Ansoff Matrix in SaaS: Product Growth Strategy
In 1957, an applied mathematician and business manager named Igor Ansoff published Strategies for Diversification. In it, he mentions a product-market strategy that provides a roadmap for marketers, managers, and executives to drive growth to their business.
And thus the Ansoff Matrix was born.
The Ansoff Matrix is a strategy framework that companies can use to determine the risk involved in their market expansion campaigns. McDonald’s, Coca-Cola, and IKEA are just some of the many businesses that used – and are continuing to use – this strategy to increase their revenue and expand their market share.
In this blog, we’ll be talking about the Ansoff Matrix in SaaS and how you can use it to push product growth.
Since we’ve already covered its definition, we’ll begin with the four elements involved in the strategy.
Let’s dive right in.
Ansoff Matrix: The 4×4 Grid
The Ansoff Matrix is divided into four categories. The grid comprises of:
- Market penetration
- Product development
- Market development
Between the four, market penetration is the safest route, while diversification carries the highest risk. Let’s explore marketing penetration first.
Market penetration in SaaS
Marketing penetration essentially means you’re planning to compete in an already established industry with your existing product.
Unlike the Blue Ocean strategy, this approach is where you’ll try to snatch some of the customers of other businesses.
So what’s a good market penetration rate to target?
For a consumer product, the suggestion is to 2 to 6 percent.
Meanwhile, a business product should aim between 10 percent to 40 percent. The latter is where you’ll be focusing if you’re a SaaS business.
While it can be challenging to enter an existing market where competition is already fierce, it’s still doable.
Market penetration also errs on the safe side as you know there is a need for such a product by a significant number of customers.
However, your planning and execution should be strong enough so you’ll come out of the gate storming.
Let’s look at some strategies you can employ to achieve this.
A market penetration pricing strategy is one of the most common tactics you can use here. We’ve expanded on that very topic here.
When evaluating your pricing strategy, start asking these questions:
How much is the competition pricing their service?
If you drop your pricing to X, would you be able to snatch some of the competition’s customers?
Is pricing your monthly/yearly SaaS product to X amount beneficial for your revenue/growth?
What’s a realistic pricing strategy that’s competitive enough for the SaaS niche you’ve chosen?
What’s a great pricing balance between affordable and profitable?
A price decrease or adjustment is great if that’s one of the issues your target customers have.
However, there are times that even with low monthly/yearly subscriptions, your target customers won’t still make the switch.
If so, proceed to the next tactic, which is…
Creating or improving SaaS features
In SaaS, one of the most common pain points is that customers aren’t satisfied with a given feature.
Or sometimes, a certain feature isn’t offered by the service at all.
Remember: the bedrock of a great SaaS product is delivering an efficient and effective solution.
If your competition is lacking one of the two, that’s good news on your market expansion strategy.
Discover what these shortfalls are and address them with your SaaS product.
Then market your service and highlight how your solution solves these problems.
As for how you can find these shortfalls in the first place, browsing forums and joining social media groups are great avenues to explore. Document what pain points a group of customers is always going on about. Then rank them depending on how much they’re reoccurring.
You can even use this for your marketing efforts.
“We understand that it can be a challenge to nail down the X feature perfectly. But that’s exactly what we did.
Don’t believe us? Try our two-weeks free trial and prove us wrong. Start today and extend that free trial to one month.”
Quick note: be wary of offering lengthy freemium trials. The shorter your free trial is, the shorter your sales pipeline is going to be. One month is still acceptable but if you can shorten that to two weeks, that’s even better.
Poor customer support always seems to be present in any existing market. Moreover, this is a common problem among SaaS companies that have experienced rapid growth in a short amount of time.
That’s usually because they didn’t anticipate such growth in the first place. As a result, their customer support cannot accommodate the sheer amount of new customers that have joined their subscription model.
That’s where you come in.
