What is Growth or Expansion Strategy?There are a number of ways of growing or expanding a business. Whatever choices there may be, business owners who are in the hot seat to make a judgment, should consider the best possible option that is in line with their main objectives.A growth or a expansion strategy is kind of layer by layer action of events a company implies for the achievement of the desired results (its short term.)it s a short range tool used for the basics goal of a firm i.e. profit ,market share and consumer satisfaction.
Why does a company needs this?1. Create a clear vision of what a company wants- which means to achieve what the company desires for.2. Understand the market which the company plans to dominate- which means to be a part of the competition and be a strong contender.3. To Know who is the ideal client for the business- which means to increase customers and market share.4. To Make sure the company has a clearly defined sales process- which means to to have a maximum profit.
How is strategy is made and used? Ansoffs Growth Matrix (Product & Market Mix) One of the common business strategy frameworks used in understanding growth strategies is the Ansoffs Growth Matrix, developed by H. Igor Ansoff – a strategic management guru. The matrix serves as a basic handy tool to set a firm thinking about the direction it wants to take in its search for growth. As you can see in the diagram below, the two axes are marked by products and market respectively. Should the firm be expanding to new markets or target the existing market with new or existing products?
Market PenetrationIn this strategy, it would mean that the firm aims to sell more of its existing products in the markets that they are already in. This would translate into allocating more resources and efforts to build up sales and marketing activities to attain revenue growth. Indirectly, the firm is also trying to increase its market share. Generally, this may seem less risky to a certain extent because the firm is already dealing in the same markets and products, however there may be limitations as to how much growth one can derive in this strategy. Market DevelopmentFor this strategy – existing products/new markets, this happens when a firm decides to sell its existing products into new geographical markets or new market segments (another defined target market). For example, it could mean selling an existing computer model to a new market overseas or alternatively, selling it to a new market segment (e.g. second-hand market). The firm would also need to spend on sales and marketing to persuade consumers in new markets to purchase the product/services.
Product DevelopmentThis strategy on the other hand, necessitates developing newproducts to be sold in existing markets. This can be seen as aquite common process because for a company to sustain itspresence and growth, it cannot rely on a single product range.For instance, in the retail industry of product consumables likeshampoo, cosmetics and even apparels, companies arecompetitively refreshing their product lines to keep in touchwith consumers as well as to keep up with certain trends,market needs/tastes and etc. One would need some goodgrasp of market knowledge and skills to come with newproduct introductions that suits consumers needs.
Diversification Often seen as a high risk strategy, diversification is where the firm sells entirely new products to new customers in new markets. The reasons for such a business strategy could be due to a rise in opportunity that the firm has identified, or feel the need to tap and rely on new sources of growth and so on. While it is considered as a more risky approach that the others, the firm must be able to carefully assess its abilities before plunging into a new area that it may or not have competencies in.
Franchising & Licensing Franchising and licensing are considered as viable business growth options. In both situations, you build your business through intellectual property and sharing a proven way of running a business effectively. In these circumstances, you must have a good understanding of your rights as to whether you are a franchisor or franchisee, licensor or licensee. The agreements must then of course be translated into a legal binding contract for a certain period of time for selected market(s).
Merger & AcquisitionMerger is a business term used to describe a tool implementedby corporations for expansion purposes. Normally, a mergermeans the combination of two business firms that results intoone bigger entity. Acquisition or acquiring refers to the act oftaking control over another corporation. By taking control overa another business entity, one would hope to gain access tocertain key functions, skill or knowledge in a particularindustry.While the above are not meant to be an exhaustive list, thereare various reasons for taking on different options. Indetermining your growth path, it is very critical to have bothinward and outward looking approach. Identify key resourcesthat you need within your firm is one way and understandwhat is in for you should go with any strategy.
IPOInitial public offering (IPO) refers to the companys first equityissue made available to the public to raise new sources of fundsto finance its next stage of growth. In other words, it is the firsttime a company offers its shares to the public which waspreviously unlisted, at a particular price.The reasons for an IPO are typically associated to a firmsdecision to raise additional capital. If the firm decides to put upa sale of its stock and sells part of their ownership to thepublic, it then engages in an IPO. Before even making the steptowards IPO, the firm must go through a meticulous process ofweighing its benefits and costs .
GAP introduced Forth & Towne brand aimed at women over 35.Technique used -Product diversificationResult-New product; market potential increases since no brand of Gap (Gap, Old Navy, Banana Republic) was specifically targeted toward women over 35.
Campbell developed advertising campaign for its soups.Technique used-Market penetrationResult-No product modification; no change in soup market potential.1
Hasbro (toy company) launched baby care products under Playskool brand.Technique used-Product diversificationResult-New product line; market potential increasing from toys to toys + baby care.
Coca-Cola launched Diet Coke Sweetened with SplendaTechnique used-Product developmentResult-New product; still in soft drink market (or even diet soft drink market), hence no increase in market potential.
Frito-Lay removed trans fats from its salty snack products.Technique used- Product developmentResult-Products were modified without introducing new brands; no change in market potential. Still salty snack foods market and even those non-buyers who didnt buy for health reasons, say concern over trans fat, were in Frito-Lays target market. Indeed, this was a way to reach those non-buyers.
Nintendo launched DS hand-held game device.Technique used-Product developmentResult-New product; no change in market potential since Nintendo already sold Game Boy and thus had hand- held game devices as a target market.
Unilever introduced Sunsilk shampoo in US. Was sold in Europe, Latin America and Asia.Technique used-Market developmentResult-Product not modified; expansion to US increased market potential.
What is global strategy?Global Strategy is a shortened term that covers three areas: global, multinational and international strategies. Essentially, these three areas refer to those strategies designed to enable an organisation to achieve its objective of international expansion
International- For example, a dairy company might sell some of its excess milk and cheese supplies outside its home country. But its main strategic focus is still directed to the home market. In South Korea, international and global soft drinks strategy will involve mixing both the global brands like Coke and Sprite with the local brands like Pocara Sweat.
Multinational strategy-For example, a car company might have one strategy for the India- smaller cars, fuel efficient - with another for European markets - specialist cars, higher prices - and yet another for developing countries - simple, low priced cars.Example –TATA Nao Europa
Global strategy. For example, the luxury goods company Gucchi sells essentially the same products in every country.