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Market penetration, product development, market development, and diversification are growth strategies that help companies increase market share or expand with new products and markets. Stability strategies improve functional performance, while entrenchment strategies help change a negative trajectory.
The world’s most successful businesses follow a strategic roadmap that guides business decisions.
Corporate strategy is the set of goals and principles that determines the overall scope and direction of the business. It includes deciding the product lines, plants, business expansion, etc.
Ultimately, it helps you gain a competitive advantage over other market participants. However, setting the right corporate strategies can be daunting.
This article aims to make strategic planning less daunting. We’ll discuss the different types of corporate-level strategies and how each one works.
At the end of this article, you’ll know how to create and chart your own corporate-level strategy to claim market share and achieve desired business outcomes.
There are four corporate strategy types for business growth:
Growth/ Expansion strategy
Stability strategy
Retrenchment strategy
Combination strategy
1. Growth strategies
Growth corporate-level strategies are also known as expansion strategies. A growth strategy involves major increases in activities within a company’s business definition. That is, growth strategies expand a company’s business operations.
Growth strategy takes several forms, including increasing market share by concentrating on the core business, rolling out new products, or expanding into new markets.
Corporate strategic management has four types of growth strategies, explained by the Ansoff Matrix.
Market penetration
Product development
Market development
Diversification
Market penetration strategy
Market penetration is the number of customers you have in a market compared to the estimated total available market (total number of customers in the market).
Market penetration = (number of customers/ target market size) x 100
For example, consider that the total estimated market for your product/ service is 1 million people, but you’re able to have only 50 thousand among them as customers. Your market penetration is 5%.
It means 95% of the target market (some 950 thousand people) remains untapped. Thus, market penetration can show the potential for future growth in a market.
Market penetration strategy means working to get a higher market share by tapping into existing products in existing markets.
To use market penetration strategies, your company must already exist in the market with a product. The aim of market penetration strategies is to increase sales and your customer base by winning over some (or all, if possible) of your competitors’ customers.
Effective market penetration strategies
Effective market penetration strategies you can use to increase market share and business growth include:
Adjust pricing
Lowering your price could establish you as a budget-friendly brand. Your competitors automatically become more expensive, making some of their customers turn to you.
You may also adopt price adjustments by creating different price levels for your product, such that the product is available at different price points, but higher price levels unlock more features.
Rework your marketing plan
You may start by increasing brand awareness because your consumer base is likelier to grow as more people get familiar with your products/ services.
You may also consider selling your products/ services through multiple distribution channels. Also, offer discounts and other promotional packages.
Update your product
Improving your product/ service (so it addresses customers’ needs better) can be a real game changer. Reach out to customers through surveys to know what they want to see in your products.
This helps you determine the essential features or functions they want but cannot find in other brands. Updating your products with some of these essential functions will win you more customers.
Offer franchise opportunities
Franchising increases your distribution channel, making it an excellent business strategy for growth. In the arrangement, you give an individual or group the right to sell your established products and use your trademarks and proprietary knowledge.
However, to use franchising for business growth, you must be an established brand with products in high demand.
Look for partnership opportunities
Partner with another business in a mutually beneficial way. When two businesses form a partnership, they virtually merge their customers. So, partnering with a business that has a strong presence in the market helps you increase your customer base.
Acquire a competitor
When you acquire, you get the market share of the acquired business to increase your overall market share.
Product development strategy
Another expansion strategy to increase the efforts and bottom line of your business is product development.
Product development strategy is creating new products or enhancing existing products to create new business in an existing market.
Product development goes through many stages, from ideation to commercialization. Specifically, all product development goes through the following stages:
Ideation. The team brainstorms to come up with ideas for a new product.
Idea screening. The product development team screens the idea and selects those with the most potential to do well in the market.
Prototyping. Use the ideas selected to create a prototype of the proposed product. Use the prototype to determine whether the product will function as intended.
Analysis. Test the product out in the market, and analyze possible problems with it.
Product creation. Incorporate feedback from analysis into the prototype and create the finished product.
Marketing testing. Test the product in a focus group to evaluate customer feedback and the effectiveness of its marketing.
