Diversification: The Final Growth Strategy

The final Product-Market Growth strategy we will be covering is diversification. This strategy is implemented by positioning a new product or service into a new market.

When businesses diversify, they often do so in fields that are at least marginally related to their original domain. However, they may occasionally shift into completely unrelated fields. You may wish to consider this implementation if your current target markets are getting saturated.  

Diversification will offer your business a means to grow into other fields, which helps to generate more revenue, as well as offering protection against economic downturns, since your assets will be spread across different fields.

This is not without its downsides, however. Since your business is operating in a completely new field, you may not have the experience necessary to properly succeed in that field. Therefore, it is advisable that you performs a risk-benefit analysis before diverging into a new field, as well as taking into account the viability of diversifying.  This often leads people to consider diversification as the growth strategy with the highest risk.

So consider whether or not diversifying is the best direction to take your business, and check back soon for more updates!

Interview with a Successful Business Owner

Today we will be deviating from Ansoff's growth strategies. Instead, I will be posting the transcript of an interview I conducted with a successful small business owner. His name is Mr. Nita Singh, and he has been in the hotel industry for over a decade, and has operated other businesses for years before that. I hope you can find his advice to be helpful in the operation of your business.

Me: Mr. Singh, thank you for providing me the privilege of interviewing you.

Mr. Singh: It is my pleasure.

Me: So before we begin, can you please provide us a with a brief background of yourself?

Mr. Singh: Sure. I immigrated from India to the United States in the mid-90's. I worked in various jobs until I purchased a small convenience store in Southern California in 1998. After selling that store, I got into the hotel business, when I moved to northern Arizona in 2002, and bought a hotel there. Since then, I have owned and operated multiple hotels, and I continue to live in Arizona.

Me: Thanks for informing us about yourself. Since you are very experienced with small businesses, I feel that people who are new to the world of small businesses will appreciate any advice you can provide them. How would you say small business owners can become very successful through their business?

Mr. Singh: I would suggest not to be afraid of risks. It is important to note that when taking business risks, you must take calculated risks. What I mean by calculated risks are not just taking any risk, but instead analyzing the risk and its potential benefits, and determining whether taking that risk is a smart business decision. Taking an unwise risk can lead a business to failure, a common occurrence with small businesses.

Me: Since we are on the subject of business failure, what can you recommend to help prevent failure of a business?

Mr. Singh: Business failure is often caused by a lack of sales, or subpar revenue. One of the most important things to keep in mind to prevent a business from failing is to make sure that the customer base of the business is solid. There should be little risk of this customer base leaving your business, as in the end, this is what fills your wallet. You must do whatever it takes to please your customers, so that they remain your customers. This is something I make sure to advocate very much among the staff in my hotels. Providing excellent customer service is not easy, but it is something that you must do.

Me: Do you have any other thoughts or advice for small business owners?

Mr. Singh: One final thing that I would say is important is not becoming too emotionally attached to your business. You aren't married to your business, so emotion shouldn't be a factor when making decisions or running your business. Often, since people have so much personal stake in their business, they let emotions dictate their decisions, such as the question of whether or not to bail out of the business. Emotions are something to avoid, as they can cloud the reasoning that is necessary in making smart business decisions.

Me: Thanks for providing your input, Mr. Singh, your advice will definitely be appreciated. It was a pleasure interviewing you today.

Mr: Singh: Thanks for interviewing me, and I hope many other business owners can make good use of this.

Hopefully this can give you a better understanding of how you can be successful with your small business. Remember to visit more often for more updates!

Market Development

We are back on our series of Ansoff's Product Market Growth Strategies. The next strategy I will be discussing market development, another of Ansoff's growth strategies. This is achieved by transferring an existing product into new markets in order to generate more sales. The market development strategy attempts to sell your product or service in new markets, often in new geographic locations, but this can also be accomplished by targeting a different demographic market in the same physical location. The benefits of this strategy are realized through the use of the existing products. As the product already exists, your business does not need to invest heavily in the development of a new product for the market. All that is required is the transfer of the product into the new environment, which cuts the costs of growth. Additionally, your business is already familiar with the existing product, so its positioning in a new market is simplified. This is a medium-risk strategy, as the new market may be unfamiliar; however the product is well-known by you and your business. This strategy is one of the more common strategies for businesses that are attempting to expand.

