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Tips & Guides — 29 Apr 2022

Guide to Growth Strategy

Types of Growth Strategy

At the heart of successful companies, whether belonging to a new startup or an international brand, is a great growth strategy. While it may sound tedious coming up with yet another strategy when you already have ecommerce marketing strategies, campaigns, and targets, growth goals unite your whole business. A business growth strategy gives your departments a sense of direction and a clear idea of how everything works together to achieve the same aim. 

Business growth strategies can set you apart from competitors, identifying how your business plans to evolve and continue to meet customer needs. Preparing by creating timelines for your business growth initiates processes and conversations to keep your business growing and its plans agile. This means that where customer preferences change, your strategy can adapt and keep up with new trends, staying relevant while retaining and acquiring customers.

What Is a Growth Strategy?

Working out how your business plans to continue to serve its existing customers and attract new customers is essentially devising your growth strategy. This can come in a variety of forms depending on the resources available to your business, your products, and your expertise, alongside your target market and existing customer base demographics. 

Therefore, the type of growth strategy you use will look different from your competitors, bringing prominence to your brand.

Finding something that suits your business should encapsulate your overall business goals, make use of your current products, optimize your marketing budget, and suggest how you intend to go about fulfilling your strategy. 

Having these elements clear makes it easier for your teams and departments to recognize their role in business growth strategies and act on it. Likewise, it ensures your strategy is realistic and achievable, making it more likely to succeed.

Growth Strategy

There are many different types of growth strategies available. However, these tend to fall into two camps – either internal or external growth strategies. This refers to whether your growth strategy is carried out internally within your business, or externally, often requiring the input or resources of other businesses. 

For small business growth, strategies often look internally and need some level of product marketing before organic growth is possible. 

Internal Growth Strategies 

Using the existing resources and people within your business, internal growth strategies assess how growth can be gained to outperform competitors. 

The Ansoff matrix provides some growth strategy examples that identify current products or existing customers to market to. Alternatively, this highlights where new solutions are needed or new customers in target markets could be acquired. Nonetheless, all these strategies come from within the business’s resources.

  1. Product Development Strategy

As startups gain customers and revenue, they often use product development as their primary growth strategy. This uses statistical analysis to develop and produce new products that better serve existing customer needs. Using the existing market, product development increases average order value (AOV) and size by encouraging your customer base to buy more of your products. 

This takes an organic growth approach, retaining current customers and finding repeat business. 

A product development strategy uses your knowledge of your existing market to identify other products that would appeal to your audience with product expansion. This may relate to current products, including new products that complement them or optimization of their processes. 

For example, a small business selling soap might develop new products, such as more scents, gels, or bath bombs, attracting regular customers who buy and enjoy the soap with product expansion. 

Product Development Strategy

   2.Market Development Strategy

Instead of looking towards pushing new products, a market development strategy uses existing products to reach new markets. 

By understanding your customer base and the types of customers who would benefit from your products, you can identify new customer segments or demographics to market to. This widens the reach of your business and is essential to growing your customer base through market expansion, both as new businesses, startups, and larger enterprises.

Partner schemes and influencer marketing campaigns can help with market development, using other businesses and individuals to reach your target market and engage them in your products. 

Likewise, as a local business, market development can involve taking your products and services to new areas, introducing potential customers to your brand. This requires moving away from your usual business marketing to find and target new customers.

   3.Market Penetration Strategy

A market penetration strategy instead works to better market your existing products within existing markets. This may require market research of your customer base demographics, enabling your business to promote products using market segmentation and using CPAPI to communicate this with advertisers. 

Done successfully, you retain your customer base and direct them to buy more of your products, creating engaged and loyal customers.

Market penetration covers most common marketing techniques, from bundling of products together, discounts and sales, even personalized advertising recommendations. These highlight your existing product ranges and incentivizes customers to try them. 

Particularly with personalized suggestions, these show your business actively providing solutions tailored to your customer’s needs. Alternatively, bundling offers draws attention to similar products that customers often use together.