Commercialization. Make necessary adjustments based on market testing, then release the product to the wider market.
Effective product development strategies
Some ways to implement product development for business growth include:
Create new products
Create a new product that relates to your market. While the new product should be different from the existing one, it should supplement what the old one does instead of replacing it.
This ensures that the new product does not discourage people from buying your other products.
Increase product value
Including additional value to an existing product will encourage more people to buy the product.
Interestingly, increasing product value is not limited to adding more features. You may add value by adding customer support or offering more quantity of the products.
Create a new version of the product
Make a new version of an existing product with some upgrades. Product updates (based on market information of what customers want to see improved) will encourage people to buy the new version.
Offer a trial
Offering a free or less-expensive version of a product is a good way to get the product to target customers who otherwise may not purchase the full version. After experiencing your product’s quality during the trial, many will proceed to buy the full version.
Offer customization
If possible, allow customers to customize your product to suit their needs. When customers can customize your product to create unique and personal gifts, many of them will prefer your brand over competitors offering only a generic version.
Market development strategy
Market development is a business growth strategy focusing on bringing existing products to new markets.
Market development is about expanding into new markets with the same products/ services you’re already selling. It increases your customer base and bottom line by selling your products/ services in previously unexplored markets.
Every market development strategy involves certain steps. These include:
Research your growth opportunities. When expanding to a new market, start by identifying your target audience in the new market. Then analyze the new market to know your potential competitors and identify opportunities for capturing the market.
Establish your goals. Develop a business-level strategy. Know what you want to achieve by entering the new market. Develop goals for the aspects of your business you want to grow, such as increased sales and net profit, etc.
Allocate resources. Determine the resources you need to achieve your goals (funding, equipment, staff, etc.). Also, identify how you’ll source these resources.
Develop a marketing plan. Entering a new market requires increasing marketing needs as you need to generate brand awareness and generate demand. You should create a plan for how to do this. Marketing channels to consider include email marketing, social media advertisements, radio & TV advertisements, local marketing, etc.
Launch your product. Introduce the product to the new market.
Analyze results. Collect marketing data, and track the product's success in the new market.
Effective market development strategy
Some excellent market development strategies for expanding into new markets with existing products include:
Geographic expansion
This strategy expands your business operations to new territories. It involves offering your products in previously unexplored geographical locations.
For example, consider a business that sells a product only in the United States. It can implement geographic expansion by deciding to start advertising and selling the same product in Canada or Mexico.
With a share of its existing market and the new market, the business will have a larger customer base.
Franchising
In franchising, you give business owners the right to sell franchised products in different markets. So, franchising helps you expand into a new market without high risks.
Diversification strategy
Diversification is a business growth strategy that involves introducing new products to new markets.
Companies diversify to expand into unexplored markets and increase profitability.
The diversification strategy is often used by companies that have established a strong reputation in their existing markets. Their reputation goes ahead of them to bring customers when they enter new markets with a new product.
However, diversification is a high-risk business-level strategy. First, there’re risks associated with developing new products. Secondly, there’re risks associated with entering a new market.
Types of diversification
There are three types of diversification - concentric, horizontal, and conglomerate.
Concentric diversification
Concentric diversification involves bringing new products, which are closely related to existing products, to market. This allows the company to take advantage of existing competencies and resources when developing the new product.
An example of concentric diversification is when a regular car manufacturer produces an electric car.
Horizontal diversification
Horizontal diversification involves bringing a new product (that complements an existing product) to market.
The new product is unrelated to your existing product, but customers use them together. An example is a clothing company launching a footwear line or a washing machine manufacturer launching a detergent.
When products are complimentary, customers who buy one will seek out the other. So, horizontal diversification relies on customer loyalty for existing products transferring to new ones.
Conglomerate diversification
Conglomerate diversification involves entering new markets with products completely unrelated to existing ones. The business, which is then known as a conglomerate, operates multiple business entities in entirely different industries.
An example is a washing machine manufacturer launching a tomato paste product.
2. Stability Strategies
A stability strategy focuses on the existing business and market. It is a business strategy where the company focuses on maintaining a current position that is already working well for it. For this reason, the stability strategy is often called the “status quo strategy.”