In order to show the effects of market development, we will be looking at a case study of Wal-Mart, and its global expansion strategy. Part of Wal-Mart's success as one of the world's largest retailers can be attributed to its utilization of market development to increase revenue. Wal-Mart began expanding outside of the United States in an attempt to take advantage of new markets, instead of futilely attempting to grow in a saturated market. One of Wal-Mart's early international expansions occurred in 1994, when it acquired stores from Woolco, which became the basis for its presence in Canada. It later expanded into the United Kingdom in 1999 with the acquisition of British retail chain ASDA, and various other nations since then. However, Wal-Mart's global expansion was not without its pitfalls. Its attempt to enter the German market was ultimately unsuccessful, as it incurred losses nearly every year that it performed business in Germany. Thus, it is apparent that Wal-Mart's expansion strategy was successful and unsuccessful, in different respects.

Wal-Mart's initial expansion into Canada came about through its acquisition of 122 Woolco stores that were to be rebranded into Wal-Mart stores. As a result of this expansion into Canada, Wal-Mart saw in increase in its annual revenue from $67.3 billion in 1994 to $82.5 billion in 1995. This was a remarkable increase of 22%. Although some of the revenue increase can be attributed to growth within the United States, a majority of this growth was from Wal-Mart's new stores in Canada, as existing stores' growth was only about 7%. Thus, Wal-Mart's expansion into Canada can be viewed as a successful business decision.

Wal-Mart's purchase of the ASDA chain in 1999 marked its entrance into the United Kingdom. The deal was valued at £6.7 billion, or $10.6 billion. This expansion into the UK marked an increase in revenue from $137.6 billion to $165 billion. This increase in income of nearly 20% can partially be attributed to Wal-Mart's acquisition of ASDA. Wal-Mart's acquisition of ASDA proved valuable not only financially, but also through providing experience that Wal-Mart could later use if it decides to expand further into Europe. Therefore, Wal-Mart's acquisition of ASDA was also a well-executed decision.

Germany marked Wal-Mart's first venture into Europe. Although entering the German market seemed like a good decision at the time, Wal-Mart later came to regret this decision. Wal-Mart had consistently lost money during its presence in Germany. In 2003, the retailer lost 487 million euro, or about $653 million due to its German division. The company lost $127.5 million in Germany in 2005. This is often accredited to the differences in German and American cultures. German people were not accustomed to Wal-Mart's system of keeping low prices, causing many to avoid the stores. This led Wal-Mart selling the stores to a German retailer in 2006, at a loss of $1 billion. The financial drain that the expansion into Germany placed on Wal-Mart demonstrates that expanding into new markets is not always the best way of expanding a company.

We can see that there are positives and negatives to using the market development strategy. It is important to have a good knowledge of the market you are attempting to enter, so you can determine whether or not it would be a good business decision to expand into this market. So use this strategy with caution, but if used properly, it can provide great success for your business. Keep visiting for more updates!

Small Business Administration

Today I will be briefly discussing a powerful resource that is available to small business owners: the Small Business Administration (SBA).

The SBA is an organization run by the United States government to assist small business owners in many ways. It provides valuable information and knowledge to owners. Additionally, the SBA can assist business owners financially, through SBA loans. SBA loans are subsidized loans provided to entrepreneurs who need assistance in funding their business. Learn more at the SBA website, a link is attached below, and check back for more updates!

http://www.sba.gov/category/navigation-structure/starting-managing-business

Product Development

 The next growth strategy we will be going over is product development. This strategy focuses on creating and positioning new products into a market that is already occupied by your business. New products are introduced into markets when you determine that the new product may offer advantages over existing products in the market. You must determine whether the new product will offer sufficient advantages over existing products in order to become successful in the market. This strategy offers benefits to the business in the form of familiarity: you and your business are already familiar with the market. This familiarity with the market enables you to properly position a new product in order to achieve maximum success. This strategy is considered to have medium risk, since your business is already familiar with the market, but is handling a new, unfamiliar product. You can take advantage of this strategy to increase revenue in markets in which they are already established.

We will look at how product development helped Netflix become one of the largest players in the movie distribution market. Product development was the strategy that Netflix employed when it began its popular movie streaming service. The company originally began as an online, mail-order DVD rental company. The company decided to create a new product, online movie streaming, and market it to its current DVD rental customers in 2007. Netflix's use of a new business model that focused on online streaming enabled it to quickly become one of the top companies on the movie distribution business.

