Through the portfolio analysis, a company identifies which SBUs will receive the resources to grow and develop. The question then becomes, “How do we grow this SBU?” There are four basic growth strategies. Each strategy has multiple tactics available which will be discussed throughout the textbook. The growth strategies are categorized by two factors: the target market (current or new) and the product (current or new).
Table 2.3: Growth Strategy Factors
|CURRENT TARGET MARKET||NEW TARGET MARKET|
|CURRENT PRODUCT OFFERING||Market Penetration||Market Development|
|NEW PRODUCT OFFERING||Product Development||Diversification|
Market penetration strategies focus on increasing a firm’s sales of its existing products to its existing customers.
There are two ways to grow through market penetration:
- increase sales to existing customers by encouraging them to purchase large quantities and/or more often
- increase the number of customers in the target market
Both of these are primarily achieved through the use of effective promotional strategies with the goal of increased market share. Companies often offer consumers special promotions or low prices to increase their usage and encourage them to buy products. When Frito-Lay distributes money-saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is utilizing a penetration strategy. The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using their soup as an ingredient for cooking quick meals.
Market development strategies focus on entering new markets with existing products. For example, during an economic downturn, manufacturers of high-end coffee makers began targeting customers who go to coffee shops. The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.
New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Many companies, including PepsiCo and Hyundai, have entered—and been successful in—rapidly emerging markets such as Russia, China, and India. Decisions to enter foreign markets are based on a company’s resources as well as the complexity of factors such as the political environmental, economic conditions, competition, customer knowledge, and probability of success in the desired market. There are different ways, or strategies, by which firms can enter international markets. The strategies vary in the amount of risk, control, and investment that firms face. Firms can simply export, or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Many small firms export their products to foreign markets.
Product development strategies involve creating new products for existing customers. A new product can be a totally new innovation, an improved product, or a product with enhanced value, such as one with a new feature. A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, however, that what works for one company might not work for another. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkin’ Donuts announced it was adding items to its lunch menu.
Diversification strategies involve entering new markets with new products or doing something outside a firm’s current businesses. Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies. Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy. Warner Music Group’s purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed.
You Try It!
The Marketing Plan
Once the method for growth is established, the marketing department can start developing the specific tactics necessary to achieve that growth. The analysis, strategies, and tactics are laid out in the marketing plan. A marketing plan is a strategic plan at the functional level that provides a firm’s marketing group with direction. It is a road map that improves the firm’s understanding of its competitive situation. The marketing plan also helps the firm allocate resources and divvy up the tasks that employees need to do for the company to meet its objectives. The different components of marketing plans will be discussed throughout the book.