Unlike growth corporate level strategies, stability strategies do not have new business development in their focus. The company does not seek to develop new products or enter new markets. Instead, it focuses on serving customers in the same market and with the same products/ services as defined in its business definition.
However, a stability strategy is not a “do-nothing” strategy. It focuses on incremental improvement of functional performance. It seeks business growth but at a slow, sustainable rate.
The different types of stability strategies are pause, no-change, and profit-oriented.
Pause strategy
The pause strategy is a stability strategy that companies adopt after a period of rapid growth.
After investing in growth strategies, the best practice is to have some rest time before pursuing further growth. The purpose of the brief “rest time” is to analyze the situation and act accordingly, consolidating results for increased profitability.
When adopting the pause strategy, you move cautiously by only marginally altering various business units to enhance their functional performance. This may include improving certain technologies, customer functions, etc.
Each business unit you marginally alter experiences cost efficiency and higher productivity.
No change strategy
No change strategy explains itself in its name. It means “not doing anything new but continuing with what is working fine already.”
When taking the no-change stability strategy, the firm is unwilling to try something new that may affect its current position. So, it channels resources into optimizing what it is already doing.
The no-change strategy works when the external business environment is predictable and doesn’t pose any immediate threats. For example, the firm has a relatively good market base and faces little or no competition.
Profit strategy
The profit strategy focuses on generating cash flows while maintaining status-quo (or continue doing what is already working for the company).
Profit-oriented stability strategy is made necessary by an unfavorable external environment. Sometimes a business that is doing fine may have its profitability impacted by elements like government regulations, economic recession, market competition, etc.
The company may decide to counter these effects and maintain profitability without branching into new business activities.
Some profit-oriented stability corporate strategies for business growth include:
Increase productivity
Productivity is producing more goods/ services for the same amount of work. It means increasing output without increasing inputs and incurring costs.
Thus, productivity and profitability are two sides of the same coin. When you increase productivity, you’ll have more products/ services to offer for the same amount of work, leading to increased profitability.
Ways to increase productivity include:
Invest in training programs to improve business operations
Encourage constructive feedback
Recognize and reward exceptional performance
Cut cost
Profit is revenue less costs. So, lowering costs increases profitability. Since growing revenue is relatively more difficult, cutting costs is a faster way to increase profitability.
However, companies seeking cost leadership by taking cost-cutting strategies should ensure it is not at the expense of quality (else, it will be counter-productive).
Ways to cut costs for improved profitability and incremental business growth include:
Streamline the supply chain.
Downsize to a smaller office/ facility.
Reduce less critical professional services.
Reduce production waste.
Eliminate redundant activities.
Trim your labor force and/ or negotiate wage cuts.
Introduce new technology (where the technology will significantly reduce employee costs).
Increase prices
Increasing the price of your products and services increases revenue, leading to better profitability. With a higher price, you’ll generate more total revenue with fewer units sold.
However, before increasing prices as a profit-oriented stability strategy, project the effect of the price change on customer behavior and consider your competitor's price.
A price increase may be counter-productive if the market is very price sensitive or your competitor offers comparable quality at far lower prices. In these situations, a better alternative to increasing prices is seeking cost leadership by maximizing the value of expenditures.
Increase marketing efforts
Marketing creates revenue options for increased profitability. Marketing educates your target audience about your product/ service and highlights its benefits.
People who buy your products have certain expectations. Running advertisements and promotions reinforces those expectations. Your target customers will see the products as the solution to their problems and will be more likely to buy.
Marketing strategies to employ include:
B2B marketing. B2B means Business to Business. It involves selling your goods/ services to an organization.
B2C marketing. B2C means Business to Consumer. It involves selling your goods/ services directly to people (end consumers).
3. Retrenchment Strategies
A retrenchment corporate strategy aims to change a negative trajectory to improve a company’s position.
A retrenchment strategy is a defensive strategy that helps a company stay in business and maintain cash flow by “cutting off” parts weighing it down. Cutting off underperforming parts allows a company to focus on core competencies, giving itself a new chance at corporate success.
