Additional internal Product-Growth Strategies of the firm

Along with developing new products, firms grow by improving existing prod- ucts or services, increasing the market penetration of an existing product or service, or pursuing a product extension strategy.

1. Improving an existing product or Service

A business can often increase its revenue by improving an existing product or service—enhancing quality, making it larger or smaller, making it more convenient to use, improving its durability, or making it more up-to-date. Improving an item means increasing its value and price potential from the cus- tomer’s perspective. For example, smartphone companies routinely increase revenues by coming out with “new” versions of their existing phones.

A mistake many businesses make is not remaining vigilant enough regard- ing opportunities to improve existing products and services. It is typically much less expensive for a firm to modify an existing product or service and extend its life than to develop a new product or service from scratch. For example, many women have set aside the flat irons that they’ve used for years to do their hair and have bought a ceramic flat iron because they’re safer and do a better job. Selling “improved” flat irons is a much less expensive way for curling iron man- ufacturers to grow sales than to develop a completely new product.

2. Increasing the Market penetration of an existing product or Service

A market penetration strategy involves actions taken to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency.3 An increase in a product’s market share is  typically  accomplished  by  increasing  advertising  expenditures,  offering sales promotions, lowering the price, increasing the size of the sales force, or increasing a company’s social media efforts. Consider Proactiv, the skin- care company. Since its inception in 1994, Proactiv has relied on celebrity endorsers to demonstrate and promote its product. Actress Judith Light and actress/singer Vanessa Williams were the firm’s first celebrity endorsers. Over the years, the company has added additional celebrity endorsers to appeal to a broader and more diverse clientele. The additions include actress Jane Seymour, music artists Katy Perry, Jenna Fischer, and Justin Bieber, and tennis player Caroline Wozniacki.4 Dr. Katie Rodan, a cofounder of Proactiv, points to the celebrity endorser program as one of the savviest actions the company has taken to build market share.5

Another example is the prepaid card, like the Starbucks Card, that almost all restaurants and retailers now offer. By making it more convenient for cus- tomers to purchase its products, restaurants and retailers boost their revenues. Prepaid cards also make it easier to give a restaurant’s or retailer’s offering as a gift. Think of how many people buy Target, Macy’s, or Pottery Barn prepaid (gift) cards as birthday or holiday gifts. A benefit to those receiving these cards is the opportunity to use them to buy a product that fulfills a true need.

Increased market penetration can also occur through increased capacity or efficiency, which permits a firm to have a greater volume of product or service to sell. In a manufacturing context, an increase in product capacity can occur by expanding plant and equipment or by outsourcing a portion of the produc- tion process to another company. Outsourcing is work that is done for a com-pany by people other than the company’s full-time employees.6 For example, a firm that previously manufactured and packaged its product may outsource the packaging function to another company and as a result free up factory space to increase production of the basic product. Additionally, a firm might outsource its information technology function to free up resources that could be invested in product development efforts.

3. Extending product lines

A product line extension strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele.7 For example, a company may make another ver- sion of a low-end product that is a little better and then make another version of it that represents the top of the line to appeal to different clientele. This is a strategy that allows a firm to take one product and extend it into several prod- ucts without incurring significant additional development expense. Computer manufacturers provide a good example of how to execute a product line exten- sion strategy. Each manufacturer sells several versions of its desktop and lap- top computers. The different versions of the same computer typically represent good, better, and best alternatives based on processor speed, memory capac- ity, monitor size, graphic capabilities, and other features. In regard to making related products to sell to the same clientele, many firms start by offering one product or service and then expand into related areas.

Firms also pursue product extension strategies as a way of leveraging their core competencies into related areas. For example, Zipcar, the popular car sharing service, has applied the expertise it developed through its con- sumer car sharing service to launch Zipcar for business, an initiative that allows businesses to use Zipcar’s services in the same way that individuals do. Similarly, it recently launched FastFleet, a service to help cities more ef- ficiently use cars in their fleet. An account of the history of Oracle, a computer database software company, provides a particularly interesting example of the potential payoff of a product extension strategy. The example demonstrates that product extension strategies can take time and patience to pay off but can lead to breakthrough growth strategies:

As Ellison [Oracle’s CEO] recognized that he had sold a database to almost every one of the biggest companies in the world, he knew he would need new products to sell. That is how he came up with the idea of applications. Oracle applications would sit on top of and use Oracle databases to perform functions such as inven- tory management, personnel record keeping, and sales tracking. The proof of his thinking took almost seven years, but by 1995, the company generated nearly $300 million in license revenues from application products and an additional $400 million in applications-related services.8

4. Geographic expansion

Geographic expansion is another internal growth strategy. Many entrepre- neurial businesses grow by simply expanding from their original location to additional geographic sites. This type of expansion is most common in retail settings. For example, a small business that has a successful retail store in one location may expand by opening a second location in a nearby commu- nity. Gap Inc., Walgreens, and Panera Bread are examples of firms that have grown through geographic expansion. Of course, McDonald’s, which now has over 35,000 worldwide locations, is the classic example of incredibly success- ful growth through geographic expansion. Interestingly, Subway, another firm achieving a significant level of success through geographic expansion, now has more locations worldwide than does McDonald’s. The keys to successful geo- graphic expansion follow:

Perform successfully in the initial location: Additional locations can learn from the initial location’s success.

Establish the legitimacy of the business concept in the expansion locations: For example, a particular type of fitness center may be well ac- cepted in its original location because it has been there a long time and has a loyal clientele. However, potential clientele in a neighboring commu- nity may be completely unfamiliar with its unique products and services.

A common mistake an entrepreneurial venture makes when it expands from one community to another is to assume that if something works in one community, it will automatically work in another.

Don’t isolate the expansion location: Sometimes the employees in an ex- pansion location feel isolated and that they are not receiving adequate train- ing and oversight from the headquarters location. It is a mistake to believe that an expansion location can excel without the same amount of attention and nurturing that it took to build the business in the original location.

Product-related strategies, regardless of the form they take, work best when a company remains vigilant about making sure the product remains in demand and consumer trends aren’t turning against it. A lack of vigilance in this area contributed to the failure of Crumbs Bake Shop, a company that at one time was the most popular cupcake-focused bake shop in the United States. A de- scription of why Crumbs failed, which is an example all entrepreneurial firms can learn from, is provided in the nearby “What Went Wrong?” feature.

Source: Barringer Bruce R, Ireland R Duane (2015), Entrepreneurship: successfully launching new ventures, Pearson; 5th edition.

2 thoughts on “Additional internal Product-Growth Strategies of the firm

  1. zoritoler imol says:

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