.
Types of Growth Strategies
To discuss this, we will delve into the Ansoff Matrix. The Ansoff matrix is a framework for devising growth strategies while also assessing the level of risk involved in each strategy. Developed by H. Igor Ansoff in 1957, this matrix has long helped many businesses in determining the best growth path for them.
The four strategies include market development, market penetration, product development, and diversification. Let’s discuss them in more detail.
Market Penetration: This strategy has the lowest risk. It involves growing a business using your current products in your current market. It is an effort to grow your market share. You can do this by:
- Lowering your prices
- Increasing marketing effort
- Exploring new marketing strategies
- Selling more products
- Acquiring your competitor
We can see examples of this strategy when businesses double down on advertising or give discounts in order to incentivise customers to buy from them and not the competitor. Although this strategy has the least risk, it can get very competitive because just as you’re trying to increase your market share, your competitors might also be doing the same.
Market Development: In this strategy, a business expands into a completely new market with its current products. A new market can mean a new target audience, a new location or country, e.t.c. With this strategy, businesses discover new people that want their products and market to them. To understand if this strategy would be right for your business, consider;
- if there are people similar to your target audience that will benefit from using your product
- if you can handle an expansion in terms of customer service
- if your efforts will be profitable.
An example will be a business targeting a different age group, or selling their products in a new state or country.
The risk involved in this strategy is the cost of expansion as a result of an increase in the marketing budget, strain on customer service, and setting up a new location.
Product Development: in this strategy, growth is achieved by developing new products for your current market. Businesses can do this when they;
- Create a product their customers would love
- Find a solution to the problem their customers are facing
- Create a product that compliments their current product
- When their customer base is very responsive and eager to consume their products.
For example, a business that sells bottled drinks repackaging them in sachets to increase affordability and transportability. You can decide on a new product to market by researching what your customers need or forming strategic partnerships with other businesses
The level of risk here is on the same level as the market development strategy. The risk involved is that customers may focus more on the new product and leave out the old one or it may take some time for the employees to get used to producing the new product.
Diversification: in this strategy, a business expands by offering new products to new markets. This strategy poses the most risk because you’re changing your product and market at the same time. However, it also poses the most reward because it gives your business a fresh revenue source.
Diversification can be either related or unrelated. In related diversification, the new product is related to the current product. For example, a real estate firm starting an interior design business. In unrelated diversification, there is no relationship between the new and current business. For example, a real estate firm starting a clothing business.
A sustainable business growth strategy sets businesses up for long-term success. The four strategies: Market penetration, Market development, Product development, and diversification, serve as a guide to deciding what strategy is suitable for your business. It is also important to carry out some research to determine what is best for your business.
