ANSWER

If a company is to ensure its growth, it needs to plan for it.  There are a number of growth strategies that can be used.  Deciding which is the right growth strategy for a company depends on it current success and position within the marketplace in which it operates.  Four of these growth strategies are:

• Market Penetration (Existing Products/Existing Markets)
• Market Development (Existing Products/New Market)
• Product Development (New Products/Existing Market)
• Diversification (New Products/New Market)

Market Penetration focuses on getting more out of the current markets serviced by an organization while offering the same products. New products and new markets can mean additional unknowns which, in turn, increase risk and chances of failure.  For this reason, a company may choose to select a growth strategy of market penetration.  The goal of market penetration is to increase the percentage of market share that the organization possesses through pricing, marketing, loyalty programs, incentives, advertising, etc.

Market Development is used to describe the growth strategy of an organization which chooses to venture into new markets or new customer segments with their existing products.  Their existing products are likely proven which provides a degree of stability, but moving into new markets increases risk.  This may still be viewed by some organizations as a fairly conservative strategy and is often adopted by companies as they feel their current markets getting squeezed tighter and tighter by competition.  Entrance into new markets often requires skilled marketing professionals to ensure a company receives the attention it is looking for.

Product Development describes the growth strategy of creating new products for existing markets.  An organization may have the benefit of understanding the intricacies of their market but this can create a false sense of security.   Not all new products carry the same risk.  However, for certain types of product, especially those in fast moving technology markets, projecting the outcome of a new product launch can be very difficult.   To overcome some of this risk organizations should be prepared to continuously adapt their products after launch to ensure marketplace success.

Diversification is the term given to the strategy of delivering new products to entirely new markets.  The growth strategy accepts the risks of two unknowns; the product and the market.  Diversification is high-risk but, as with many things, high risk often can mean high reward.  Organizations with a track record of innovation will have the greatest success with this strategy.  With diversification as a growth strategy, everything will be new and the company will need to be prepared to quickly eliminate any risks that manifest themselves.

The four growth strategies described here are based on a simple 2 x 2 matrix called Ansoff’s Matrix which considers markets and products along its two axis.

Ansoff’s Matrix

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Chris Adams
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