The product market scope refers to the industries to which the organization confines itself. When an organization follows the expansion strategy, the marketing or the production function underlie some degree of commonality between the different businesses it operates in.
Expansion and thereby, growth results from concentrating the resources within the domain of one or more businesses allied in terms of customer needs, functions, or technology.
For example, lowering the price of a combo meal in fast food restaurant to compete with local offers, market development (Malaysia Tourism’s aggressive “Malaysia Truly Asia” campaign to attract tourists), and product development (skincare products in addition to the eye care products by a pharmaceutical company; nonbeef, non-pork products by McDonald’s in parts of Asia).
The Expansion Strategy is adopted by an organization when it attempts to achieve a high growth as compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the scope of one of its business operations in the perspective of customer groups, customer functions and technology alternatives, either individually or jointly, then it follows the Expansion Strategy.
The reasons for the expansion could be survival, higher profits, increased prestige, economies of scale, larger market share, social benefits, etc. The expansion strategy is adopted by those firms who have managers with a high degree of achievement and recognition. Their aim is to grow, irrespective of the risk and the hurdles coming in the way.
The firm can follow either of the five expansion strategies to accomplish its objectives:
- Expansion through Concentration
- Expansion through Diversification
- Expansion through Integration
- Expansion through Cooperation
- Expansion through Internationalization
Go through the examples below to further comprehend the understanding of the expansion strategy. These are in the context of customer groups, customer functions and technology alternatives.
- The baby diaper company expands its customer groups by offering the diaper to old aged persons along with the babies.
- The stockbroking company offers the personalized services to the small investors apart from its normal dealings in shares and debentures with a view to having more business and a diversified risk.
- The banks upgraded their data management system by recording the information on computers and reduced huge paperwork. This was done to improve the efficiency of the banks.
In all the examples above, companies have made significant changes to their customer groups, products, and the technology, so as to have a high growth.
Market Expansion Strategy Defined
Market expansion is a business growth strategy. Companies adopt a market expansion strategy when their growth peaks in existing channels. Success depends on confirming that they have fulfilled existing markets. Companies must then identify other markets that are easy to reach.
Companies investigating potential markets must take stock of their capabilities and assets. These may include new or existing products with an appeal in untapped areas. Through what channels will they meet these potential customers? Companies must consider who new customers are. Then they can engage them with a specific brand message.
Companies must finance their initiatives. They must also accept the risks of financial disappointment. Even the most well-developed market expansion strategies do not guarantee success. But success will lead to increased sales and a boon for the financial future of those companies.
Developing the Successful Market Expansion Strategy
We’ve outlined the makings of a successful expansion strategy. Now, we’ll share the details of realizing sales success. The following are eight stages of developing a winning market expansion strategy. Each stage will help you build a foundation for lasting sales success.
Summarize Your Strategy
Your gut may tell you that it’s time to expand. But creating a winning strategy takes insight. Begin by putting into writing the reasons you want to expand. Then, write down the reason you think you will succeed. Identify your new customers during the process. In every case, a new market will not be like existing ones.
Create buyer personas of people or businesses most likely to buy your products. Use demographics to determine how you can reach them. Then, choose your channels for expansion–be it online, in advertising, in stores, or in person.
Now create a formal proposal and share it with your partners. You must be able to justify your market expansion strategy before investing in it. You will need this insight to inspire buy-in from your co-founders or partners, too.
Finance Your Initiative
Now that you’ve justified your strategy, you can determine how you will finance the initiative. Begin by forecasting the cost of your expansion. That means itemizing all the resources you’ll need. Then you can calculate how long it will take for the venture to be profitable.
According to Inc., “It’s most important that you treat your venture objectively, remembering to treat it like a business.” Your market expansion should stand on its own two legs, financially speaking. In the end, you will regain the amount of your initial investment. You will be on your way to profitability soon after.
