Growth Strategies :

The Composite Model

Dr. Ranjan Madanayake - DBA, CPM, FSPMgt, FSBP, MCInstM, RPM, MMA, MNZIM, MIM (SL), MSLIM, FCPM

Author Strategic Marketing Plan 'The 12 P' Model, Sri Lanka

Author PCM Course Book, Sri Lanka Institute of Marketing

Co-author The Marketing Collectibles, New Zealand & Malaysia

Co-author Marketing Skills in Management, India

Marketing and Management Consultant

Beautiful synchronized music doesn't emanate from a single instrument but a collection of them; wind instruments, percussion, strings are some of them. Business strategies are also similar, like the individual instruments, and when they are brought together, they become robust and create competitive advantage and help achieve business and organisational goals.

Every company would have the desire to grow if there is an opportunity. Depending on a single business unit or fewer products may expose a company to greater risk of competitive pressure. Hence, growth is a desirable endeavour for business or organisational sustenance. Different authors at different times have proposed and published different growth strategies and they are like parts of music or a painting. The attempt of this unique model is to bring them together as a composite model that would provide the total melody or the complete painting.

GROWTH STRATEGIES GRID

The growth strategies composite model that embodies different strategies is as follows:

Intensive Growth
Innovative Growth
Integrative Growth
Diversification Growth

The Growth Strategies Grid / The Composite Model

The many references that are available, points to the above four important strategic directives in determining Growth Strategies for Business Units in large organisations or even smaller ones. Each of the four above is described below.

INTENSIVE GROWTH

This is an ambitious strategy where the company or its business units determine that the way forward to grow is through intensive growth. The components of intensive growth are:

* Market Penetration
*Growing Current Markets
*New Market Development

Market Penetration. As asserted by Igor Ansoff (1957) a company can grow by selling more of its current products to the present markets. This means that the company must sell its present products to more people within that target market. Let us say we are selling Malt biscuits to 27% of teenagers and young adults who are our target market, the attempt must be to enhance that to 30% or 35% as appropriate.

Growing Current Markets. This means making present users to buy more of the present products of the business, which are hitherto not purchased. The SBU that sells a refrigerator can also try to sell a TV or other white goods it has to that same customer if there is a need for such. Similarly, the company that sells a bar of toilet soap can sell its shampoo to the same customer and achieve customer growth. By doing so we have the opportunity to grow current markets.

New Market Development. The SBU can target markets it is not currently supplying, such as a new geographical area within its national boundaries or target markets overseas, outside its national boundaries. In a market extension strategy it can also target market segments or niche markets its currently not supplying. An MNC that marketed a baby shampoo extended it to the dads, implying, 'if it is good for baby it is good for dad as well'; this is a segment extension. Their IMC showed a dad and kid using the same shampoo together.

INTERGRATIVE GROWTH

Sales and profits of a business can be increased through vertical or horizontal integration (Kotler et al 2012).

They are:

*Forward Integration
*Backward Integration
* Horizontal Integration

Forward Integration. The company can take over a function in the value chain that may now be handled by marketing intermediaries, such as distributors, franchisees, wholesalers and retailers etc. Singer in Sri Lanka does not have any intermediaries as was done before, they have their own Showrooms Island wide and market their household and other white goods direct to their customers. This also augurs well to implement and control their installment payment plans.

Backward Integration. On the contrary, company can take over a function in the value chain that is currently handled by a supplier. MAS Group that produces lingerie for Victoria's Secret stopped outsourcing and produces several components required for the end product themselves through their own subsidiaries. The money stays within the Group, brings additional growth and it is an assurance that they can get these important components just in time (JIT).

Horizontal Integration. Acquisitions, Mergers and Strategic Alliances could render growth. Singer in Sri Lanka acquired another famous company, which manufactured a popular brand of refrigerators.

They have now used that competitive advantage to launch additional flanker lines through that acquisition. Many companies in the recent past merged with others to create competitive advantage for themselves and stay ahead of competition. Similarly, companies have negotiated strategic alliances with other companies to strengthen their competitive position.

INNOVATIVE GROWTH

Innovative Growth in an SBU is about how it can develop new initiatives for its current cliental through its current business unit. They are:

* New Product Development and Line Extensions
*Product Improvement or Enhancements
* Re-positioning Existing Products

New Product Development and Line Extensions. Unilever who marketed Fair & Lovely fairness cream for women found an opportunity when their market insights personnel reported that the husbands and brothers of the female users dipping into their Fair & Lovely fairness cream.

They promptly launched Fair and Handsome fairness cream for men. Shampoo comes in 50ml and above PET bottles, but Cavin Kare of India, realizing that the low income consumers would be persuaded to buy if they could market a single use product launched a line extension, the shampoo sachets.

Product Improvement and Enhancements. Nespray 3+, targeting growing up kids over three years has incorporated Fortilearn a unique combination of Prebio 3, Calcium, Iron, Essential Fatty Acids and other nutrients. This improvement and enhancement meets every mother's need of a superior growing-up milk that will support her growing child's nutritional needs.

Re-positioning Existing Products. This can change the destiny of a brand. In Sri Lanka Horlicks Malted Milk was positioned as a convalescent's drink whilst Nestomalt, which was also a malted milk, suffered the same fate. Therefore, Nestle chose to re-position Nestomalt as an energy drink knowing well that it provides high energy and attracted a huge following of customers.

DIVERSIFICATION GROWTH

Diversifying from a company's existing business units to other areas is another option for growth. They are:

* Concentric Diversification
* Horizontal Diversification
* Conglomerate Diversification

Concentric Diversification. The company could setup a business unit to produce new products that apply similar technologies and serve existing markets. A dairy farm that markets sterilized dairy milk can setup a business unit to produce RTD flvoured dairy milk. Vanilla, Chocolate, Strawberry and Mango flavoured milk drinks are popular among the young.

Horizontal Diversification. Here the company will setup a new business unit to produce a technically unrelated product but appeal to the current market. We can take the above example of the company that is producing sterilized dairy milk and RTD flavoured dairy milk drinks and set up a new business unit to produce different varieties cheese such as Cheddar, Slices, Blocks etc., using dairy milk as its main raw material.

Conglomerate Diversification. Here the company can look at a business unit that has no similar technology, product or market and diversify into a totally unrelated business. Taking the same example of the dairy farm, it can setup a good tourist hotel in the vast extent of green fields that cattle graze.

Growth is necessary for a company; therefore, growth strategies are crucial. However, the right growth strategies must be pursued where there is market growth and industry attractiveness.

References:

Igor Ansoff, (1957), http://tutor2u.net/business/images Ansoff%20Matrix%20w500.gif

Kotler, P. Keller, K. L. Koshy, A. Jha, M. (2012) Marketing Management, A South Asian Perspective, 13th ed. Dorling Kindersley, India

Wheelan, T. L. and Hunger, D. J. (2010) Concepts in Strategic Management and Business Policy, 12 ed. Dorling Kindersley, India