B2B Growth Strategies 101
Most, if not all of the companies I work with are looking to grow their businesses. When evaluating the various B2B growth strategies, common sense usually prevails but I’ve found that this classic model often helps guide the discussions.
The Ansoff Product-Market Growth Matrix was developed in the late 1950’s by Igor Ansoff. It breaks growth strategies into four quadrants and ranks these quadrants based on the complexity. Since complexity and likelihood of success typically have an inverse relationship, the simpler the strategy, the more likely it is to succeed. Simpler strategies also usually translates into quicker time to revenue. The assumption is that a company is doing business in at least one market with at least one product. Growth is achieved by focusing resources on combinations of markets and products.
Quadrant I: Market Penetration
The simplest strategies involve selling more of the products a company is already selling to the markets they are already selling to. Since the organization is already familiar with how to sell, deliver and support an existing product, and they are already familiar with the market needs, competition and potential customers, there are a lot less unknowns and new learning necessary to succeed. Market penetration strategies seek to grow market share by acquiring new customers within the existing markets, increase the product breadth sold to existing customers and increase repeat purchases by existing customers. Cross selling is a classic market penetration strategy, made famous by fast food restaurants by simply asking “would you like fries with your burger”. Loyalty programs are also examples of market penetration strategies.
Quadrant II: Product Development
Product development is usually considered the next easiest type of growth strategy because understanding market needs is usually harder than developing products to satisfy them and selling more products to customers you already have is far easier and less expensive than going out and developing relationships with new customers. These strategies allow you to leverage your existing market knowledge, customer relationships, sales channels and reputation to bring new products to market. There are more risks and unknowns than maker penetration strategies, but they are typically manageable. One of the most successful product development strategies in my lifetime has been the advent of “mini-marts” in gas stations. People are already buying gas from you, why not sell them a cup of coffee, a snack or a gallon of milk while you are there.
Quadrant III: Market Development
Market development is usually considered another viable growth strategy, but is generally more complex that Product Development strategies. While you are leveraging your existing expertise in selling, delivering and supporting existing products, you still need to go out and learn about new markets for these products. For this reason, it is wise to look at adjacent or similar markets first. New market strategies usually require new marketing messaging and marketing channels and often may require new or additional sales, fulfillment and support channels. Your current customer references may seem irrelevant in new markets and the organization may have to make significant shifts to accommodate the needs of a new market. Growing in a new market is also generally a longer process than strategies in the first two quadrants. Examples of new market strategies include expansion into new regions or countries as well as entries into unrelated markets.
Quadrant IV: Diversification
These strategies should be reserved as last resorts due to their complexity. Unless an organization has a log history of executing complex strategies, I usually advise my clients to stick to the first three quadrants. Simply put, most of what an organization knows won’t help them. Everything is new and the learning curve is steep. While there are exemptions, these strategies are not for the faint of heart.
While this model is very helpful as a first step, it doesn’t address the next question which is typically whether to build the new capabilities in house, partner with other companies or buy these new capabilities outright. That will be the subject of another post.
Have you found this model useful in your own business? What other models do you find useful?