Organic Growth Strategies
1. Market Penetration
Market penetration strategy is very suitable when a business enterprise aims to pierce through the existing markets with its existing product line. With market penetration, a business aims to further increase its market share in the existing market with its existing products. This strategy is very popular because it entails minimum risk. It may involve price adjustments, extensive promotional campaigns, increased production and supply, providing incentives and going omnichannel. Market penetration strategy is eligible for application only if there is an untapped market share in the existing market (for the existing products) which is available for a business to capitalize on. However, market penetration does not involve any major changes to the existing business model but requires development of USPs for better positioning and popularity. It may also involve out-of-the-box sales strategies and efforts because the products are already known to the targeted non-customers.
2. Market Development
In market development strategy, a business enterprise experiments with their existing products by launching them in new markets with the objective of capturing new business territories. This may involve extensive market research, study of demographical features, availability of supply chain infrastructure and channels of distribution, presence of competitors and competing products, local promotional campaigns, price adjustments, changes in packaging, availability of manpower for operations and so on. The precondition for eligibility of market development strategy is a workable market share in the targeted business territory. Establishing business in new markets may involve adoption of business model different from the existing one. Franchise route is a popular business model when it comes to extending business to new and difficult-to-access territories. Franchise model involves delineation of ownership and operational control and application of franchise SOPs and audits. Profit and risk sharing and return on investment are important considerations in a franchise business model.
3. Product Development
Product development strategy is when a business enterprise intends to offer new products to its existing markets. Product development strategy helps a business cater to new customer segments in the existing markets. This can strengthen the foothold of a business enterprise in its current operational territories and also serve as a brand booster. New product design involves research and development, innovation, creativity etc. Freemium business model coupled with strong positioning can be very effective when new products are launched in a market which a business enterprise is already well acquainted with. Product training is essential for sales and marketing staff. Freemium business model is very popular in the field of social media and mobile communication apps.
In diversification strategy, a business enterprise goes on full aggression mode by launching new products in new markets. This may involve extensive market research, product innovation, research and development, competition analysis, segmentation, brand positioning, full scale promotional campaigns and offers, associations with supply chain infrastructure, pricing decisions and so on. Diversification can almost take the shape of a new strategic business unit and may involve full scale business planning from the scratch. When diversification is done within the local geographical limits, a business enterprise will have the advantage of its existing supply chain network and logistical support. Various considerations involved here are capital investment; sources and cost of capital, return on investment, breakeven analysis, staff recruitment, sales and business development, new processes and SOP (standard operating procedures) definitions and so on.
Inorganic Growth Strategies
1. Mergers & Acquisition (M&A)
Mergers refer to amalgamation of two business enterprises to form a new business entity. Mergers can be horizontal integration or vertical integration. Horizontal integration involves merger of two competing firms to capture larger market share or to counter bigger competitive forces. In vertical integration, two firms in the same supply chain (say a producer and a distributor) merge to form a single entity and exercise dominance over the supply chain. The recent proposed merger between two major mobile service operators Vodafone and Idea is expected to be one of the most significant mergers in India’s telecom sector (1).
Acquiring control and ownership of another business enterprise by purchasing 51% or more of its shares is called acquisition. Through acquisitions, a company strives to take control of associated product lines. Purchase of the popular communication app WhatsApp by Facebook is a renowned acquisition (2).
2. Joint Ventures (JV)
In a joint venture, two or more firms come together to form a new business entity but both the firms retain their individual entities and identities. Microsoft and GE formed a JV called Caradigm, a healthcare IT company providing enterprise software solutions in the field of population health management (3). JVs are extremely useful when two different enterprises with unique USPs and core competencies are capable of jointly creating high value or premium products and services. Finance, operations and HR processes in this new entity may be different from the ones followed by the partnering firms in their respective businesses.
3. Strategic Alliances
Sometimes two businesses join hands to achieve certain predetermined goals and objectives without forming a new entity. These firms share their intellectual property, assets and technologies in execution of the common project. Such coalitions are called strategic alliances. Strategic alliances are popular not just in business but also in politics. Nokia and Microsoft entered into a strategic alliance wherein the latter designed the mobile operating systems for Nokia smartphones (4). Later, Nokia’s phone business was acquired by Microsoft (5).
YRC Related Articles: How to Write SOPs for Marketing?, 6 Ways To Grow Your Business, How to Start a Retail Business in India, Business Expansion Plan for Small Entrepreneurs, Six Steps to Writing a Great SOP for Retail, How to write SOPs for an Apparel Brand?, How to Develop SOPs for Quick Service Restaurant?, How to write SOPs for Furniture Showroom
Chief Operations Officer