How Do Businesses Grow? Virgin Group
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How do businesses grow?
The objectives, which a company wants to achieve, can be varied. They can range from sales revenue maximization, increasing market share to growth. Growth is one of the most common and sought after corporate objectives because of its relative advantages. This is so because many perks come with the expansion of a business, which appease almost everyone.
When a company grows it achieves economies of scale, it increases its market shares and thus wipes out competition. A company starts making more profits and can use these in constructive ways such as employing specialist workers and improving the variety and quality of products, by delving more into research and development. These are only some of the merits of growth.
The main question that most companies have to tackle is how should this growth take place. Each business wanting to expand has a choice of marketing strategies, which were arranged in a matrix by business writer Igor Ansoff. The matrix plots how safe or risky various marketing objectives are and how they can be used to judge the likelihood of success.
Market penetration is when you sell more amount of the same product in the existing market through better advertising, promotion, packaging etc. For example the increased advertising and better packaging of Shezan fruit juices led to an increase in its market share. This strategy may be appropriate in short-term when the market is static or when the business is waiting to see how situations develop. However, in long-term such tactics are unlikely to be realistic or beneficial. They may reflect a lack of strategic awareness on the part of the management. This strategy carries the least risk of failure and the lowest level of reward.
New Product development is when you make new goods to add to the existing markets. Marketing expenditure will need to be high to establish the new product. However, it will benefit from the existing brand reputation. This happens when a firm is making substantial modifications, additions or changes to its product base, but operates from the security of its established customer base. In R&D industries new product development may be the main direction of strategy because product life cycles are short, and because new products may be a natural spin-off from the R&D process. This can be risky or expensive but can also work profitably, a recent success story involved the Nestle Kit Kat chocolate bar, a new Ðchunky version was a runaway success and was quickly followed by other versions such as the dark chocolate Kit Kat.
Market development is using an existing product to enter a new market, perhaps by finding or suggesting a new use for the product, or repositioning a product, that is changing its image or characteristics so that it appeals to a wider market segment. For example, Haagen Daz recently started selling its range of ice creams in Pakistan. It is an appropriate strategy to pursue when the organizations distinct competence rests with the product rather than the market.
Diversification is the introduction of completely new products into new markets. It can be expensive and dangerous. The risk of entering untried markets can be minimised through good market research but cannot be eliminated altogether. The Virgin group has followed a policy of diversification for a number of years, always seeking to invest profits from existing products in new markets. This has taken the business from records to radio stations, trains to mobile phones, airplanes to internet access.
Most companies have an objective of long-term growth, which is called robust growth. Robust growth is of two types; internal and external.
Internal growth involves the expansion of the expansion of an existing firm. It can be seen as a natural outcome of business success in a system that rewards the successful but punishes the unsuccessful. Organic internal growth is when a business continues making the same product but tries to sell more of it in the in the existing market. Franchising as in the case of Subway Sandwiches can lead to this, and so can market development and market penetration. Innovative internal growth occurs when companies start making more by selling new products. This can be done by new product development, or diversification. Internal growth is a slow process, but it can take place without disturbing the organisational structure. Such growth is easy to manage and absorb.
External growth involves the acquisition of other firms by a merger or takeover The distinction between the two is often blurred but merger implies that a measure of voluntary agreement, and by fusing of the organizations rather than just a change in ownership. Takeover implies that a predator firm swallows up another firm by buying its shares. Usually the company, which is taken over, remains distinct, but now the predator firm enjoys a controlling