Your business might have been operating for years and now it’s time to grow but you don’t know how you can grow it. There are a number of ways to expand your business locally or globally.
It all depends on your financial situation, your risk appetite, the competition within your industry and government regulations in the country that you want to expand into. Some of the common or generic growth strategies are market penetration, market expansion, product expansion, diversification and acquisition.
I will discuss these strategies below.
Market penetration is used when a company wants to grow using existing products and existing markets to increase its market share. This is the easiest and most risk-free way to expand.
A company can achieve such growth by implementing different pricing strategies like lowering prices to attract customers, or through aggressive advertising or using new and improved marketing techniques or by having bigger location to trade by opening new branches within the same market so as to be accessible to its customers. This mode of growth however is bound to attract a counter-attack from the competition if they see their market share threatened.
Pricing is one of the seven marketing mixes which one can use to increase volumes and profits. However, one needs to evaluate how it will impact on the profitability of the business if the prices are discounted too much, or its impact on your brand since customers will perceive that your product is of lower quality if it’s too much lower than the competition.
So instead of benefiting from a price reduction you might actually damage your brand in the process. So it’s very important to assess the impact of any price reduction.
Opening a new location requires you to consider a number of issues. You have to consider the location that you want to expand your business to whether it is right for your type of business. For instance a bank might require different locations to a restaurant.
Before you open a new branch, make sure you have carried out an analysis of the economy and the market. Look at the economic and consumer trends to see whether you will still have the competitive edge. Also determine where and how you’ll obtain financing.
The second strategy that you can use is product expansion where a company expands its product range or add new features to its product. The company will however continue selling to the existing market.
New products could arise from research and development, or getting into a joint venture and thereby access new products, or by copying innovations of rivals or entering into a licensing agreement to manufacture a certain well-known brand or by upgrading software capabilities.
The key risks that you will face under this strategy are that the market size and demand are unknown and also introducing new products can lead to cannibalisation of existing products.
The third growth strategy is market development in which you will be selling current products in a new market. A company might consider this strategy if there is a lot of competition in the current market and there is no room for growth within that market and so the only alternative would be to open new markets.
A company might also use a market development strategy if it finds new uses for its product, for instance where a plastic bottle used for water can also be used for drinks. This will open a new market for the bottle. Exporting your product is one way of developing the market. Going into exports to expand your business has certain risks and considerations that you should take into account. There are political and economic risks that you need to know.
There are also cultural differences that you should consider which usually have an impact on the human resources and on your customers. The way you advertise in one country will be different in another country because certain words will not be acceptable in that country.
The fourth strategy is diversification where a company will sell new products to new markets. This type of strategy is usually considered risky because you will be trading in new products and new markets.
This strategy involves moving away from existing core activities. In order to reduce uncertainty, a company will need to plan very carefully when using a diversification growth strategy. You need to carry out a marketing research in the new market to determine if consumers like the new products.
Other strategies that can be used to grow are franchising, licensing, acquisitions, joint ventures or entering into strategic alliances. All these strategies have advantages and shortcomings which should be evaluated before adopting.
l Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy (ACCA P3), advanced performance management (P5) and entrepreneurship. He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062 .
