Most small companies have plans to grow their business and increase sales and profits. However, there are certain methods companies must use for implementing a growth strategy. The method a company uses to expand its business is largely contingent upon its financial situation, the competition and even government regulation. Some common growth strategies in business include the following;
1. Market Penetration Strategy:- One growth strategy in business is market penetration. A small company uses a market penetration strategy when it decides to market existing products within the same market it has been using. The only way to grow using existing products and markets is to increase market share, according to small business experts. Market share is the percent of unit and dollar sales a company holds within a certain market against all other competitors. One way to increase market share is by reduction of prices. For example, in markets where there is little differentiation among products, a lower price may help a company increase its share of the market.
2. Market Expansion or Development:- A market expansion growth strategy, often called market development, entails selling current products in a new market. There are several reasons why a company may consider a market expansion strategy. First, the competition may be such that there is no room for growth within the current market. If a business does not find new markets for its products, it cannot increase sales or profits. A small company may also use a market expansion strategy if it finds new uses for its product. For example, a small soap distributor that sells to retail stores may discover that factory workers also use its product.
3. Product Expansion Strategy:- A small company may also expand its product line or add new features to increase its sales and profits. When small companies employ a product expansion strategy, also known as product development, they continue selling within the existing market. A product expansion growth strategy often works well when technology starts to change. A small company may also be forced to add new products as older ones become outmoded.
4. Growth Through Diversification:- Growth strategies in business also include diversification, where a small company will sell new products to new markets. This type of strategy can be very risky. A small company will need to plan carefully when using a diversification growth strategy. Marketing research is essential because a company will need to determine if consumers in the new market will potentially like the new products.
5. Acquisition of Other Companies:- Growth strategies in business can also includes an acquisition. In acquisition, a company purchases another company to expand its operations. A small company may use this type of strategy to expand its product line and enter new markets. An acquisition growth strategy can be risky, but not as risky as a diversification strategy. One reason is that the products and market are already established. A company must know exactly what it wants to achieve when using an acquisition strategy, mainly because of the significant investment required to implement it.
Different Types of Business Strategies
New companies often face unique challenges. Specific strategies, such as identifying product strengths, adjusting pricing, or acquiring another business, have historically been used to get a small enterprise off the ground. Understanding these strategies, and skillfully implementing them, can help start-up and existing company achieve success.
1. Growth Strategy of New Products or Features:- A growth strategy entails introducing new products or adding new features to existing products. Sometimes, a small company may be forced to modify or increase its product line to keep up with competitors. Otherwise, customers may start using the new technology of a competitive company. For example, cell phone companies are constantly adding new features or discovering new technology. Cell phone companies that do not keep up with consumer demand will not stay in business for long.
2. Finding New Markets for Products:- A small company may also adopt a growth strategy by finding a new market for its products. Sometimes, companies find new markets for their products by accident. For example, a small consumer soap manufacturer may discover through marketing research that industrial workers like its products. Hence, in addition to selling soap in retail stores, the company could package the soap in larger containers for factory and plant workers.
3. Product Differentiation Strategy:- Small companies will often use a product differentiation strategy when they have a competitive advantage, such as superior quality or service. For example, a small manufacturer or air purifiers may set themselves apart from competitors with their superior engineering design. Obviously, companies use a product differentiation strategy to set themselves apart from key competitors. However, a product differentiation strategy can also help a company build brand loyalty.
4. Price-Skimming Strategy:- A price-skimming strategy involves charging high prices for a product, particularly during the introductory phase. A small company will use a price-skimming strategy to quickly recover its production and advertising costs. However, there must be something special about the product for consumers to pay the exorbitant price. An example would be the introduction of a new technology. A small company may be the first to introduce a new type of solar panel. Because the company is the only one selling the product, customers that really want the solar panels may pay the higher price. One disadvantage of a price-skimming is that it tends to attract competition relatively quickly. Enterprising individuals may see the profits the company is reaping and produce their own products, provided they have the technological know-how.
5. Acquisition Strategy to Gain Competitive Advantage:- A small company with extra capital may use an acquisition strategy to gain a competitive advantage. An acquisition strategy entails purchasing another company, or one or more of its product lines. For example, a small grocery retailer on the east coast may purchase a comparable grocery chain in the Midwest to expand its operations.