There are four combinations between products and customers and they need four unique strategies for sales. Keep in mind that the model works equally well for services. So you can replace products in the picture with services.
Let us look at each of them and discuss the corresponding strategy.
1. Old product – Old customer
This quadrant is about extending the existing business i.e. selling legacy products, solutions and services to legacy customers. Strategy for business growth in this quadrant is centered on leveraging customer loyalty, deep relationships and offering price advantage. The CEO has to keep a constant watch on the needs of the customer and check whether there is a dip in demand. It is only a matter of time.
This quadrant is not for long term plans. Its other names are ‘exploit’ and ‘exhaust’ because that is what this quadrant is about. The company cannot peg its future on the revenues from old products being sold to legacy customers. The percentage of revenues from this quadrant typically tapers over a period of time.
Examples include consumables, utilities, commoditized services such as IT infrastructure services etc…
2. New product – Old customer
This quadrant is about expanding existing business by sales of new products, solutions and services to legacy customers. In sales parlance, this is called mining; you mine an existing account by cross-selling new products and services.
Strategy for this quadrant is dependent on value-proposition. How well you create a compelling value to the customer by stitching a new solution for their emerging needs – determines your success in selling new products to old customer. Credibility is already established owing to good delivery of services and performance.
The cost of developing a new vendor can be high for some customers and that can work to your advantage if you have a good track record with the customer. Your strategy therefore has to be designed around the point that you understand their business well and why it is beneficial to go with your proposition.
Examples include adding software application services on top of infrastructure services to an IT customer.
3. Old product – new customer
This quadrant is about exploring new clients for legacy products, services and solutions. In sales parlance, it is called hunting or farming. Typically, companies find themselves in price wars while selling legacy products to new customers with whom they have no relationship. In the absence of an established credibility, factors like competitiveness, flexibility, customer references and price play a major role in influencing customer decision.
Strategy for business growth in this quadrant needs to be built on creating and leveraging customer references. Customers generally want to know whether you worked with anyone else in the same industry and how is your performance with them. References can be a good differentiator to sell legacy products and services to new customers.
Examples include software applications sold to a group of Cooperative Banks by taking reference of one of them.
4. New product – new customer
This quadrant is about experimenting with two unknowns i.e. new product and new customer. While this quadrant is filled with uncertainty and unpredictability, it is important to understand that this IS future. Company’s survival is significantly dependent on how well it understands newer markets and builds newer products and solutions that meet the needs of those markets. In order to succeed in this quadrant, the company’s strategy has to be centered on a) long term investments, allowing the products to mature and penetrate into newer markets and b) flexibility in terms of costs and operating margins.
Knut Haanaes, a professor at IMD in his TED talk on ‘why companies fail’ argues that many good companies fail because of 2 reasons i.e. over-exploitation and over-exploration. These two points refer to the quadrants described as old-old and new-new respectively. He points out that companies have to develop strategies that guard against over-exploiting success of legacy products and at the same time avoid falling into the trap of perpetually experimenting new products without going to market.
Each industry has a unique gestation period for a new product to mature and become main stream. Companies willing to patiently wait until that happens, reap the benefits of creating new lines of business that become feeders for future revenues.
Make no mistake, all the 4 quadrants are essential for a company to succeed and thrive in the market place. However it is the responsibility of the CEO to balance the company’s resources appropriately among the 4 strategies. History is full of examples of companies that missed the point about balance and lost out in spite of being successful initially.