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Types of Market Expansion Strategy

Market expansion is a strategy where a firm looks to sell its existing products into new markets. These are two types of market expansion strategies: Market Penetration and Market Development.Market penetration is the easiest form market expansion, because you already have a product that has been successfully used in another area of the company or within the industry. You know enough about the product that it is not an entirely untested tool in your hand. If a firm is trying to increase their market penetration they will do one of two things: increase sales with current buyers, or convert non-buyers (competitors customers) into buyers. Market development is more difficult then market penetration because there is more room for failure and loss. If a firm is trying to expand their market development they will attempt to find new groups of buyers which have never purchased from them before, or attempt to convince others who have never purchased from anyone at all before to purchase from them.

The product of a business needs to change in order to continue growth and remain competitive. In order to do so, one must undertake a market expansion strategy. By definition market expansion strategies are also called product development strategies, as the aim is to create new demand for your existing products within new markets or with new stakeholders. A market expansion strategy can initially be broken down into two smaller strategies: horizontal and vertical.

Expansion Strategy Definition

The dynamic business environment demands continuous change in the business practices. It is in the terms of customer functions and groups and alternative technologies to broad the expansion scope. Whenever an organization aims at high growth, expansion strategies are always followed. In other words, it will be true to say that market expansion strategies are adopted whenever a business wants to expand its activities. The general concept of expanding business is to sell your products to new groups of the potential customers. Usually there are two ways to expand market share. These are:

  1. Introduce more products to the market enabling you to access multiple customer databases.
  2. Make use of your products that are particularly popular.

Offering more Products

Introduction of new products in the market raises the sales to an impressive point. For example last year if you offered ten products and this year you will be offering 20 products then your sales will rise up twofold indeed. It does not happen that your new product may generate large revenues at once. It is because people will take time to create awareness about the new launch and then will make decision to make the final purchase or not. Another way can be to innovate, your product or come up with a product in a way that no one has ever done earlier. For this you will have to make use of the creative side of your company and come up with something that is already you are dealing in with. Never offer a product that is not related to whatever you are already selling.about:blank

Riding Bestseller to the Top

Bestseller is the product that sells multiple times. An outstanding bestseller is the one that achieves more than normal level of production. Do some research and find out that which product has more potential in the market. Try a number of alternatives and finalize the product that has the largest sales growth.

Types of Expansion Strategies

There are several other ways of business growth strategies. They are as follows:about:blank

  • Expansion via concentration: This is the type of expansion strategy where businesses invest in resources towards a particular product line with proven technology facilitation. Using market penetration strategies, the firm may focus on existing market or existing products may be offered new segments of customers. Moreover it can also be done by offering new products for the existing customer database.   
  • Expansion with the help of integration: This is done by expanding the scope of the business by serving the same set of customers.
  • Expansion through mergers, acquisition and strategic alliances: In this way two companies syndicate their core competencies, resources and capabilities to look forward for the mutual benefits. 
  • Begin a chain: There are some businesses that can be easily replicated and turned in to a chain. For example retail stores, restaurant, bars etc. Take a close look at what made your original store successful and follow the same rules for your chain. New campaign can be initiated every time you open a new branch.

In short the above mentioned are the ways how to expand market shares. At times businesses employee only one expansion strategy while sometimes a combination of business expansion strategies is used. Situation and need varies business to business.

4 Market Expansion Strategies

1. Direct Exporting

Direct exporting is selling directly into the market you have chosen using in the first instance you own resources. Many companies, once they have established a sales program turn to agents and/or distributors to represent them further in that market. Agents and distributors work closely with you in representing your interests. They become the face of your company and thus it is important that your choice of agents and distributors is handled in much the same way you would hire a key staff person.

2. Licensing

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the use of a product or service to another firm. It is a particularly useful strategy if the purchaser of the license has a relatively large market share in the market you want to enter. Licenses can be for marketing or production. licensing).

3. Partnering

Partnering is almost a necessity when entering foreign markets and in some parts of the world (e.g. Asia) it may be required. Partnering can take a variety of forms from a simple co-marketing arrangement to a sophisticated strategic alliance for manufacturing. Partnering is a particularly useful strategy in those markets where the culture, both business and social, is substantively different than your own as local partners bring local market knowledge, contacts and if chosen wisely customers.

4. Joint Ventures

Joint ventures are a particular form of partnership that involves the creation of a third independently managed company. It is the 1+1=3 process. Two companies agree to work together in a particular market, either geographic or product, and create a third company to undertake this. Risks and profits are normally shared equally. The best example of a joint venture is Sony/Ericsson Cell Phone.

German Market Expansion Solutions

And because we are having such a great time with you, we are giving you 4 additional strategies:

5. Buying a Company

In some markets buying an existing local company may be the most appropriate entry strategy. This may be because the company has substantial market share, are a direct competitor to you or due to government regulations this is the only option for your firm to enter the market.

It is certainly the most costly and determining the true value of a firm in a foreign market will require substantial due diligence. On the plus side this entry strategy will immediately provide you the status of being a local company and you will receive the benefits of local market knowledge, an established customer base and be treated by the local government as a local firm.

6. Piggybacking

Piggybacking is a particularly unique way of entering the international arena. If you have a particularly interesting and unique product or service that you sell to large domestic firms that are currently involved in foreign markets you may want to approach them to see if your product or service can be included in their inventory for international markets. This reduces your risk and costs because you are essentially selling domestically and the larger firm is marketing your product or service for you internationally.

7. Turnkey Projects

Turnkey projects are particular to companies that provide services such as environmental consulting, architecture, construction and engineering. A turnkey project is where the facility is built from the ground up and turned over to the client ready to go – turn the key and the plant is operational. This is a very good way to enter foreign markets as the client is normally a government and often the project is being financed by an international financial agency such as the World Bank so the risk of not being paid is eliminated.

8. Greenfield Investments

Greenfield investments require the greatest involvement in international business. A greenfield investment is where you buy the land, build the facility and operate the business on an ongoing basis in a foreign market. It is certainly the most costly and holds the highest risk but some markets may require you to undertake the cost and risk due to government regulations, transportation costs, and the ability to access technology or skilled labour.

Conclusion

Market expansion strategy means that you sell your existing products to a new market. This can take several forms: selling to an existing geographic market, selling to a new geographical market or by selling the product or service to a new customer group.

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