Part Four

Growth Strategies
2005 John Wiley & Sons

Copyright 2005 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-1

Chapter Thirteen
Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

2005 John Wiley & Sons

PPT 13-2

The risk of a wrong decision is preferable to the terror of indecision.

2005 John Wiley & Sons

- Maimondies

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-3

Drive the business or it will drive thee.

- Benjamin Franklin
2005 John Wiley & Sons Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-4

Alternative Growth Strategies

Present Products I. Growth in existing product markets Increase market share Present Markets
Increase product usage

New Products II. Product Development Add product features, product

refinement Expand the product line Develop a new generation product Develop new products for same market

Increase the frequency used

Increase the quantity used Find new applications for current users

2005 John Wiley & Sons

New Markets

III. Market Development Expand geographically

Target new segments

V. Diversification involving new products and new markets Related

Unrelated

Vertical Integration

IV. Vertical Integration Strategies Forward integration

Backward integration
Figure 13.1
PPT 13-5

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Growth in Existing Product Markets

Increasing Market Share
Deliver solid value to create customer satisfaction and loyalty

Increasing Product Usage (less threatening to competitors)

Provide Reminder Communications e.g., reminder e-mails Position for Regular or Frequent Use e.g., 3 glasses of milk per day; of the Month, checking stocks on Yahoo Make the Use Easier - e.g., microwaveable containers, prepared foods Provide Incentives e.g., Frequency Programs, Value Meals Reduce Undesirable Consequences of Frequent Use e.g., shampoo, low fat, sugar, calorie, sodium foods

2005 John Wiley & Sons

Revitalize the Brand e.g., Abercrombie & Fitch New Applications for Existing Product Users e.g., Arm &
Hammer, Jell-O

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-6

Product Development for the Existing Market

Line Extensions e.g, Yoplait Go-Gurt and Expresse Developing New-Generation Products e.g., Yamaha with Disklavier, Apple with iPod

2005 John Wiley & Sons

Incumbents Curse
1. Even if new technology is successful may be making investment just to maintain same level of sales and profits 2. Need to improve costs, quality, and service for existing offering, which leaves little time to explore new technologies.

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-7

Product Development for the Existing Market

Expand the Product Scope e.g., John Deere with one-stop landscaping
2005 John Wiley & Sons

New Products for the Existing Markets e.g., Lenox jewelry & giftware; Gerber baby clothes, H & R Block legal services

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

PPT 13-8

Product Line Expansions

2005 John Wiley & Sons

Will customers benefit from a systems capability or service convenience made possible by a broad product line? Do potential manufacturing, marketing, or distribution cost efficiencies exist from an expanded product line? Can assets or competencies be applied to a product-line expansion? Does a firm have the needed competencies and resources in R&D, manufacturing, and marketing to add the various products proposed?
PPT 13-9

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Market Development Using Existing Products

Expanding Geographically Expanding into New Market Segments

2005 John Wiley & Sons

Usage e.g., nonusers Distribution Channel e.g., intensify distribution Age e.g., J&J Baby Shampoo Attribute preference e.g., audiophiles Application-defined market e.g., American Airlines with NextJet

Evaluating Market Expansion Alternatives

Is the market attractive? Do the resources and will exist to make the necessary commitment in the face of uncertainties? Can the business be adapted to the new market? Can the assets and competencies that are at the heart of the business success be transferred into the new business environment?
PPT 13-10

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Vertical Integration Strategies

Access to Supply or Demand Access to Supply e.g., raw material, parts Access to Demand e.g., large automakers investing in car rental Control of the Product System e.g., Samsung Entry into a Profitable Business Area Comprehensive services e.g., IBM, GE, tail wags the dog Distributor/Retailer e.g., Avon, Dell, Apple, Krispy Kreme Embedded services e.g., John Deeres GreenStart machinery Integrated solution e.g., Nokia
PPT 13-11

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

2005 John Wiley & Sons

Vertical Integration Strategies

Risks of Managing a Different Business e.g., Pepsico with KFC, Taco Bell, Pizza Hut Reduction in Strategic Flexibility raises exit barriers Alternatives to Integration e.g., long-term contracts, exclusive dealing agreements, joint ventures, strategic alliances, etc.
PPT 13-12

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

2005 John Wiley & Sons

The Impact of Growth Strategies

2005 John Wiley & Sons

Incremental Growth Strategies

New Flavor Reminders to use

Significant Growth Strategies

Enter New Country New generation product

Big Ideas
Disneyland Niketown

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Figure 13.3

PPT 13-13

Key Learnings
The most fruitful growth area is often to increase product usage within the existing product market, where assets and competencies are in place and only need to be leveraged. Growth within a product market can involve adding product features, new-generation products, expansion of the product scope, or new products. Developing new products, a second route to growth, can involve line extensions, expanded product scope, or new generation products.

2005 John Wiley & Sons

A third growth route, market development, involves expanding the market either geographically or by targeting new market segments.
A key consideration of any growth strategy is how to achieve synergy by leveraging current assets and competencies.
PPT 13-14

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

Key Learnings
Vertical integration, another growth direction, can provide access to supply or demand, control of the quality of the product or service, and entry into an attractive business area. It also, however, introduces the risks of managing a very different business and reducing strategy flexibility. Outsourcing rather than vertical integration makes it easier to change strategic direction in response to threats and pressures for the market. Growth can be achieved with incremental growth strategies, significant growth initiatives, or big ideas. All businesses should strive to uncover and implement big ideas, because they are usually the source of breakthrough strategies.
PPT 13-15

Growth Strategies: Penetration, Product-Market Expansion, Vertical Integration, and the Big Idea

2005 John Wiley & Sons