Market Penetration Strategy

   4.Diversification Strategy

The final growth strategy from the Ansoff matrix, diversification, seeks new products and new markets. This can be risky, requiring detailed market research and data interfaces, such as Affise BI, to inform who to target and what products to develop. However, for successful companies, this can prompt organic growth. 

A business might try a diversification strategy due to a gap in the market, appealing to a target market, or regulations requiring new products.

Diversification strategies still relate to the overall brand image of your business, so may lead to products that assist or complement your existing range. However, they attract new customers by serving different needs. For example, a car manufacturer may diversify their products and customer base by launching a new model of electric car. This appeals to a new environmentally conscious customer base using a new product, perhaps instigated due to emission regulations.

   5.Horizontal Growth Strategy

Slightly different from the Ansoff matrix growth strategies, a horizontal strategy focuses on expanding the capability and resources of your business. As an internal strategy, this refers to creating other brands to reach similar customers with market segmentation and solve their problems. Typically, this works for larger businesses that can invest in a new brand image. This manages the competition in specific markets, reducing the intensity and pooling resources.

Horizontal growth can be seen in many widely-known enterprises, which own various smaller businesses to reach the current market. 

This gives the parent company more control over pricing and competition, as well as building a collection of shared equipment, market research, product development, and distribution channels. It also allows for partnership marketing schemes within the company, recommending other brands whilst profiting the parent business.

Horizontal Growth Strategy

   6.Vertical Growth Strategy

For smaller businesses, vertical growth strategies may be the more achievable method of expanding your business. New businesses and startups may need to outsource processes in the creating and selling of your products, particularly when managing high demand. However, for successful companies, vertical strategies take on these stages using your company resources, relying on organic growth. This comes in two variations of growth strategy. Let’s take a look.

   a. Backward Growth

When using vertical growth strategies, backward options focus on the supplying stages of production. Being able to create and source your materials for products reduces business costs in hiring suppliers. Supplying your materials can also make inventory management easier, reducing wastage of raw materials and end products. Nonetheless, depending on the materials used in your products, this could present varying levels of difficulty.

This may be carried out through starting farming operations, opening factories to manufacture fabrics, or labs to develop the raw materials needed in your products. In many cases, this gives you more control over the quality of your materials and how they are sourced. Even so, there are legislation and regulations about how materials are made that must be adhered to in your practices and when selling to your current market. 

   b. Forward Growth

On the other side of the coin, forward growth strategies take on distribution challenges rather than using outsourced services. For small businesses, this may be achievable within the local area and expand as your business has more ability to distribute further. This again seeks to reduce the costs of outsourced work to reduce company spending, as well as gain more control over where exactly products are sold and for how much. 

Vertical Growth Strategy
Vertical Growth Strategy.

Options for forward growth are available both online and offline, from opening physical stores to ecommerce sites. These give your business more influence on the customer experience with your brand and products, viewing them within a space you have curated. Similarly, it enables better customer support by allowing your representatives to be on hand to potential customers, boosting CSAT scores, and driving organic growth over product marketing.

External Growth Strategies

In contrast, seeking resources and capabilities from other businesses to boost your revenue is what external growth strategies do. These growth strategy examples can seem easier, as they require less investment and effort from your business, generally achieving results quicker than internal strategies. However, it doesn’t always create organic growth, while still requires negotiation and teamwork with other companies, as well as a joint desire for growth.

Acquisition Strategy

One way to manage competition and market expansion with your business is by acquiring other businesses. Your business does need the finance to seek growth in this way, alongside committing to the onboarding process and additional management work needed. 

Nonetheless, it reduces the competition in your current market by compiling the expertise and tools of both businesses, improving products, and acquiring users from your customer base.

However, an acquisition strategy doesn’t always equate to merging businesses, generally remaining as two separate brands although both are owned by the same people. 

This encourages both businesses to market and sell their current products, although improving their market research and customer metrics by sharing resources. For customers, the full range of products is still available, but more of their purchases profit your business.

External Growth Strategies

Nonetheless, mergers following an acquisition can benefit growth and expansion strategies. By merging with another business, you reduce company costs whilst combining skills and tools to produce quality products. 

Mergers also help with organization, reducing management demands and simplifying your high velocity sales cadence. Again, it reduces competition for potential customers, along with combining existing customer bases for easier market expansion.

