Market expansion is a growth strategy and is usually implemented by a company with a strong market position. The company uses it when it offers interesting products and the markets it intends to enter are sufficiently attractive. The company aims to achieve high profit margins in the long term. A high risk of action is often accepted here. The company focuses on expanding the range of products sold, introduces innovations, develops distribution channels and conducts intensive promotional campaigns. It is therefore a costly strategy.
Market expansion can be classified according to the methods of gaining the market:
- The market penetration strategy consists in the pursuit of increasing sales to existing buyers of the existing product by activating sales - usually by lowering the price or intensive promotion.
- The product development strategy is to introduce new or modified products to existing markets. The company strives to sell more products to the same group of customers. They are often complementary goods - e.g. a manufacturer of toothpaste introduces toothbrushes.
- The market development strategy is to expand the market through the use of new means of promotion and distribution, reaching out to new customers with the product offered so far.
- Diversification strategy consists in entering new markets with a new good. It requires a significant innovation effort. It may require mergers with companies that already exist in a given market. This strategy is the least used as it is the most risky and costly.
Strategies depending on the market position
The company initiating market expansion may adopt the following strategies:
- The strategy of the leader is implemented by companies that have a large market share. Such a company usually decides about the development of the whole market. It strives to expand the market and sales volume by creating new needs among consumers, attracting new users and increasing the current demand. Market leaders often resort to retaliatory strategies. They refuse to accept goods from suppliers supplying competitors. They put pressure on intermediaries not to cooperate with threatening market players. They often incrementally increase expenditure on promotional activities.
- The strategy of the challenger is to seek to weaken the strengths of competitors, especially the market leader. The company usually applies a policy of lower prices. It introduces numerous improvements in products and distribution systems. It strives to reduce production costs, while at the same time increasing expenditure on advertising and sales promotion. Aggressive struggle for customers can lead to a price war.
- A follower's strategy is to compete with the leader through different combinations of marketing mixes. These companies generally use the same or similar distribution channels and promotional activities. They do not seek to increase market share, but rather to make a profit. All activities are aimed at maintaining loyal customers.
- The strategy of action in so-called market niches is an opportunity for small enterprises. Companies strive to find a niche, unmet consumer needs and focus on this. Thanks to this approach, they do not have to be afraid of competition. Large companies most often do not see or ignore market niches, and they may be large enough to make their operations profitable. Specialisation is the basis for action.
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Author: Weronika Kmiecik