Summary: Market expansion is a strategy where businesses grow by entering new markets or reaching new customer segments. Learn how it works, why it matters, and the best ways to approach it for long-term success.
Market expansion is the act of increasing a business’s interaction with customers with the goal of increasing revenue. Companies expand their markets by increasing production or services, improving distribution, getting their products to new users, or finding new uses for their products and services. They often also expand across geographical boundaries. Companies expand externally to maximize their profits while minimizing their risks.
Market expansion may also be called business expansion or market development. It is normally driven by a market expansion strategy that can help it maximize its success.
Benefits of Market Expansion
A new business needs to enter the market and grow its market share from zero to something significant. Established businesses may find that they stop growing in their current markets or even start to lose market share to competitors, so they expand their markets as a way to grow revenues again.
The benefits of market expansion can include:
- Building the brand: When a company moves into new markets, it can increase awareness of its brand not only in those new markets but also in its existing market segments by making itself more visible.
- Producing at scale: When a company moves into new markets or expands its production capacity, it can benefit from buying inputs at a greater volume for a lower price. It may also be able to increase its production efficiency. Combined, this can lower production costs and increase profit margins or provide customers with lower prices.
- Reducing risk through diversification: Moving into new markets or new segments builds a diversified customer base that can help reduce a company’s level of risk.
- Building resources: When a company expands into new markets, it can gain access to new technologies, skills, and collaborations. These new factors can help the company improve and develop in ways it likely couldn’t without the expansion.
- Increased revenue and market share: The fundamental goal of most market expansion strategies is to reach more customers and therefore increase profits. When companies build their market share, they can also gain strength and potentially outcompete their competitors.
Means of Market Expansion
There are multiple ways that companies can increase their interactions with their current markets or expand into new ones. Some of the most common strategies include:
Geographical Expansion
One of the most common ways that companies perform market expansion is by moving into new territories that can include regional markets in their own country or overseas markets.
Moving into new markets like this requires a big commitment to open new branches and build distribution networks. However, these previously untapped markets can offer the largest number of potential customers to a business that may have already stopped growing in its current market.
An example of geographical expansion is furniture giant IKEA setting up new stores in Asia away from its established European base.
Product or Service Variation
Instead of simply moving to sell its current product line or provide its current services in a new area, a company can diversify by developing new products and services. These may resonate with different segments of the same markets that the company is already involved in.
A company may aim products at different demographics to help increase its market share. An example is a clothing company like Gap expanding its product lines from adult clothes into its Baby Gap and GapKids lines.
Product variation may not include any real changes to products and services, but could involve perceived changes powered by marketing. Customers can be encouraged to use a product or service in a different way.
An example is the product duct tape, which was originally used for highly specific sealing applications. By promoting its use as a fix-all product, producers were able to greatly expand their markets without actually having to change the product.
Distribution and Retail Channel Development
A product can be kept the same and be sold in the same market with greater success if it is well distributed and widely available.
Companies can improve their distribution networks by building partnerships with popular retailers and by making use of online retail channels. They can also develop more efficient and effective distribution systems to get their products to market more effectively.
By reaching all parts of a regional market and keeping their products available and always on the shelves, a business can increase the likelihood that its product will be selected by consumers over the competition.
Acquisitions
When one company takes over another, it immediately expands its market share and customer base. It may also gain access to technology or worker skills that can help it improve the quality of its products and services or provide them in wider geographical areas.
This is one reason why mergers and acquisitions are commonly included in market expansion strategies.
Building Brand Loyalty
Often, it’s not the product or service that concerns customers most, but the brand itself. Think of a plain cotton t-shirt compared to an almost identical product stamped with a Supreme logo.
Companies can increase the loyalty of their customers by building their brands in numerous ways to expand their market share. They can try to create a buzz about their brand or build a reputation for quality, longevity, or even great customer service.
Customers will be more inclined to choose this brand when they select products and services, and that can increase the company’s revenue.
How to Expand the Market for Your Business
Every business is different, and market expansion can take many different forms. However, all businesses can benefit from building and following a market expansion strategy that follows these main steps:
- Define your expansion goal: Start with a goal for your expansion, normally expressed in terms of increased revenue over a set period. Make sure this goal is well-defined, realistic, and measurable.
- Research expansion options: Consider the different methods for expansion available to your business, like product diversification or geographical expansion, and determine which ones a possible and practical.
You would normally want to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis of each method to determine which ones can provide you with the greatest rewards with the fewest risks. Part of your analysis should include performing market research to determine which markets or market segments you might be able to expand in successfully. - Select your market expansion methods and develop a strategy: Select one or several methods that you’re confident will increase your market share or help you tap new markets. With the methods in place, start developing a strategy to outline how you’ll accomplish your expansion. This strategy should include practical steps, a budget to support your actions, and KPIs (key performance indicators) that will allow you to measure your progress.
- Enact your strategy and measure your progress: Start working through your expansion strategy according to the steps you’ve outlined. Measure your progress often based on your KPIs by collecting internal data like sales figures and external data with a focus on customer feedback. Be prepared to pivot and re-work your strategy if you’re not getting the results you predicted, so that you don’t go too far into a plan that may be flawed.
Market Expansion for Increased Profits
Market expansion involves finding ways to interact with and ultimately sell to more customers. This can include moving into new geographical areas, diversifying your product and service offerings, improving your distribution, and other methods.
By creating a solid strategy based on market research and your company’s internal data, you can find ways to sell more to more customers, thus increasing the revenue of your business and building a stronger market position.
Frequently Asked Questions
If you decide to expand into a new market, you’ll likely need to make a considerable investment to do so. This can include marketing, building distribution networks, and even setting up branches in new areas. All of this represents a financial risk because you’ll need to make this investment without knowing for sure if your expansion will be successful. Other risk factors include cultural differences, infrastructure challenges, legal restrictions, and labor and raw material availability in the new territory you’re expanding into.
Market extension is when companies in the same or similar industries merge to create a larger business with a greater market reach. Market extension is therefore one specific form of market extension. These mergers can help the resulting companies benefit from economies of scale and potentially increase their profitability as well as their market share.
Authors:
Charlotte is an Human Resources Information Systems and Martech expect, Charlotte has worked for major brands in the industry including FactorialHR and Tooltester. Originally from Manchester, UK, with a Bachelor's degree from the Manchester Metropolitan University, Charlotte currently lives in Barcelona, Spain.