Expansion Strategies

By Dhruv Rekhi
17/BMS/018
A Brief Introduction
» A firm seeks to achieve faster growth, compete,
achieve higher profits, grow a brand, capitalize
on economies of scale, have greater impact, or
occupy a larger market share.
» This may entail acquiring more market share
through traditional competitive strategies,
entering new markets, targeting new market
segments, offering new produce or services,
expanding or improving current operations.
2
» The Expansion Strategy is adopted by an
organization when it attempts to achieve a high
growth as compared to its past achievements.
» In other words, when a firm aims to grow
considerably by broadening the scope of one of
its business operations in the perspective of
customer groups, customer functions and
technology alternatives, either individually or
jointly, then it follows the Expansion Strategy.
Types of Expansion Strategies 3

» Concentrated Growth
» Integration
» Diversification
» International Expansion
Concentrated Growth
» A concentrated growth strategy involves
focusing on increasing market share in existing
markets.
» In a stable environment where demand is
growing, concentrated growth is a low risk
strategy.
» Within concentration strategies, there are three
sub-strategies: (1) market penetration, (2)
market development, and (3) product
development
4
» Product Development involves creating new
products to serve existing markets.
» Market Development involves taking existing
products and trying to sell them within new
markets. One way to reach a new market is to
enter a new retail channel.
» Market Penetration involves trying to gain
additional share of a firm’s existing markets
using existing products. Often firms will rely on
advertising to attract new customers within
existing markets.
PRODUCT DEVELOPMENT OF
PEPSICO PRODUCTS

» Coca-Cola and Pepsi regularly

introduce drinks and drink
experiences.
» With sales of diet beverages slumping,
PepsiCo is boldly going in the opposite
direction: launching products with
“real sugar” in 2014. The beverages
are in regular, vanilla, and wild cherry
flavors and are labeled with the
nostalgic PepsiCo logo.
» PepsiCo is also expected to take a
significant step toward reducing the
sugar and calorie content of its drinks
via its partnership with flavor supplier
Senomyx.
Integration Strategy 6

» The Expansion through Integration means

combining one or more present operation of the
business with no change in the customer
groups.
» Thus, a firm may move up or down the value
chain to focus more comprehensively on the
needs of the existing customers.
» The expansion through integration widens the
scope of the business and thus considered as the
grand expansion strategy.
Vertical and Horizontal Integration 7

» Vertical integration involves consolidation up » Horizontal integration involves

or down the value chain. consolidating operations at the same point in
» Forward vertical integration involves
the value chain.
consolidating closer to the point at which » This consolidation may be between business
value is delivered to the consumer. units or by acquiring or combining with a
competitors.
» Backward vertical integration involves
consolidating closer to the point of » Examples of horizontal expansion are
manufacturing. Standard Oil’s acquisition of about 40 other
refineries and the acquisition of Arcelor by
» A car manufacturer may acquire tyre and
Mittal Steel and that of Compaq by HP.
electrical-component factories (backward
integration) or open its own showrooms to sell
its vehicle models or provide after-sales
service (forward integration).
ACQUISITION OF UBER EATS BY
ZOMATO

» Online food delivery and restaurant

discovery platform Zomato has acquired
the Indian operations of Uber Eats, the
food delivery business run by Uber, for
around $350 million.
» With the acquisition going through, the
combined entity of Zomato and Uber Eats
India is expected to corner more than a
50-55% market in terms of the number
and value of orders, pulling it ahead of
Swiggy.

» For Zomato, using horizontal integration

in buying the distant third player helps it
consolidate the market and puts it ahead
of its arch-rival Swiggy.
Diversification 9

» This strategy involves widening the scope of the » This not only requires the acquisition of new
organization across different products and skills and knowledge, but also requires the
market sectors. company to acquire new resources including
new technologies and new facilities, which
» The strategy is to enter into a new market or
exposes the organization to higher levels of risk
industry which the organization is not currently
in, whilst also creating a new product for the » There are three types of diversification:
new market. concentric, horizontal, and conglomerate.
» The strategy helps the organization to increase
sales volume and revenues while keeping costs
to minimum.
» Diversification usually requires a company to
acquire new skills and knowledge in product
development as well as new insights into market
behavior simultaneously.
Types of Diversification Strategies
» Concentric Diversification is
enlarging the production
portfolio by adding new
products with the aim of
fully utilizing the potential
of the existing technologies
and marketing system.
» For example, a bakery
making bread starts
producing biscuits.
» Conglomerate
Diversification - In this form
of diversification, an entity
launches new products or
services that have no
relation to the current
products or distribution
channels.
» The high growth scope
and return on
investment in a new
market segment may
prompt a company to take
this option.
10
» Horizontal Diversification -
This strategy of
diversification refers to an
entity offering new services
or developing new
products that appeal to the
firm’s current customer
base.
» For example, a dairy
company producing cheese
adds a new variety of
cheese to its product line.
DIVERSIFICATION STRATEGY
USED BY WALT DISNEY

» Entertainment and media

conglomerate The Walt Disney
Company has much more than just
animated films.
» One of Disney's main strengths is its
diverse group of income streams.
» The company's operations include five
segments: media (involving movie
production, ESPN Network, Disney
Channel, ABC Family, and others), parks
and resorts (including theme parks and
the Disney cruise line), studio
entertainment (such as live
performances), consumer products
(including licensing), and interactive
(involving all gaming).
International Expansion 12

» This method involves creating new markets for a » Types of International Expansion depending on
value offering by looking outside of the Product Diversity & Market Complexity are:
immediate nation. » Exporting
» Generally, this option is preferable when there is
» Licensing
little room for expansion in domestic markets.
» Franchising
» For doing so, an organization would have to
assess the international environment, evaluate » Foreign Branch
its own capabilities, and devise strategies to » Wholly Owned Subsidiary
enter foreign markets.
» There are several entry options that an
organisation can choose from, as we will see
shortly, ranging from exporting to setting up
wholly-owned subsidiaries
Types of International Expansion Strategies
Exporting
Exporting allows companies to
introduce their brands and
products to foreign markets with
minimal or no direct investment
in each country.
Foreign Branch
A foreign branch office is a
representation of a company in
a foreign country that usually
can do commercial transaction
on its own.
Licensing
Licensing agreements allow
foreign companies to sell or
represent your brands in their
home markets, achieving the
same kind of product
introduction that exporting
provides, but with a different set
of risks.
13
Franchising
Franchising involves the right
to use a business format
usually a brand name in the
overseas market in return for
the franchisor receiving some
form of payment.
WOS
The subsidiary usually operates
independently of its parent
company with its own
management structure, products
and clients rather than as a unit
of the parent.
HOW DOMINOES EXPANDED
GLOBALLY

» Domino's, which was started in the

1960s, expanded in international
markets mainly through its
master franchise model.
» Under this model,
the franchisees were provided with
exclusive rights to operate stores, or to
sub-franchise them in a particular
area.
» Domino’s, like other restaurant
companies, charge a royalty fee for its
franchise. Royalty fees average 3.1% in
international markets, but Domino’s
fee is 5.5%, and it’s charged as a
percentage of sales.
» Domino’s also collects a 6% marketing
and advertising fee based on sales
from domestic franchisees.
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