Expand into New Channels
You may have the best products for your new target market. But you won’t sell much if you haven’t identified channels for connecting to them. Channels are pathways for bringing products to market for purchase. You can call them “market entry options” in professional parlance as well.
Channels can be physical–you may choose a new retail outlet to sell your product. They can be digital–you may begin selling online in foreign countries. These channels are means to engage with customers. Choosing the right channels is critical to the success of your market expansion.
Broadening your distribution channels can lead to healthier profits. It can also reduce risk if sales through one channel fail. Consider your customer demographics and customer behaviour. Then determine which channels you can engage your customers.
Engage New Audiences
Your market expansion strategy should include a marketing component. This should focus on engaging your new customers. It should reflect both the channels through which you will engage with customers. It should also include the value proposition you plan to deliver to them.
For many marketers, metrics like site traffic will reflect one’s success. In your case, those metrics might not reflect real progress. Site visitors might not engage your brand or buy a product. Social shares might not be real drivers for product sales either.
Your early interactions should focus on quality and authenticity. Those early interactions will be indicative of the quality of all future interactions. This is in contrast to brands established in their markets who may already grasp what their customers value and cater to those interests.
Today, customers can easily assess the quality and authenticity of a brand. As a newcomer, you can make quality and authenticity your brand distinction. According to Forbes, “[Brands] must show people why their product is valuable. Marketing around product quality is an effective, yet underrated tactic among digital sellers.”
Grow Your Brand
Build upon what you learned from those initial customer engagements. You can use them to spread your brand message. Collect data on your new customers. Then, identify their core motivations and repeated actions. You can identify other potential customers in that market by looking for the same habits. You can also encourage your new customers to share your brand. They can connect with people who share their motivations and behaviours.
Despite honing in on specific characteristics, your goal is market saturation. Growing your brand depends on a compelling message with broad appeal. It should welcome new customers not yet on your radar.
Striking a balance between targeted and broad messaging will be a challenge. You may have to do this within a single message. You can use different platforms for different types of messaging as well. In either case, keep in mind that one segment of the market might see an ad meant for another segment. Your brand should be consistent even if aspects of your messages are not.
Increase Sales of Existing Products
At this point, you will have field tested one or more products and found out how they performed. At least one will have been an existing product which has already performed in other markets. You can use the feedback and data you’ve gained from successful markets to build messaging in new ones. Remember, that messaging should centre on the quality and authenticity of your products.
Your goal is to penetrate the market, not immediately drive up revenue. You want your messaging and your products to be accessible to new customers. Develop a strategy that benefits your target customers. This should be at minimal cost to them. Strategies include:
- Special events with customer value
- Generous sales with short lifespans
- Referral discounts or benefits
- Contests and giveaways with valuable prizes
Your goal is to offer value that customers appreciate and remember. That value must be attainable for your future customers. And you should minimize their effort in getting it.
Introduce New Products
You may plan to invest in new product development as part of your market expansion strategy. This opens new revenue opportunities that can drive businesses to success. If executed poorly it can end in a costly disaster following a long, tedious process.
You should be serious about new product development. Consider reading a formal guide to get started. Here are some suggestions for getting your product development strategy into focus.
Your goal is to develop your new product from concept to market introduction. First, identify a need in your target market that your product will fulfill. Once you’ve developed a concept, assign a team to the product development process. Ensure they understand target customer KPIs (key points of interest).
You can involve existing customers in your target market during the design phase. Use social media or a web portal to interact with them. They can keep you focused on customer benefits as you develop your product. And they can help you with a name for the product as well.
The most important contributor to your success is distinction. Incorporate that products’ value proposition into your market expansion strategy. Then you can build on your existing success.
Establish a Foundation
Now that you’ve gained a foothold in your new market, it’s time to lay the groundwork for escalation. Revisit how you found success in your original market or markets. The journey ahead will be completely different. But some of the insights you learned will apply here. Prepare to adapt and respond to a great deal more.