All companies, throughout their life cycle, go through one or several stages of growth for which they must be sufficiently prepared. In this context, it is key to have a correct market expansion strategy, which is well planned and defined, and which tries to ensure as much as possible the permanence and durability of the business model. Jose Duarte, an entrepreneur and business operations expert from Costa Rica, explains how to make this happen.
This process can be more or less complex and, sometimes, can even block the company’s own growth if things are not clear. The lack of a well-defined strategy is not necessarily an impediment for the company to carry out a market expansion, but it does hinder the process.
When a company decides it’s time to grow, the first thing to keep in mind is that in addition to opportunities, market expansion also brings associated risks. There is no doubt that its main objective is to increase sales, but this is often accompanied by an increase in costs that, sometimes, can exceed the growth of turnover, at least in the incipient stages of the project. Therefore, when carrying out a market expansion strategy, the first step is to make a good planning.
Explains Duarte, “Establish your expansion objectives, which will serve not only to know where the company is going and how to get there, but also to later measure the results of the analysis. In this case, you should be clear about where your company is going to go and what new markets it is going to attack.”
Conduct market research based on these goals to obtain data and information to help discover which direction the business will need to expand. At this stage, you need to clearly identify what proportion of the target audience you are able to reach, what the competition is, the culture of the new market, and the type of target customer.
Develop an action plan with all the actions that will be carried out to guarantee this market expansion and the tools that will be used to achieve it. In general, it is important to identify which resources are available and which will be needed.
Communicate all the details to the team. Once you are clear about the objectives and resources needed to achieve them, it is important to communicate this information to all team members. For this, an infallible element is a good presentation that acts as a memory to remember everything achieved to date. This should serve as a guide to carry out the expansion of the business from a firm base and follow the guidelines set.
There are four different market expansion strategies, depending on the needs, capacity and interest of each company: market penetration, product development, market development and diversification.
Market penetration is based on increasing the company’s sales without making any kind of modification in the activity it carries out. It is usually carried out with more aggressive marketing campaigns, with advertising campaigns, large discounts on the price or important promotions.
Unlike market penetration, product development consists of making major changes to the products or services marketed. In essence, this market expansion strategy is based on adding one or more functionalities to the product or improving its characteristics in order to satisfy some needs demanded by users.
“With this strategy,” adds Duarte, “the company focuses its marketing efforts on offering a novel product that captures the attention of new customers, without this necessarily having to influence the price. Thus, companies can take advantage of a new position thanks to their product.
In market development, the company seeks to preserve all the characteristics of its product(s), but also tries to enter new markets or expand its business internationally. These new markets can be of different types. Some examples are the incursion of smartphones into multimedia device markets or the creation of new financial services by some technology companies.
Diversification is the most disruptive market expansion strategy of all and consists of proposing a structural change or expansion of the company’s activity to reach another type of customer different from the usual business model.
There is no market expansion strategy better than another since everything depends on the activity of your company, the type of product it sells and its ability to undertake one strategy or another. Among the factors that most influence when making a decision are technological, social, economic, industrial context or market situation, among many others.
In any case, there is no doubt that expansion into new markets is a constant in any process of business growth. In fact, on numerous occasions, it happens naturally to respond to the needs of potential customers from different countries or geographical areas.