Integration Strategy

Similar to internal vertical and horizontal growth strategies, integration strategies also acquire or work with other businesses in specific areas of production, distribution, product marketing, and sales. 

This is more accessible to businesses not ready to create new departments as part of an expansion strategy, instead using resources and expertise from other businesses to promote your products and expand reach. It also creates opportunities for brand collaborations.

   a. Horizontal Integration

Looking externally, horizontal integration seeks other businesses in the same industry or at a similar level to acquire or work with. 

This reduces competition between the businesses, as both work together on product expansion, using referrals or other partnership marketing schemes to reach the current markets of both businesses. Also, it shares market research and development tools, creating more desirable products for your target market using customer metrics.

This is commonly seen with fashion brands, designing clothing ranges in tandem that appeal to both customer bases. 

The businesses then both contribute to product marketing, introducing their existing customers to other brands through the new products and partnership referral schemes. Alternatively, acquisition for horizontal integration still gains the creativity and innovation from both businesses, contributing to the overall profits of the parent company.

Integration Strategy

   b. Vertical Integration

In the context of external growth, vertical integration strategies partner with or acquire other businesses that can provide various stages of production and distribution channels. By integrating vertically, your business reduces outsourcing costs, using the skills of those other businesses for your current products. 

Instead of training your teams to take over those processes within an expansion strategy, you can use existing services to benefit both businesses.

Particularly with social media marketing, this might play out in your business partnering with influencers and initiating marketing partnerships with other agencies to promote your products. 

This increases your sales and customer reach whilst paying influencers and businesses for their referrals. Using the expertise and experience of social media influencers means they effectively appeal to their customer base in a relatable way whilst referring them to your products.

Strategic Partnership

Drawing a clear distinction from other business partnerships, strategic partnerships work specifically with others that have a service or product that can complement your own. 

In some cases, this improves customer experiences, using multiple services or products to meet their needs. Strategic partnerships are another way of initiating market expansion alongside reducing competition, as product marketing in this situation seeks profits for both partners.

These partnerships are seen in brick-and-mortar stores, as well as commonplace in ecommerce settings. For example, physical stores with a branded coffee shop inside partner to attract both potential customers for the store and for the coffee shop. 

However, once inside, customers are exposed to products from both businesses and encouraged to buy a coffee after shopping or vice versa. Similarly, online strategic partnerships cooperatively promote both businesses.

Strategic Partnership

Franchising Strategy

Bringing together many different businesses, from small businesses to larger enterprises, franchising allows the use of products and services within the group. 

These products cover a range of uses, with services assisting at various stages of production and generating distribution channels. Franchising is another method of sharing resources and expertise amongst businesses, reducing individual costs whilst expanding the usage of your products.

SaaS companies can be used within franchising, encouraging businesses to use the service or create app integrations and software optimization to make SaaS options compatible together. 

For example, software tracking customer engagement metrics may be used by the franchise, improving members’ customer segmentation and reach to potential customers. This creates more regular software users, prompting others to recommend it and mention it at their SaaS conference.

Find the Growth Strategy That Suits Your Business

With so many types of growth strategies available, the strategy must fit with your business growth goals and your available resources. As your business growth strategy progresses, different expansion strategy options may be useful. 

However, no two businesses have the same growth journey timelines or strategy to become successful companies. Prioritize your growth and keep checking your strategies are aligned with your goals and target market. 

Whether you opt for internal or external growth strategies, sustainable customer and revenue growth takes time and effort. It’s unlikely that your business will immediately experience this success, but that doesn’t mean your business growth strategy isn’t working to create customer and product expansion. 

If your strategy is in line with the customer base you want to attract and makes use of what your business can offer then, with perseverance, that growth will come. 

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Jessica Day - Senior Director, Marketing Strategy, Dialpad

Written by

Jessica Day is the Senior Director for Marketing Strategy at Dialpad, a modern business communications platform that takes every kind of conversation to the next level—turning conversations into opportunities. Jessica is an expert in collaborating with multifunctional teams to execute and optimize marketing efforts, for both company and client campaigns.

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