Some examples of retrenchment strategies include:
Divestment strategy
Divestment strategy or divestiture means getting rid of aspects of a business by closing them down or selling them off.
One popular reason for letting go of a business unit is poor performance. If a business unit consistently performs below expectations despite all efforts to revive it, you may be better off closing it down or selling it off. This allows you to concentrate on business units that are performing well.
Divestment can also be a strategy to raise funds. Selling off a business unit can give you capital to improve the production of your main products/ services. You may also use such funds to pay off debts and solve insolvency issues.
Divestment strategies streamline your business as it lowers the complexity of the overall business.
Turnaround strategies
As the name suggests, a turnaround strategy involves a complete departure from the previous course of action. It requires doing things differently in an attempt to change the company’s fortune.
Unpleasant business outcomes necessitating turnaround strategies include a bad business decision, company mismanagement, shrinking industry, loss of market share, etc.
Examples of turnaround strategies include:
Mergers and acquisitions
A merger is when two separate entities combine to create a new, joint organization, while an acquisition is when a company takes over another.
In mergers, a new company emerges. But in acquisitions, a new company does not emerge. One company ceases to exist, while the other becomes a bigger company.
However, mergers and acquisitions consolidate a business, increasing efficiency and capability. Mergers and acquisitions increase market share, distribution channels, and more.
Corporate restructuring
Restructuring is the process of reorganizing a business’ resources to make it operate more efficiently.
Restructuring modifies the financial and operational aspects of a company. Thus, companies restructure when facing financial difficulties and need to change strategic direction.
Companies can restructure both through financial and non-financial measures. Financial measures include reorganizing business debts, reducing expenses and labor costs, and boosting productivity. Non-financial measures of restructuring include reorganizing human resources and distribution channels, and improving the client base.
Management change
Retrenchment strategies also include management change, which occurs when an organization changes its top managers' structure, composition, and responsibilities.
It is done to improve a company’s performance, especially when the management is not performing well, or the business is facing financial difficulty.
Management change relies on getting new ideas from the new people placed in leadership positions to help the company regain its competitive advantage.
Personnel cuts/ Lay-offs
Another retrenchment strategy to improve a business’ position is personnel cuts. An organization uses personnel cuts by trimming its workforce to reduce costs during a financial crisis.
Liquidation
Liquidation is the process of “winding up” a business and selling off its assets to pay off its debt and obligation. Liquidation is the last resort retrenchment strategy to close the business.
4. Combination Strategy
As the name suggests, a combination strategy means using a mix of the other corporate strategies (growth, stability, and retrenchment) either simultaneously or sequentially to improve performance.
A company using a combination strategy focuses on its business portfolio and so changes its strategy as it sees fit to enhance value creation. An organization uses a combination strategy if it consciously adopts several strategies for different parts of the business.
For example, a firm may use a retrenchment strategy to close down underperforming product lines while concentrating on its core business and using market development to take the core product to new markets.
Takeaway: Follow a strategic roadmap to grow for business
The most successful businesses follow a strategic roadmap for business success. Corporate strategies give your business direction and help you gain a competitive advantage.
There are four corporate-level strategies - growth, stability, retrenchment, and combination.
Growth strategies (market penetration, product development, market development, and diversification) help companies increase market share, or add products and markets for more profitability.
Stability corporate-level strategies allow incremental improvement of functional performance, while entrenchment strategies help change a negative trajectory to improve a company’s position.
These strategies can improve your capability and drive business growth. But successfully adopting any strategy is a daunting process that involves outlining objectives, defining KPIs for each objective, aligning every person and activity with objectives, taking specific actions, evaluating performance, etc.
Thankfully, the fully-integrated AI strategy software Kippy simplifies these strategic management processes.
Kippy allows organizations to manage their strategy, objectives, KPIs, and projects without stress.
With Kippy, you can define and cascade your strategy to all levels of your organization, use AI to determine the best KPIs for each objective, use appraisal workflows to evaluate performance, and more.
Kippy streamlines strategic management and improves your corporate performance.
Ready to follow a strategic roadmap for business growth? Book a demo and see how Kippy can help.