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This document discusses different strategies companies can use to grow, as outlined in the Ansoff matrix. Market penetration involves selling more of existing products to current customers and finds new customers within existing markets, carrying low risk. Product development involves creating new products for existing markets and customers, with moderate risk. Diversification involves entering new markets with new products and carries high risk. Mergers and acquisitions can also be used but often fail to create value due to integration challenges. While growth strategies offer opportunities, companies must understand the risks involved to manage expectations.
This document discusses different strategies companies can use to grow, as outlined in the Ansoff matrix. Market penetration involves selling more of existing products to current customers and finds new customers within existing markets, carrying low risk. Product development involves creating new products for existing markets and customers, with moderate risk. Diversification involves entering new markets with new products and carries high risk. Mergers and acquisitions can also be used but often fail to create value due to integration challenges. While growth strategies offer opportunities, companies must understand the risks involved to manage expectations.
This document discusses different strategies companies can use to grow, as outlined in the Ansoff matrix. Market penetration involves selling more of existing products to current customers and finds new customers within existing markets, carrying low risk. Product development involves creating new products for existing markets and customers, with moderate risk. Diversification involves entering new markets with new products and carries high risk. Mergers and acquisitions can also be used but often fail to create value due to integration challenges. While growth strategies offer opportunities, companies must understand the risks involved to manage expectations.
risky and entails nding new markets for existing products/ services. It is appropriate when the core competency of the company lies in its product/ service. Companies follow this strat- egy by targeting different ge- ographical markets at home or abroad using different sales channels (such as e-commerce or modern trade) and targeting different groups of people (based on age, gender, demo- graphics or psychographic factors). For example, Nike was rst known for running shoes. Lat- er, it moved into shoes for bas- ketball, tennis, football and now, most leading sports shoe companies have re-segmented the whole market to address the casual user who, inciden- tally, is the largest customer group. GSK has taken Horlicks from being a bedtime drink in the UK to an all-day, all-ages drink in India. PRODUCT DEVELOPMENT This strategy is also moderate- ly risky and involves develop- ing new products/services for existing markets/customers. It is often most appropriate where the strength of the busi- ness lies in its relationship with customers. Crisil (a subsidiary of S&P) has used this strategy to start offering research and analytics services to its nancial services Shyam Pattabiraman N othing excites markets more than growth plans announced by list- ed companies but investors need to understand that every growth strategy comes with a certain degree of risk, which is what separates expectation from actual results at the end of the day. One of the oldest, yet most widely used framework for evaluating growth strate- gies, is the Ansoff matrix (refer table). MARKET PENETRATION This is the least risky strategy since it merely involves selling more of the same products/ services to the same customers or nding new customers with- in existing markets. For example, educating peo- ple about brushing twice daily, attending to sensitive teeth, shaving every day or washing hands often could potentially increase the sale of tooth- pastes, razors and handwash- es/sanitisers. GSK Consumer, Colgate and HUL continue to use this strat- egy to increase market share. In the wristwatch business, Ti- tan has managed to increase market penetration by encou- raging the trend of owning multiple wristwatches for vari- ous occasions. A few ways in which compa- nies increase market penetra- tion are by advertising, introducing loyalty schemes, launching price or other spe- cial offer promotions, and in- clients. L&T has expanded to offer a wide gamut of infras- tructure/construction/core engineering-related products/ services to clients. DIVERSIFICATION This strategy is considered high risk since it involves mul- tiple unknowns, that is, both getting into entirely new mar- kets and entirely new products. The common risks seen in get- ting into unrelated businesses is lack of synergy, execution risk and sub-optimal resource utilisation so much so that markets usually discount the valuations of such diversied listed entities. However, a few business groups such as Virgin and Tata have deed the perception by using their brands as the large- st synergy providers. Their strong brands have helped in diversication. These con- glomerates have also managed to cultivate a strong managerial talent pool that is fungible across their companies. M&AS In addition to these growth strategies in the Ansoff matrix, companies often consider ac- quisitions horizontal, for- ward or backward. But despite the expectation that acquisi- tions could fast-track growth, they are usually fraught with risks such as winners curse (over-paying) and post-merger integration. Statistics estimate that nearly 80 per cent of merg- ers and acquisitions fail to de- liver value. Needless to say, ex-ante all companies that pur- sue acquisition-led growth be- lieve they belong to the remaining 20 per cent. Chasing growth A company can expand using various strategies such as increasing market penetration, diversifying products and through M&As. (The author is a business consultant. Feedback can be sent to perspective@thehindu.co.in) Nike... Making strides to deliver value. Reuters