Market Expansion

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21 Aug, 2024

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Market expansion refers to a business growth strategy where the companies discover new markets for their products or services when there is no further scope for capturing the existing markets. Thus, it allows a firm to explore the new prospects of sales and profitability.

Such a strategy is essential for business growth and sustainability. It aims to increase the company's revenue and profits and gain a competitive advantage by capturing the potential domestic and foreign markets. Moreover, by expanding geographically, the firms can build a diverse team of employees who can add immense value and contribute to the firm's success.

Market Expansion Meaning

Market expansion refers to a well-planned growth strategy businesses adopt to tap the new potential target markets when the existing markets are fully utilized.
Its primary aim is to accelerate the company's sales and profitability by expanding its customer base and making business opportunities available in new locations, sectors, or channels.
Some common market expansion types include merger and acquisition, product, geographical - domestic and international, sector and channel expansion.
It helps companies gain a competitive edge over other players in the industry and enhances brand visibility in the market.

Market Expansion Explained

Market expansion is an indispensable decision in the strategic growth of any business where it plans to widen its customer base, revenue, sales, and profits. Indeed, expanding the markets serves as a milestone for small and medium-sized companies since it can result in cost reduction, resource optimization, risk spreading, and immense business opportunities for small companies. Remember, even giant companies like Walmart, Amazon, and eBay were small enterprises thriving for growth in their initial stage.

All these businesses expanded domestically and overseas to become huge ventures. The market expansion requires investing in intensive planning, research, resources, marketing, and distribution to make the strategy work. Also, it is a long-term approach that necessitates building strong and diverse teams that contribute to the firm's goal attainment. A company that establishes a strong market presence in different locations is always ahead of its competitors with a loyal customer base and diversified workforce.

However, expanding in target markets has potential challenges, including the high investment it requires for setting up infrastructure for expansion. Another issue can be the unfamiliarity with the new target market, which increases the risk of failure due to a shortage of labor, strict government regulations, resource limitations, cultural differences, and poor transportation facilities.

Types

There can be various forms of market expansion strategies depending on the business type, goals, resources, and finances; some of these are discussed below:

Product Expansion: The company can introduce new products or services in new markets to develop an additional stream of revenue.
Merger and Acquisition: The firms often merge with or acquire other companies in their industry (its competitors) to expand their customer base.
Channel Expansion: One of the prominent strategies is to increase the distribution channel by partnering with distributors in the new target market.
Sector Market Expansion: In such an expansion approach, the firm improves its products or services to match the potential customer requirements in the new target sector.
Geographical Market Expansion: A business entity can enter new locations to sell its products or services to a broad new customer base. It can be:
- a) Domestic Market Expansion: The company can make its products or services available at the new locations in its country of origin, I.e., in the villages, cities, or states where it was catering previously.
- b) International Market Expansion: Another way of increasing the geographical reach is through global market expansion, I.e., selling the products or services in the cross-border markets.

Examples

The organizations thrive to grow and sustain, and while their primary aim is maximizing profits, market expansion becomes an inevitable part of their strategic decisions in the long run. Below are some market expansion examples:

Example #1

Suppose XYZ Ltd. is a helmet manufacturing company situated in Tokyo, Japan. It has recently sold in four major cities: Tokyo, Osaka, Kawasaki, and Kyoto. However, it plans a domestic market expansion strategy to capture the customer base in Nagoya, Kobe, and Sapporo to increase its revenue. For this purpose, the company establishes new distribution channels across these regions. After 2 years, when the firm has penetrated the Japanese helmet market, it plans to expand internationally to sell its high-quality helmets in Russia.

Example #2

JPMorgan Chase has market expansion plans to widen its U.S. branch network by adding over 500 new locations by 2027, targeting cities like Boston, Charlotte, and Philadelphia to mark its presence in underrepresented markets. This move comes as some competitors are scaling back their branch operations. JPMorgan’s robust performance in 2023, record profits driven by resilient consumer behavior, and increased interest income are the key motivations behind this expansion.

The new branches will feature dedicated spaces for personalized customer interactions, reflecting the bank’s commitment to fostering strong client relationships. In addition to opening new branches, JPMorgan plans to renovate existing ones and hire 3,500 more employees for its branch network. The bank also intends to restructure some branches obtained through acquiring First Republic Bank, accommodating them to serve affluent clients. This strategic expansion emphasizes JPMorgan’s efforts to enhance its market presence and better serve its customers’ financial needs.

Benefits

A market expansion strategy is a critical decision in the business and requires rigorous planning and research. However, if successful, it has various advantages for the company, as discussed below:

Revenue Growth: When the business expands in new geographical locations, it potentially unlocks new sales opportunities to elevate its revenue and profits.
Diverse Workforce: The global market expansion strategy results in adding new employees to the company who belong to different cultures, backgrounds, and locations, fostering human resource diversity.
Increase in Customer Base: Market expansion aims to acquire new customers in the untapped markets to enhance business sales.
Competitive Edge: Sometimes, companies find immense growth opportunities in fresh markets with little competition; thus, they can gain the first-mover advantage in such potential areas.
Economies of Scale: As firms introduce their products or services in new domestic and international markets, they can achieve scalability in production due to a rise in market demand.
Higher Brand Visibility: A local company can become familiar with a more extensive customer base and empower itself as a global brand through a well-positioned market expansion strategy.

Market Expansion vs Market Penetrations

Market expansion and market penetration are strategies that aim to increase business profitability. However, given below are the clear distinctions between the two to facilitate the management in adopting an appropriate approach:

Basis	Market Expansion	Market Penetration
Definition	It is a strategic approach to exploring and entering new markets when existing ones have no growth potential.	It is a growth strategy emphasizing increasing the existing market's customer base, sales, and revenue.
Purpose	Establishing new markets for existing products or services	Elevating market share
Key Focus	Performing market research, planning marketing strategies, and developing distribution channels	It extensively promotes its products and services in existing markets.
Strategies	Mergers and acquisition, geographical expansion, franchise, product expansion, strategic partnerships	Price reduction, improving product quality, adding new features, aggressive marketing campaigns, or strengthening distribution channels
Risk	It involves a high risk of failure since the firm is entering a new market.	It involves lower risk since the company is aware of the market.
Example	A car manufacturing company based in Dubai expands its market by opening multiple showrooms in Asia.	The same company promotes the new model aggressively through broadcast advertisements, print media, and hoardings in Dubai.

Frequently Asked Questions (FAQs)

What is the product market expansion grid?

An Ansoff product/market expansion grid 2x2 matrix that represents the new and existing markets vertically and existing and new products horizontally. The analysts and management widely employ it to gauge the growth opportunities pertaining to the company's product line and scope for entering new markets.

How to achieve market expansion?

Given below are some of the necessary steps involved in expanding the market:

1. Thoroughly investigate the new market and its business potential;
2. Perform a SWOT analysis to avail the opportunities and mitigate the risks;
3. Do the required financial and predictive analysis to interpret the future possibilities and
4. Weigh the practical aspects like the resources, finances, and existing market opportunities.

When to use market expansion?

Companies employ the market expansion strategy when the potential for growth in sales or customer base in the current markets becomes saturated. Then, to elevate the sales and revenue, the firms identify new markets in search of potential customers.