Page 314 - DMGT408DMGT203_Marketing Management

Unit 13: Creating Competitive Advantage

Market Expansion Strategy: Market expansion strategy makes sense and can gain substantial Notes
additional volume growth when a mature industry is heterogeneous and fragmented, and some
market segments are not so well developed. The strategy focuses on acquiring new customers in
these underdeveloped or new segments. This strategy suits leaders and also smaller firms
(provided they have resources and competencies to focus on niche segments) in domestic or
foreign markets.

The application of this strategy requires strengthening a firm’s current position in these market
segments and gain experience-curve benefits and operating synergies. This kind of expansion in
a mature industry may not be a viable approach for a leader to increase volume growth because
the larger firms have already gained national market coverage. Small regional firms in domestic
market might consider this alternative of expanding their operations in other regions of national
market to improve share and volume growth. Such a move entails the risk of retaliation from
established competitors, national or geographic. A suitable approach for regional firm is to
acquire smaller businesses in other regions. This can work when, (a) a small, low-profit business
sells its assets at less than cost of capacity involved for the acquiring firm, and (b) the acquiring
firm gains synergies by combining regional operations and committing additional resources
and improves profitability of the acquired business.
Another approach to expand in the domestic market is to develop totally new customers or
application segments.

Example: A hand-made paper business selling its paper in consumer market might
expand in business market. It might expand its distribution to reach other regional segments in
domestic market without making any modifications in the product and no additional expense
on promotion. A watch producing business, distributing through retailers might approach to
chain stores to sell its watches. In certain cases, product modification may be necessary.

Some regional players produce private label brands for large retailers, such as Shoppers’ Stop,
Bata, Amway, and Wal-Mart etc. This is an attractive but somewhat risky option to achieve
volume growth for small firms with relatively weak brands and excess installed capacity. The
risk relates to relying on one or a few private label customers who have high bargaining power
and might switch to other low-cost suppliers. Private label brands typically compete with
low-price and this situation may suit only a low-cost position of the supplier in an industry.

Large firms with leading market shares in mature domestic product-markets have opportunities
for geographic expansion in less developed but accessible foreign markets. Businesses can enter
foreign markets in various ways from as simple as relying on import agents to entering into
joint ventures, or establishing wholly owned subsidiaries. The sequence might involve first
entering a country with a very low level of development, then to a developing country, and
lastly to developed economies. Gradual sequencing might help in reducing risks and costs and
gain marketing experience.

Example: Japanese businesses are viewed as masters of this game plan (Seiko, Citizen,
National, Canon, Suzuki, Toyota, Honda, and others) and have entered large number of
developing and developed markets in the world and have gained substantial market shares.
Many global companies plan their expansion in developing countries as the disposable income
rises. This is particularly important for discretionary products, such as soft drinks, fast foods,
and cosmetics. Coca Cola believes that its future growth would come from countries in Asia,
South America, and Africa.

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