Expanding Markets

Expanding Markets.

Expanding Markets. Introduction: Domestic companies around the world are going global, which is not only intensifying competition, but also giving rise to a range of new activities in the market. In order to survive in the changed, as well as constantly changing environment, a enterprise has to be strong enough to cope up with the challenges. In the face of the changing environment, normally, every business has only two options and that are either to withdraw from the market or to fight to retain and increase its share. And the business opting for the second option generally needs to plan for: (i) Sharper, focused, competitive strategies to face the new competition. (ii) Tone up the existing strength and leverage the first mover advantage. (iii) Realize the need for growth of business enterprises..

EXPANDING MARKETS.

Strategic Alternatives before an Enterprise Gary Hamel says , "Successful business strategy is about actively shaping the game you play not just playing the game you find". Various strategic alternatives are available to a firm for achieving its objectives and can be classified into the following four broad categories: 1. Stability Maintain Strategies Stability means not changing the present level of operations either in form or in character. In the initial years of establishing a business, an entrepreneur continues to serve his customers with basically the same products and services. Entrepreneurs follow this strategy in the beginning because this strategy is: Less risky Easier and comfortable Unconsciously pursued Defensive and satisfactory Enhances functional efficiencies.

2.Expansion Growth strategies Expansion is one of the forms of internal growth of business. All the businesses aspire to grow at one point or the other. Hence, growth/expansion strategies are the most and commonly used strategies by all organizations (i) A healthy firm normally has a natural desire for growth. (ii) Growth is essential for survival because if a firm does not grow when competitors are growing, it might lose its competitiveness. (iii) A company needs growth to increase its market share. Etc. Expansion of an enterprise can be pursued through a number of methods and many options are available depending on the degree of growth and momentum of growth which one aspires. A firm can adopt an expansion strategy when it exhibits any of the features given below: (i) The growth is fast in the market in which their products are sold. (ii) They tend to have larger than average profit margins. (iii) New markets, new products, new processes and new usage for old products are regularly developed. (iv) Shifting from local to global markets is an expansion sign..

. Retrenchment/Divestment Strategies Retrenchment means cutting down or curtailment of expenses. So, divestment is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. Divestment usually involves eliminating portion of a business. Firms this move often is the final decision to eliminate unrelated, unprofitable or unmanageable operations. e.g. Robert Haas, President and CEO of Levi Strauss and Co divested by closing company's plants and eliminating 16000 jobs. 4.Combination Strategy A combination strategy is the pursuit of two or more of the above strategies simultaneously. Combination strategies are common, especially for complex organizations operating in dynamic and highly competitive environment. In large diversified companies, a combination strategy is commonly employed when different divisions pursue different strategies. e.g. in 1989, Texas Air was rapidly expanding its Continental Airlines unit, but its Eastern Airlines operation was being consolidated. So, it can be concluded that combination strategy is the combination of growth, stability and retrenchment strategies adopted by an organization either at the same time in its different businesses or at different times in the same business with the aim of improving its performance..

RETRENCHMENT STRATEGY DIWSTMENT STRATEGY - REASONS 2) Stiffcompetition There is stiff competition in the market in the area of certain products. The company is not able to compete "ith the competitors in that product line. As a result of which company decides to withdraw that product from the market.

Market Expansion Grid This is an important tool for formulating expansion growth strategies, Proposed by H Igor Ansoff in 1957, it is a useful tool for detecting new intensive growth strategies for the business. The market expansion grid considers two main factors viz, the product and the market. The product can either be a current product or a new product and The market can either be a current market or a new market. Market Penetration Strategy A strategy to grow by encouraging existing customers to buy more of the firm's current products is said to be penetrating strategy. This strategy is used, when the customers are aware of the product, but are not using it. So, the enterprise attempts to increase the sales of the current products in the current markets by adopting the following approaches: (i) Encourage frequency of use Encourage customers for more use of the product by increasing the:.

. (a) Frequency of use e.g. brush twice a day with 'XYZ' toothpaste to prevent cavities. (b) Usage per use e.g. every time you shampoo your hair with 'Sigma', repeat it two times for shiny and silky hair. (ii) Attract new clientele If an enterprise is successful in making non-users of a product, the users of the product, it will definitely be able to increase its sales. Non-users could be attracted towards the products by using any of the following sales promotion techniques: ( a) Advertising (b) Personal selling (c) Discounts (d) Coupons (e) Samples.

iii) Attract competitor's customers If the company succeeds in making the customer to switch from the competitor's brand to the company's brand, while at the same time maintaining its existing customers intact , then there will be a definite increase in company's sales. e.g. Hindustan Lever adopted the strategy of multi-branding with an aim of capturing the market by winning the customers of their competitors. They introduced many brands in soaps and detergents market, so that no segment is left untouched. It has Dove, in the ultra premium segment, Lifebuoy, in the economic segment and Rexona, Liril and LaSancy in the intervening segment. II.Market Development Strategy Market development strategies involve selling the firm's existing products to new markets, both nationally and internationally. It also aims at identifying new groups of customer s. The new groups of customers can be searched in terms of.

