RSM Kenya

Which growth strategy to adopt?

Ansoff Growth Matrix is a strategic tool that forms a basis for many companies when considering growth strategies.

BY PALAK TEWARY

The model is based on two axes: products and markets and suggests four growth strategies, namely:

  • Market penetration

  • Market development

  • Product development

  • Diversification

Market penetration

Market penetration is a strategy that aims to increase market share by increased sale of prevailing products or services in the present markets. Approaches adopted for this strategy include:

  • Reduction in price to increase sales from current customers or obtain new customers
  • Promotional activities to attract customers
  • Increased distribution channels
  • Acquirement of another company within the present market

Market development

Market development refers to the strategy of taking the existing products or services to new markets. This would require a feasibility study of the new markets to ascertain how an organisation’s existing products or services can be sold in unexplored markets. Tactics that can be adopted for success of this strategy would include exploration of:

  • Different customer segments
  • Unexplored regions within the country
  • Overseas markets

Product development

Product development strategy refers to introduction of new products or service line within the existing markets. The aim of this strategy is to extend the offerings to the current customers in order to win more business from them - usually the products or services are in a related category which would attract the customers to spend more with the company. To do this, an investment in research and development is usually required to identify the additional products that the company should introduce. There are several strategies to include new products or services in the current offerings, namely:

  • Developing in-house capability to produce a new line of products or services
  • Acquiring rights to another product to “rebrand” and sell as their own
  • Joint venture with another organisation who may need access to the company’s distribution channels

Diversification

Diversification refers to introduction of new products or services in a new market. This is a risky strategy as it involves promoting new products or services in an unexplored market.

There are four types of diversifications that can take place:

  • Horizontal diversification - which means that related products or services are sold to the same customer demographic. For example, a flower seller also introduces plants.
  • Vertical diversification - this refers to entering the markets of the company’s suppliers or customers.  For example, a construction company diversifies to selling paint.
  • Concentric diversification - this means developing new products or services with the similar technical or commercial knowhow to the existing products or services. For example, a bakery starts to produce pastries as well as bread.
  • Conglomerate diversification - this denotes moving to products or services that have no relation to the current products. This diversification is done with an aim to receiving high returns on investments in the new sector. For example, a sugar manufacturing company diversifies into solar lighting, looking at the future potential and to balance their portfolio.

The strategy for growth should be chosen based on the company’s product or service, their market, the ambitions of the shareholders and their appetite for risk. However, prior to choosing a strategy, it is imperative a review of the business be undertaken as well as a feasibility study to determine the best course of action for the company.

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