In our example, we assume that there is a fictitious bakery, Tanya’s Treats, that wants to grow. We’ll go through one Ansoff strategy after another and show what steps the company has to take to grow. So far, the bakery has a location, but since it’s still a small company, Tanya’s Treats initially wants to take little risk and decides to penetrate the market first. For this reason, the managing director asks the sales staff on the sales floor to always point out other goods to customers. In addition, she wants to introduce regular discount actions, which will turn passers-by into regular customers. Neither the market nor the product range has expanded, but with clever marketing strategies the company can increase its sales.
To be able to grow further, the managing director now takes a further step and opens an additional store in the neighboring town. The same goods are sold there. The market development risk is somewhat higher because the company cannot foresee whether the offer will be just as well received in the new market. Once the new market is secured, the company can think about product development. In addition to the frosted cupcakes already on offer, the company is now also selling rainbow cookies. Since the entire existing infrastructure is still being used, the managing director can keep the risk low. She can generate more turnover with a new or adapted product while maintaining a constant market.
In the end, Tanya’s Treats has grown, conquered new markets, and expanded its product range. Now we have enough reserves to be able to take on even greater growth risks. For this reason, the managing director opts for diversification as a strategy – and initially for horizontal diversification, i.e. for expanding the range. She also decides to include pastel macarons in the range. Tanya’s Treats therefore introduces a new product to a new market, the market for coeliacs.
The next step for Tanya’s Treats is vertical diversification. The managing director wants to pursue both forward and backward integration. Therefore, she decides to start her own farm with dairy cows and chickens for eggs in order to organically source her ingredients. In addition, Tanya’s Treats also opens up its own café. This makes the business less dependent on the supplier and it also takes over a new distribution channel for its own products.
Now it's time for lateral diversification: Tanya’s Treats’ managing director decides to manufacture and sell watches as well in the future. The new product has no relation to the actual portfolio and also appeals to a new market. Although the managing director is taking a big risk, this is the only way to guarantee steady growth in the long term.