You can snatch these customers away if you have a solution that offers nigh similar features to the competition.
- Have your target clients try your SaaS product for two weeks or one month
- Emphasize the quality of your onboarding method and customer support
- Show them you’re offering the same level of efficiency and efficacy as your competitors
- Underscore that your customer support is far superior as you’re not inundated with other clients
And when you do expand your customer base in the future, assure your customers that you’re prepared for such a market expansion. The same goes for your SaaS roadmap features and other such changes you’re anticipating to experience once your growth strategy picks up momentum.
By combining all of these, your market penetration tactic has a higher probability of succeeding.
The second strategy of the Ansoff Matrix is product development. Here, you’re going to create a new product to cater to an existing market.
One – if not – the best Ansoff Matrix example of this is Salesforce. Salesforce entered the market as a new player where its competitors were already entrenched.
The company was going up against the likes of Seibel and Oracle, both of which were dominant players with billions of funding. But Salesforce had innovation on their side and implemented a product roadmap that shook the SaaS industry.
Today, Salesforce has overtaken the giants of its market to become a colossus itself. How did its founders do it?
In a nutshell, they transferred on-premise customer relationship management to the cloud. That means businesses large and small no longer need to install and maintain expensive servers for their CRM software.
They could just pay Salesforce a monthly or yearly fee to access the same solution. All they needed was a computer and an internet connection. That’s it.
There are several steps you can follow when you choose the product development aspect of the Ansoff Matrix grid.
Research and development
Similar to what Salesforce did, research and development will be heavily needed for your product development. Moreover, you’ll also want to assess the technological advancement in the SaaS sector so you could create a product that’s not only new but groundbreaking.
Again, your bedrock here is customer pain points.
- What are the needs being ignored by the competition that you can address?
- What are the features that could further streamline the work of your target customers?
- What features can you incorporate in your solution that’ll increase the revenue of your clients?
Apart from social media groups and forums like Reddit and Quora, there’s also another source of client pain points you can assess: customer support. If you’ve worked in this sector before, you’re familiar with how much negative feedback you’re getting daily.
But viewed through another lens, these criticisms are actually opportunities you can leverage. Thus, when you’re conducting research and development, try to interview those who have been working as SaaS customer support.
They could either be in your specific niche or SaaS customer support in general. This industry is encompassing enough that most of the features of these services overlap. The idea here is to form a clear picture by collecting as much data as you can.
Get clear with your minimum viable product (MVP)
Once you complete your R&D, it’s time to define your minimum viable product. Simply put, an MVP is the beta version of your solution. It comprises the most basic features your early adopters are going to use.
Ensure that your MVP is valuable enough for your early adopters, while simultaneously needing reasonable expense on your end. Nailing down your MVP from the get-go is crucial for your growth strategy as your customers will quickly see the value you’re offering.
And once they do, they’ll start providing feedback that could improve your solution.
- If you add X feature to your product, it could streamline the Y and Z feature
- I think the X feature needs a bit of tweaking
- Please improve the UX of the Y feature
- The X feature is great but the Y feature seems redundant. Maybe you should replace it with another functionality?
These are just some of the many feedbacks you’ll get once your product is tested by your early adopters. Document these feedbacks and see which of them is the most important.
Afterward, add the features to your product roadmap and reveal them to your early adopters.
This way, you’re generating excitement from your customer base, which could lead to them helping you spread the word out.
Congratulations, you have now acquired your first group of product advocates.
Market development means you’re entering a new market with an existing product. One example of this that falls outside of the SaaS sector is McDonald’s.
Specifically, Mcdonald’s entering the existing market of India where a large portion of the population is vegetarian. But the massive food chain still managed to create a solid foothold in the region by adjusting its products based on Indian culture. Among other strategies they employed.
Market development in SaaS is a bit tricky in that it’s in the technology sector with the service available on the cloud. Unlike Mcdonald’s where it had to extremely deviate from their products, a SaaS solution doesn’t have to concern itself with such maneuvers.
