Growth strategies

GROWTH STRATEGIES
E x a m i n e O p t i o n s f o r B u s i n e s s G ro w t h

© 2015 Berlin Asong. All rights reserved. 2
I. Analyse alternative options for growth for entertainment businesses.
Learning Objective

?GROWTH
What does business growth mean?

• Units sold
• Revenue
• Profit
• Product/service range
Dimensions of Business Growth
• Geographic footprint

1 Organic growth
2 Inorganic growth
Forms of Strategic Growth

Organic Growth
Thompson, J. L. & Martin, F. (2010), “Strategic Management: Awareness and Change”. Cengage: Hampshire, pp. 442 - 449
The firm grows by developing its existing business as
opposed to acquiring or merging with other companies.

What are the benefits of organic growth?

Organic growth is a fine testament
of the strengths of a company.
1

It shows how well the firm uses its internal resources.
2

Organic growth helps avoid the risks and
complexity of acquiring other companies.
3

Can a company achieve sustained
growth organically?

Organic growth is hard to sustain as evidenced by Apple, Deezer,
Disney, Lions Gate, Universal Music, Vivendi, Warner Music, etc.

The firm grows by acquiring or merging with other companies.
Inorganic Growth
Thompson, J. L. & Martin, F. (2010), “Strategic Management: Awareness and Change”. Cengage: Hampshire, pp. 442 - 449

20 minutes
Why would a company choose to grow
inorganically? Are there any risk associated with
inorganic growth that we must be aware of?

Growth strategies

Market
Penetration
Product
Development
Market
Extension
Diversification
Ansoff-Growth Matrix
Product
Market
NewCurrent
Current
New

Market Penetration Strategy
The company seeks to expand sales
of a product or service within its market.

The growth objective is to increase the sales
and market share of a product or service.

As an independent music artist, what
market penetration tools can I use?
Market Penetration Strategy
Picturesource:inlivemusic.com

…
…
Expand existing distribution channel
Multi-distribution channels
… Multi-product sizes/formats or flexible services
… Hire more sales staff
… Offer price promotion
… Use a mixed of relevant media (traditional & digital) for promotion
Techniques of Market Penetration
… Etc.

Multichannel distribution (theatre, VOD, mobile, DVD, Netflix,
YouTube, etc.) continues to be a market penetration tool for media
and entertainment companies to reach broader audiences.

Growth through market penetration poses
significant challenges. What are these challenges?
15 minutes

Apple’s iTunes revenue have been falling.
Apple strategically chose to buy Beats in 2014 than
to push on with the growth of iTunes. Digital music
consumption is lagging behind music streaming.

Product Development Strategy
The company grows sales or market share by
constantly launching new products and services.

Picturesource:printambition.com

Regular new movie releases is a means for Lions Gate
to stay relevant and competitive in the marketplace.

© 2015 Berlin Asong.All rights reserved. 28
Apple’s iPod line from 2001-2014.

As an independent music artist, what
product development tools can I use?
Product Development Strategy

As a music artist, releasing new songs or albums
is the sole tool of product development strategy.

Philip Kotler & Gary Armstrong (2009) Principles of Marketing, 13Ed.
As a product or service reaches peak sales (maturity), new
product development presents a viable way to reignite sales.

Does new products or services guarantee
increased sales and profit?

Costs of innovation and failure are main
challenges of growth through product development.

Market Extension Strategy
The company expands sales or market share of an existing
product or service by targeting a new customer segment.

Forms of Market Extension
A Gender market extension
B
C
D
Age market extension
Income market extension
Geographic market extension

American TV series “Breaking Bad” co-produced by Sony Pictures Television.
Growth through geographic market extension is prevalent
in media entertainment.
Picturesource:wallpapervortex.com

Philip Kotler & Gary Armstrong (2009) Principles of Marketing, 13Ed.
As a product or service reaches peak sales (maturity),
market extension is a viable option to reignite sales.

© 2015 Berlin Asong. All rights reserved.
China, the world largest phone market, was always on Apple’s
sight. In January 17, 2014, Apple launched the iPhone in China.
Apple Inc. CEO Tim CookChina Mobile Chairman Xi Guohua
38
Picturesource:businessinsider.com

Diversification Strategy
The company grows by expanding into new product or service
categories that are related or unrelated to its existing business.

Disney is a diversified company.

Related diversification vs. Unrelated diversification

From computer maker to maker of phones, portable music
players, tablets, watches and vendor of music and apps. A high
degree of relationships exit among Apple’s product categories.

Event TicketingMusicTV & CinemaTelecom operator
Un/related Diversification: Vivendi’s diversified businesses.

Un/related Diversification: Google search, online ad, YouTube,
Google Maps, Gmail, Google Office, Google+, Google Glass, etc.
Picturesource:genheration.com

Backward diversification vs. Forward diversification

Backward
Integration
Forward
Integration
Raw Materials
Retailer
Primary Maker
Product Producer
Distributor

Hypothetically, if Spotify acquires Universal Music,
it is a backward diversification. If Universal Music
acquires Spotify, it is a forward diversification.

Why would Universal Music be interested in
forward diversification (i.e. buying Spotify)?

Reasons for Forward Diversification
• Access to distribution channel
•
•
•
Control distribution channels
Stay close to consumers
Respond quickly to market changes
• Reduce distribution costs by ridding-off middlemen

Why would Spotify be interested in backward
diversification (i.e. buying Universal Music) ?

Reasons for Backward Diversification
• Access to raw materials
•
•
Access to input resources
Lower input costs

As an independent music artist, what sort of
related or unrelated diversification can I use?
Diversification Strategy

20 minutes
What are the benefits and challenges of
achieving growth through diversification?

Starbucks CEO Howard Schultz
Perils of Rapid Growth
Source: McKinsey Quarterly 2011
Click slide to play video.

Equity Diversification
A company owns shares of one or more companies.

Liberty Media has 27% share ownership of Livenation,
2% of Barnes & Noble, 1% Viacom, and many others.

Disinvestment strategies

1
2
Divestment
Downsizing
3 Bankruptcy
4 Liquidation

Divestment
When a company sells an asset or part of its business.

1
To rid-off an unprofitable asset or business.

In August 2011, Google acquired Motorola
Mobility, which it later sold to Lenovo in 2014.
To get rid of a bad investment.
2

3
To cash in on an asset or business.

4
A regulator can request a company to give up part
of its business, usually to promote fair competition.

UK competition regulator may ask BT to give up part
of its business in order to approve the EE acquisition.

Downsizing
Downsizing involves reducing the size of a business
through staff layoff, units closure, delayering or restructuring to
kick-start growth for a loss-making or struggling company.

In 2013, News Corp. split into two companies:
21st Century Fox and News Corp.

Bankruptcy
A company files for bankruptcy when it cannot pay its debts.
Bankruptcy protects the company against lawsuit from creditors,
and allows the company to make changes to its business.
Also called Administration

Liquidation
A business ceases all operations. All assets of the company
are sold to pay-off debts and other financial obligations.

Growth strategies

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