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For a startup to maximise its chances of early growth, it needs a clear marketing strategy. In particular, how will it determine the right customers, with the right products and using the best approaches to promotion and communication?
Here, founders and their investors may wish to consider a robust marketing model to explore their options – the Ansoff Matrix. Developed by H. Igor Ansoff in 1957, the matrix still holds up as one of the best ways for companies to explore their marketing options. Below, we explain each route in more detail and how they pertain to UK startups.
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Option 1: Market Development
In simple terms, this option involves taking the existing products of a business and targeting them at a new market. This might involve expanding to another international market or another domestic market segment.
For instance, a startup might choose to sell its fintech solutions to customers in France – not just the UK. Or, a health juice provider might reposition some of its products beyond its existing customer base (young, single female professionals) to include its new target segment – expectant mothers.
One drawback of this approach for startups is that it can “dilute” the company’s marketing strategy. By spreading itself too thinly in an attempt to appeal to everyone, customers may no longer see what the business “stands for” and delivers.
However, market development can be a valuable approach for startups when their existing segment(s) are fully exploited and new markets are necessary for expansion. Investors should consider potential routes for a startup to reposition into new markets, using existing products and/or services, in case the existing target market turns out to be unfruitful.
Option 2: Market penetration
This strategy focuses on selling more of a startup’s existing products to the same people in greater quantities. This might come at the expense of a competitor – “stealing” customers from them (e.g. by offering a cheaper service).
Or, the startup could face a “blue ocean” of market opportunity with very little commercial rivalry or threat of new entrants. The latter is a rarer scenario but can be a very attractive opportunity to investors if identified.
Market penetration can be difficult for startups which are constrained by limited resources (e.g. smaller sales teams compared to large companies). Taking a more aggressive marketing approach could also backfire if customers perceive these tactics as too “pushy”.
However, this approach is arguably the least risky of the four options in the Ansoff Matrix. It allows startups to prove the concept of their product(s) to investors within a defined customer segment. This can be invaluable evidence when founders make their pitch for funding.
Option 3: Product development
How can a company reach its existing target market with new products? This is the main focus of the product development strategy within the Ansoff Matrix. A good example is McDonald’s. For many years, the business sold fast food successfully. However, as customers became more tired of junk food, McDonald’s adapted to offer new products like the McSalad.
Startups can struggle to develop new products due to constraints such as limited R&D budget. However, this strategy becomes more viable when an existing product has been selling well – also providing valuable customer feedback about other desirable products.
Option 4: Diversification
This is arguably the most “high-risk” option for any business. Here, a new set of products is designed for a completely new customer segment.
For a startup to consider this option, their strategic prospects are often more desperate. Perhaps the target market, the startup’s product or both have shown to not be viable. To avoid closing shop, the business attempts a complete repositioning.
Other times, founders may willingly opt for a diversification strategy. Elon Musk’s purchase of Twitter (now called X), for instance, was a big departure from his previous ventures into technology. In certain cases, diversification can be very successful. A case in point is Apple, which launched the iPod in 2001 to a wider customer base (away from its previous “tech geek” segment – e.g. passionate graphic designers – who liked Apple computers).
A startup should certainly not rush into diversification. Given its inherent limitations of budget and manpower, it is almost always better to begin the growth journey with a specific product (or small suite of products) targeted at a specific customer segment. The early stages of business growth are already inherently risky. Investors will not typically be encouraged by a founder who exhibits a “scattergun” approach to their business model.
Invitation
Marketing strategy is a crucial component within a startup’s wider business strategy. By carefully articulating this clearly to investors during fundraising, founders can provide more reassurance and clarity about their goals and intended use of finance.
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