- The company could just enter an existing market
- Underscore how it can increase a business’ profit
- Emphasize on success stories of its customer base
- Highlight its most valuable features
- And provide a solid justification about its pricing
One of the only notable adjustments a company can make is its company’s culture. Religious holidays, company values, and employee benefits are just some of these factors. But these elements are focused on the company itself, not the service it’s providing.
So how do you conduct a market development strategy in SaaS?
Market development in SaaS
Creativity will be one of your foundations when you’re using market development in SaaS.
The beginning of this phase usually involves interviewing your customers. Ask these questions:
- How are they using your product?
- Are there specific campaigns where they favor a particular feature of your software?
- Are there certain features you can add that could improve how they run certain campaigns?
If you don’t have the time or resources for interviews or your customers simply won’t oblige, you can still collect solid data through surveys. Surveys don’t offer deeper insights into interviews but they can still be effective in their own right.
Once you’ve gathered enough information, analyze the data you’ve collected. Your goal here is to come up with unique and innovative ways of using your product’s features that could be beneficial to a market that you’ve yet to explore.
You’ll also want to get the perspective of both your new customers and existing clients.
Always remember that even though you intimately know your solution’s purpose, some of your clients might be creative enough to come up with unique uses.
These creative applications will be your key in your market development strategy.
A good example would be a keyword research tool used from content marketing to political campaigns. And this isn’t a stretch either.
The American Institute for Behavioral Research and Technology outlined in a 2015 study how search rankings can influence the vote of those who are still undecided. And we all know how powerful keywords can be when it comes to the SERP.
Diversification is when a company enters a new market with a new product. Companies diversify in an attempt to further increase their growth and revenue.
But as mentioned earlier, diversification carries the highest risk of the grid’s four elements. It also requires a lot of human and financial resources, which could put a massive strain on the budget of your core business.
Thus, it’s recommended you use a diversification strategy only when your product can no longer grow in your existing market. You now have to find a new market and provide a new product for these new customers.
While diversification can be risky, there are steps you can take to mitigate it.
Related diversification is when you diversify your service but is still relevant enough to your previous target group. A great example is Moz.com.
Moz started as a blog and online community but later evolved to develop its SEO software. It then made its service a subscription-based model, which helped push its annual recurring revenue to more than $70 million.
Moz used related diversification to develop a new product and market it to its community. The risk is there, to be sure. After all, there’s a chance that their community won’t embrace the new product that Moz created.
But since the company intimately knows its community, they’ve managed to lower the risk and incorporate elements they know their target audience will love. The rest is history.
This is a far riskier option as you’re entering a new market that has no connection to your new product. Sure, you can leverage your brand and the reputation you’ve built through the years. But that’s about it.
A fine example would be a SaaS company entering the video game industry. Completely different product with a completely different market. There’s no saying how you’ll perform in the coming years, placing a lot of uncertainty on your growth strategy and implementation.
As such, between the two diversification strategies, related diversification is still your best bet. The presence of risk is still lurking but you can still decrease it with some related insights and strategic management.
And of course, if you managed to pull it off, the reward could be ludicrous. After all, you’re the only one catering to this new market.
Once the competition starts to trickle in, you’re already well ahead of the pack. All you have to do is to continuously develop your product, cater to the needs of your customers, and invest in company growth.
The Ansoff Matrix template is a handy tool to use for your SaaS company’s journey. The key takeaway here is to evaluate where you are in your growth progress and employ a particular grid based on your current position.
And of course, your guiding star is to consistently offer value to your customers. This is the SaaS industry, after all.
If your corporate strategy is centered on your client’s success, you can never be wrong. Your growth opportunities will steadily climb until you reach the final grid of the Ansoff model where you’ll have to cycle back to the first level of the framework.
For more strategies about the SaaS industry, there’s more reading on our blog here.