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!