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What is Growth Strategy?
A growth strategy can be defined as a set of actions that are designed to achieve growth in sales, profits, assets, productivity, market share, or a combination of these. This strategy is when you want to grow your sales or product lines, for example.
Growth strategy is also called expansion strategy and is one of the corporate strategies. A successful expansion strategy needs commitment to the right integration of organizational resources, employees’ skills, marketing, leadership, opportunities, and changing external factors.
A firm can grow internally by expanding its operations or it can grow externally through mergers, acquisitions, and strategic alliances.
This strategy is pursued in a competitive and dynamic business environment. Under this, significant growth is made in the product, market, and activities of the organization.
It is regarded as suitable when the products of an organization are in the growth stage of the product life cycle and need some investments to create a position in the market and increase market share.
Types of Growth Strategy/Expansion Strategy
There are a number of strategic options under growth strategy that a firm can adopt to achieve its growth. They are:
Market Penetration
Increasing the market share of an existing product in an existing market in order to safeguard and strengthen market position is referred to as market penetration.
Aggressive marketing strategies like trade negotiations, advertising, price cuts, improved packaging, higher-quality products, and innovation can be used to achieve this.
There are basically three ways a firm can penetrate a market. They are:
- Stimulating customers to increase their current rate of usage.
- Attracting non-users by using promotional incentives, advertising, and pricing up or down.
- Influencing competitor’s customers by brand differentiation and stepping up promotional activities.
Product Development
A product development strategy can be very effective for a firm to achieve growth. This strategy includes the delivery of new, modified, or imitated products.
The new or innovative products are new to the world, the modified products are new to the market, and imitated products are new to the organization. Before developing products conducting a PESTLEG analysis is very crucial as by doing so, you can get information about what products consumers are using and what products they are seeking to use.
Product development entails creating products with novel and distinctive features to boost performance. Core abilities and R&D activities are needed. As a result, it may also be dangerous and unsuccessful. However, it is crucial to an organization’s existence and growth.
Product development strategy is fruitful when a firm has successful products that are in the maturity stage PLC and there is high growth potential in the market.
Market Development
A firm can also increase sales of its existing products by market development strategy. It refers to a firm’s entry into a new market with existing products. This is done when there are no further growth opportunities in the existing market or sometimes the firm has excess production capacity.
Through this strategy, an organization can capture a larger share of an existing market for the current products through market penetration and develop new markets for current products.
Market development strategy can be suitable for the organization that has the capacity to create new usage of existing products and organization is highly proactive in understanding new market needs.
Diversification
A diversification strategy can be defined as the decision to enter in a new product or market. When opportunities for growth have been depleted in the original business this strategy is followed.
Under diversification strategy, two strategies are used,
Concentric or Related Diversification – It refers to diversifying into an industry related to the current one. Under this, also vertical and horizontal integration are used. This can be beneficial to a firm when it has a strong competitive position.
Conglomerate (Unrelated) Diversification – It refers to diversifying into an industry that is unrelated to the current one. When the current industry becomes unattractive this diversification is pursued.
How To Implement Growth Strategy?
Implementing growth strategy: it is obvious that growth is necessary for an organization to achieve a competitive advantage and sustain itself in long run, but it is not so easy.
It requires overall commitment from the organization inside and matching it with external ones. There are different ways of effectively implementing growth strategies. They are:
Internal Development
Strategies are created under internal development by enhancing and expanding an organization’s existing capabilities. For a strategy to succeed, internal strategic factors are formed.
Since it includes enhancing an organization’s internal resources and competencies, it is also known as organic development. Following are the ways for internal development.
- Product development
- Market development
- Competence building through learning
- Cost spread
Internal development is appropriate for small companies which may not have the resources available for major investment. This strategy is also pursued to expand the market by using core competency. It also helps to remove behavioral and cultural problems which are likely to arise through M&A.
Merger and Acquisition (M&A)
An acquisition is a strategy in which one firm buys a controlling or 100 percent interest in another firm. The aim is to make the acquired firm a subsidiary business within its portfolio.
And, a merger is a strategy through which two firms agree to integrate their operations on a relatively co-equal basis. Here, one organization merges with another.
Joint Development and Strategic Alliance
A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage. A cooperative strategy is a strategy in which firms work together to achieve a shared objective.
Under it, a company attempts to get a competitive advantage in cooperation with other firms. The main aim of joint development and strategic alliance is to build and share competencies for mutual benefits.
Innovation
In a rapidly changing and turbulent business world, the long-term survival and growth of firms are assured only when they possess the capability for continuous renewal via innovation and development of new business.
Innovation is the process of translating a new idea into new products or services that have the capacity to create customer value. Innovation is required to produce new products than competitors which then derive unique customer value.
Reasons for Adopting Growth Strategy
Why do organizations adopt growth strategies? It is true that after all, every organization wants growth in terms of market share, product, customer value, profits, sales, etc. There can be a number of reasons for adopting growth strategies by different firms. Some of them can be written down below.
- When a firm wants to see growth in its sales, profits, assets, market share, customer satisfaction, etc.
- When a firm has the capacity to enter a new market and capitalize on it.
- When a firm has enough resources to develop new products.
- When a firm’s product is in the growth stage and requires some investment to reach maturity level.
- When a firm sees opportunities in the external environment.
- When there is a dynamic and competitive environment.
- To increase productivity and efficiency.
Advantages and Disadvantages of Growth Strategy
Some notable advantages and disadvantages of the growth/expansion strategy can be written down below.
Advantages:
- The market power of the organization increases due to the growth of products and the market.
- This strategy is more suitable when the environment is highly competitive and dynamic.
- It provides psychological satisfaction to the strategists due to product and market expansion.
- It ensures strategic advantage to the organization through high production and long experience.
- It also helps organizations to enhance productivity and efficiency.
Disadvantages:
- Since the organization focuses on new products and markets, it may lose the existing market share.
- The existing resources and capabilities may not be enough to meet the growing requirement.
- In the absence of knowledge of the market, an expansion strategy may be risky.
- The growth strategy is costly as compared to the stability strategy.