67. Top Line Growth Pie

Key Definitions

Firms often seek to grow their top line, i.e. their gross revenue derived from the sale of goods and/or services. In a now famous paper, Igor Ansoff (1957) argued that such growth can be pursued along two dimensions – in existing and new markets, and with existing and new products. The resulting 2x2 diagram is widely known as the Ansoff Matrix.

Ansoff’s four growth directions are market penetration (more existing products in existing markets), market development (more existing products to new markets), product development (new products to existing markets) and diversification (new products to new markets).

Conceptual Model

The Top Line Growth Pie builds on Ansoff’s logic of seeking growth along the dimensions of product and market, but splits each category into smaller parts, to give strategists a more fine-grained view into the various growth possibilities. Along the market dimension (plotted horizontally), a distinction is not only made between existing (at the center) and new (around the center), but also between new segments and new geographies. Each is further split according to the extent of newness – adjacent or distant. Along the vertical product dimension, the same is done, making a distinction between new products in or outside the existing business. The underlying metaphor is that firms can grow by taking a bigger slice of the existing pie (increase market share) but also have nine ways of taking a piece of a much larger pie.

Key Elements

The ten growth directions are the following:

1. Increase Market Share. Taking more of the existing pie means finding ways to lure customers away from competitors, or even to acquire these competitors altogether. For example, a bicycle manufacturer could advertise more to gain additional market share.
2. Increase Market Size. The existing pie can be grown by getting existing customers to buy more products and/or by finding more potential customers willing to adopt the product. So, a bicycle firm could try to get more people to cycle and/or get them to buy a second bicycle.
3. Expand to Adjacent Segments. Growth can also be found in neighboring customer groups not traditionally served, but with a similar needs profile and buying behavior. So, a bicycle firm could start selling to pensioners and/or people trying to lose weight.
4. Expand to Distant Segments. More difficult is to seek sales among customer groups with rather different characteristics in terms of needs and buying behavior. So, it might be a challenge for a bicycle firm to start selling to health clinics and/or courier firms.
5. Expand to Adjacent Regions. Growth can also be sought among customers in cities, states, or countries with a low psychological distance from the current markets. So, a bicycle firm in Amsterdam could start selling in Rotterdam or even in Belgium or the UK.
6. Expand to Distant Regions. A quick sale in a faraway place can be easy, but it is more difficult to build a structural market position where the rules of the game are very different. So, it would be tough for an Amsterdam-based bicycle firm to establish itself in Dubai.
7. Product Range Extension. By adding new products/services to the product family already being sold, new customers can be found, or existing ones might be willing to buy more. So, introducing e-bikes and mountain bikes could be a great way for a bicycle firm to grow.
8. Value Proposition Enhancement. Beyond extending the core range, the envelop of linked products, services, information, distribution, reputation, and payment features can be expanded. So, leasing bicycles including regular servicing could be a great growth avenue.
9. Related Diversification. Existing competencies and/or relational resources (e.g. contacts and reputation) can be leveraged to enter new lines of business. So, a bicycle firm could branch out into exercise equipment and/or cycling clothing.
10. Unrelated Diversification. Firms can also expand into totally new businesses, leveraging little else than their financial resources, management knowledge and business ideas. So, a bicycle firm could jump on the AI bandwagon and start selling translation software.

Key Insights

• Top line growth is about a bigger slice and/or a bigger pie. To most firms, growing their sales is important. Therefore, it is essential to see that growth can be realized by taking market share away from competitors (a bigger slice), but that there are also nine ways to expand their range of sales opportunities beyond the current, taking a slice of a bigger pie.
• Top line growth can be found in market development. Firms can expand to new customer groups (market segments), both close to their current ones and further afield. Equally, they can branch out to new regions (geographic markets), both close and afar.
• Top line growth can be found in product development. Firms can grow by broadening their product range, but also by broadening the value proposition, to include supplemental products/services, and/or extra information, distribution, reputation, and payment features.
• Top line growth can be found in business development. Firms can also grow outside their current lines of business, to related areas where they can leverage existing competencies and/or relational resources, or to totally unrelated areas.
• Top line growth thinking can be helped by retiring Ansoff. There is nothing inherently wrong with the Ansoff matrix, but as a thinking tool it is of limited value, because it fails to offer a fine-grained enough insight into the variety of growth directions that firms have open to them. So, after 68 years of loyal service, it is time to retire the Ansoff matrix.