(i)New demographic market Demographics are used to characterize customers based upon their: (a) Income (b) Marital status (c) Standard of living (d) Education (e) Age and sex e.g. Tata Nano caters to a segment of middle income group. But its upgraded version with trendy colors and additional features is targeted towards the young generation. (II) New product use An entrepreneur might find out that people use his product in a way that was not intended or expected initially. This new knowledge of product use provides insight into how the product may be valuable to a new group of buyers. For example, Aspirin, a pain killer, has been discovered to be good for heart too..

(iii) New geographical market This approach aims at selling the existing products in new locations and new markets. This has the potential of increasing sales of the product by making it available to those customers, who did not have access to it. Achieve economies of scale. However, before adopting this approach, an entrepreneur must be aware of: Customers ' preferences Their language Legal requirements e.g. Nirma, which was initially confined to local Gujarat market later expanded to regional and then to national markets. Global Market One of the way to find new geographic market for your product is to go 'global'. The normal practice followed by entrepreneurs worldwide is to first explore new markets within the country and then to move to other countries in search of better markets. However, going global initiates the need for taking various decisions, which are discussed below:.

North America 1 Europe •Japan 'APAC (Excluding Japan) Rest of the World (ROW).

Major Decisions in International Marketing Before going global, an enterprise should try to find out the preferences and way of living of the residents of the foreign country. It must also weigh several risks by deciding: Strategically and logically whether to go abroad or not. Which markets to enter? How to enter the foreign market? The marketing programme. . Marketing organization..

Methods to Enter Global Market Though all decisions have significant impacts and implications, the most important is 'how to enter foreign market'. It can be through: Indirect export The easiest and a normal way of going global is through indirect export. Occasional exporting is a passive level of involvement where the to company On its own initiative from time-to-time on: Through independent middlemen on being In response to unsolicited orders from abroad..

Direct export Companies eventually may decide to handle their own exports. Through this strategy of entering global market, the enterprise assumes somewhat- greater risk and investment, but the potential returns tend to also increase. The company can carry on direct exporting in several ways, such as: Through domestically based export division or department. Through overseas sales branch or subsidiary establishment. Nominating foreign based agents or distributors to sell the goods on behalf of the company..

Licensing It represents a simple way for a manufacturer to become involved in international marketing. The licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other items of value for a fee or royalty. This way the licensor safely and easily can gain entry into the foreign market at: (a)Less risk. (b) The licensee gains production expertise or, well-known product or name with out having to start from scratch. (iv) Contract manufacturing Here, the firm engages local manufacturers to produce the product for them Contract manufacturing offers the company chance to start faster and with lesser risk..

v) Joint ventures Mostly, a joint venture is a restricted or a temporary partnership between two or more firms to undertake jointly to complete a specific venture. The co-ventures (parties) participate in the equality and operations of the business, sharing profits or losses in an agreed ratio. (Vi) Direct investment The ultimate form of global involvement is through direct ownership of foreign based manufacturing facilities. Here the firm exposes its large investment to risks by buying partly or full interest in a local company or by building its own enterprise..

.Product Development Strategy It implies developing a new product or modifying the existing products to meet the requirement of the customers. This strategy of growth involves developing and selling new products to existing customers. A business can achieve growth with the help of this strategy by: Adding new features A fairness cream with sunscreen component. Different quality levels Surf excel, Surf ultra, etc. Alternative technology CDMA and GPRS mobiles. Integrative Expansion This development and growth strategy can also take the form of integrative expansion in which a company aims to increase its sales and profit from within the same industry by offering new products..

Integrative expansion can be further as: (I) Vertical integrative expansion It means that activities or functions previously being outsourced by the business will now be undertaken by itself. This form can be further categorized as: (a) Backward integration It refers to taking a step back on the value added chain towards the raw material or in simple terms it can be said that the firm becomes its own supplier. ( b) Forward integration It refers to taking a step forward on the value added chain towards the customers or in simple terms it can be said that the firm becomes its own buyer. (ii) Horizontal integrative expansion It occurs at the same level of the value added chain and involves a different, but complementary value added chain or in simple terms it involves acquisition of one or more competitors at the same level of business..

Horizontal Integration Purchase of Compding Cornpanies in Sarne Irxiustry C«tvany.

level of business. IV. Diversification Strategy This is the last strategy of the market expansion grid and involves entering new markets with new products. 'Diversification' means adding new lines of business to the current one. It is a risky strategy as the business is new to the market in which it is entering. Synergistic diversification A diversification strategy that involves finding new products that are technologically compatible with a company's existing products. (Ii) Horizontal diversification A diversification strategy that involves making products that are technologically unrelated to a company's existing products. Conglomerate diversification A diversification strategy that involves making products that are totally unrelated to a company's existing products. NOTE The first two strategies are collectively used for intensive expansion, which means that the enterprise is attempting to increase the sales of its existing products by enlarging the existing markets..

Diversification. Additional value created through Synergy.