Netflix released its new streaming product in 2007: a prime example of the product development strategy. The implementation of this new product played a major role in the company's success. It caused a sharp increase Netflix's annual revenue, from $997 million in 2006 to $1.2 billion in 2007 (Netflix Annual Report 2008). This was a growth of nearly 20% in the first year the product was implemented. There was an additional increase of 14% in revenue from $1.2 billion in 2007 to $1.36 billion in 2008. The implementation of the product development growth strategy proved quite valuable to Netflix, and contributed heavily to its success in a constantly evolving market.

You can implement in on a smaller scale, in order to attempt to achieve good growth within your business. In the next installment, we will go over how positioning an existing product into a new market can be used for success. Check back soon for this, and many more updates!

Market Penetration

Today I will begin a 4-part series on Ansoff's Product Market growth strategies, starting with Market Penetration. This strategy is used when a business attempts to increase the sales of an existing product or service to a market that it already caters to. This is often accomplished through the use of promotional techniques to drive the increase in sales.

The advantages of this technique are quite easily apparent. Since market penetration utilizes existing products in existing markets, it often requires the least investment from your business. Your business is also familiar with both the market and the product, which is beneficial to you, as you will be better able to determine how to undertake this strategy in order to succeed. It is considered the least risky of Ansoff's strategies, because it does not rely upon the uncertainty of new products or new markets. For these reasons, this is one of the first strategies that you can take into consideration when looking to expand.

By looking at a case study of Domino's Pizza, we can see a real-life implementation of this strategy, and just how successful it can be. Bear, in mind Domino's is a multi-billion dollar corporation, but the same strategies can be applied to your business.

Domino's Pizza, Inc. used this strategy in late 2009. Although Domino's already had a major share of the pizza sales and delivery market, they strove to increase their sales further by revamping their pizza recipe. This is clear demonstration of the market penetration technique, as Domino's is targeting an already utilized market with a similar product. Although the result is a completely different style of pizza, the product is still the same at its core: pizza. This overhaul of their recipe was coupled with a new promotional campaign in order to drive up sales. Their promotion focused on flaws of older recipes that were indicated by previous customers. In their advertisements, Domino's targeted dissatisfied customers, and promoted their new pizza recipe, which was designed to remedy the flaws that were inherent in the old recipe (Domino's Investor Relations). These advertisements played a major role in Domino's revenue increase.

This new promotional campaign was implemented in December of 2009. The results of this campaign became apparent in the 2010 fiscal year. Domino's total revenue for 2009 was 1.404 billion U.S. dollars. In 2010, Domino's revenue saw an increase to approximately 1.571 billion dollars. There was an increase of nearly 12%. The net income of the company rose from $79.7 million dollars in 2009 to $87.9 million dollars in 2010. (Domino's Annual Report 2010) The net income showed a jump of nearly 10%. These increases can mainly be attributed to the use of the new marketing campaign, and show how effective this strategy can be.

Hopefully, by reading about this real-life example, you can better understand the strategy and how to implement it so that it is the most effective for your business. Next time, we will go over the market development strategy, so keep stopping by for more updates!

Growth Strategies

Growing your business is a vital part of ensuring its success. By increasing its customer base and revenue, the business is more likely to survive and even thrive. There are many strategies that you can use to increase your business, but a few basic ones were suggested by Igor Ansoff in 1957. In Ansoff's Product-Market Growth Matrix, he shows how using new or existing products and markets in order to grow a business.

Ansoff's Product Market Growth Matrix

As shown in his this chart, there are four main ways to grow a business: Market Penetration, Market Development, Product Development, and Diversification. Over the next few weeks, I will go further in depth into each of these strategies, and how you can implement them in your small business. Check back soon for more updates!

Small Business Success

If you are new to the world of small business, or are considering starting off in the field, you may have asked yourself, "How can I make sure that my business will turn a profit, or even survive?" This is not uncommon, as millions of other entrepreneurs have faced the daunting task of running a small business. Although many start-ups have failed, this should not deter you. What will help you succeed is to create a practical business strategy.

My aim for this blog is to create a valuable resource that will help small business owners in their journey of running a business. I will provide strategies that you can implement in your business, as well as resources you can make take advantage of while running your business. Thanks for joining me, and keep checking back often for updates!