Go to Market Strategies: B2B Product / Market Growth Matrix
Go-to-Market Strategies: The Ansoff Product-Market Growth Matrix is a very useful go-to-market strategy development tool. Created by Igor Ansoff and first published in his article “Strategies for Diversification” in the Harvard Business Review (1957), the Ansoff Matrix is particularly useful for strategic planning because it provides a framework to help executives, senior managers and marketers devise strategies for future growth.
Ansoff’s matrix allows marketers to evaluate go-to-market decisions to grow the business via four possible product/market combinations. The matrix helps companies decide which go-to-market course of action should be taken given current performance. The matrix consists of four go-to-market growth strategies: Market Penetration, Market Development, Product Development and Diversification.
B2B Product Market Growth Strategies – Market Penetration
The market penetration strategy for growth focuses an organization’s go-to-market resources on its existing offerings (products and services) in existing markets. In other words, an organization tries to increase its market share in an existing market, or market segments, with and existing product or service. This can be achieved by selling more products or services to existing customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.
Relative to the four go-to-market growth alternatives, market penetration carries the least implementation risk since an organization is focusing its go-to-market resources on its existing products and markets. Pursuing this strategy is likely to make sense if the firm has a strong competitive advantage, or if the overall size of the market is growing or can be induced to grow. In a growing market, simply maintaining market share will result in growth, and opportunities may exist to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.
Market penetration involves increasing sales of existing products to existing markets, and could be pursued in the following ways:
- Increasing advertising to promote the product or reposition the brand
- Offering special promotions (e.g. Free Download, 2 for 1, or Buy One Get One Free)
- Introducing customer loyalty schemes
- Improving the quality or size of the sales force
- Modifying the products or product packaging in order to broaden their appeal
- Improving the distribution channels in order to reach more customers within existing markets
- Acquiring a competitor
- Changing product pricing
- Improving operational efficiency so that increased sales can be achieved without a proportional increase in costs
B2B Product Market Growth Strategies – Market Development
Growth via market development entails an organization entering a new market with an existing product. Simply put, this strategy means finding new markets for existing products. Market research and further segmentation of markets helps to identify new groups of customers.
An established product in the marketplace can be tweaked or targeted to a different customer segment to earn more revenue for the company. Developing a new market for an existing product does not mean that the market need has to be new in and of itself; the point is that the market is new to the company.
The market development strategy requires an organization to push its go-to-market strategy to expand into new markets (geographies, countries etc.) using its existing offerings. This can be accomplished by attracting new and different customer segments, new areas or regions of the country or global markets, or identifying new needs for the product or service. This strategy is more likely to be successful if:
- A company has a unique product technology it can leverage in the new market
- It can benefit from economies of scale
- The new market is not too different from the existing one, or
- Buyers in the market are intrinsically profitable
Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the organization’s core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.
Companies that pursue a market development go-to-market strategy for growth should have:
- Core competencies which relate to its existing products and a strong marketing team
- The ability to identify opportunities for market development including chances to reposition the brand, exploit new uses for the product, or expand into new geographical regions
- Go-to-market resources are can be diverted or redeployed
- The ability to market new products in new locations in order to expand regionally, nationally or globally
- Advertising through different media in order to reach different customers
- The ability to leverage new distribution channels to reach new market segments
- The power to modify the pricing policy, products or product packaging in order to appeal to different customer demographics
B2B Product Market Growth Strategies – Product Development
Adopting a product development go-to-market growth strategy means a company tries to create new products and services targeted at its existing markets. An organization with a market for its current products might choose a strategy of developing other products catering to the same market– a strategy to sell new products with new or altered features, for example, to existing markets. It’s important to note that these new products do not necessarily have to be new to the market; they only have to be new to the company marketing them. With that said, new product development can be a crucial go-to-market strategy for a company to remain competitive.
A product development strategy may be appropriate if an organization’s strengths are related to its specific customers rather than to the specific product itself. In this scenario, an organization can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors.
It may make sense to pursue a product development strategy when an organization:
- Understands the needs of its customers and identifies an opportunity to sell new products to satisfy changing needs
- Operates in a competitive market where continuous product innovation is necessary to prevent product obsolescence or commoditization;
- Has large market share and a strong brand
- Products benefit from network effects, and new products can gain a significant edge by being first to market
- Operates in a market with strong growth potential
- Identifies opportunities to commercialize new technology
- Has a strong R&D team
B2B Product Market Growth Strategies – Diversification
Diversification is a go-to-market strategy that requires developing new products for new markets. These can either be related to the current business (i.e., vertical integration or horizontal integration) or unrelated (lateral diversification). In addition, where a company previously had no presence, it seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, expansion is most likely into a new segment of an industry in which the business is already in. At the corporate level, it is generally entering a promising business outside of the scope of the existing business unit.
Pursuing a go-to-market strategy based on diversification is signing up to grow market share by introducing new offerings in new markets. It is the most risky of the four go-to-market strategies because both product and market development are required to be successful.
A go-to-market strategy based on diversification also carries the most implementation risk since it requires an organization to simultaneously develop new products and enter new markets—all of which may require it to operate outside its circle of competence.
Diversification can enable a firm to achieve three main objectives: growth, stability, and flexibility. And the specific strategies that a company employs will differ depending on which of these goals it is pursuing.
There are three primary types of diversification that a firm might undertake:
- Vertical Integration: the organization expands its business to different points in the supply chain
- Horizontal Diversification: the organization adds new products that may be unrelated to existing products but are likely to appeal to existing customers
- Lateral Diversification: the organization adds new products that are unrelated to existing products and are likely to appeal to completely different customers.
While lateral diversification has little relationship with the company’s current business, the organization might adopt this strategy in order to:
- improve profitability by entering a lucrative industry
- develop resources and capabilities in a potential new growth industry
- poach top management or key talent
- compensate for technological weakness
- expand the company’s revenue base so as to improve its perception in the capital markets and make it easier to borrow money
- increase strategic flexibility in an uncertain business environment
- reduce risk by spreading the company’s activities across multiple products and markets, and thereby decrease its vulnerability
As seen in the Ansoff matrix, diversification usually requires a company to acquire new skills, new techniques, and new facilities. As a result it almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience. For this reason, most traditional marketing activity revolves around increasing Market Penetration. Therefore, Diversification is meant to be the riskiest of the four strategies for a firm to pursue.
Generally, the final strategy involves a combination of these options. This combination is determined as a function of available opportunities and consistency with the objectives and the resources of the company.
Go to Market Strategies: B2B Product / Market Growth Models
Michael Porter’s Five Forces
Porter’s five forces analysis is a framework for analyzing the level of competition within an industry and business strategy development. Basically, the model looks at five forces to determine the competitive intensity and the attractiveness of an industry-profitability. Porter developed his five forces analysis to build upon and advance SWOT analysis
Porter refers to the forces closest to a company that affect its ability to serve its customers and make a profit. Changes to any of the forces normally requires a company or business unit to re-assess the market given the overall change in industry information.
Porter’s five forces include three forces or threats from horizontal competition:
- Substitute products or services
- Established rivals
- New entrants
An two forces (bargaining power) from vertical competition:
- Power of suppliers
- Power of customers
The hypothesis of the model is that a company’s operational execution against its core competencies will determine its profitability. There is debate about the period of time that should be evaluated to determine profitability—Amazon and Salesforce have billion dollar valuations but were not profitable for years / decades.