Business expansion helps you increase your market share, customer base and profitability. Planning for business expansion provides a roadmap for growth and prevents you from expanding too quickly.
In this article, you’ll learn what business expansion entails and discover strategies you can use to grow your business.
What is business expansion?
Business expansion involves increasing a company’s reach, resources and revenue. The goal is to enlarge the company’s footprint and position it for more success.
Expansion can involve:
Tapping into new markets
Launching new products and services
Branching out geographically
Acquiring other businesses
It could also mean upgrading operations, hiring more team members or diversifying offerings to capture wider audiences.
It’s about creating more avenues for growth and establishing the company as a more prominent player in the industry.
Why does business expansion matter?
Business expansion adds to the long-term vitality and success of companies by:
Increasing revenue and profits. Business expansion lets companies access new markets and customers, driving higher sales volumes.
Diversifying risk. Expanding into new markets or product lines reduces dependency on a single revenue source. Multiple revenue lines mean less impact when market dynamics change.
Enhancing market presence. Operating in multiple regions strengthens brand recognition and solidifies the company’s position as a market leader. The more people recognize your brand, the more desirable it’ll become.
Boosting innovation. Expansion exposes companies to new ideas and technologies, encouraging them to innovate and adapt to market demands.
Achieving economies of scale. Expansion enables businesses to increase production while streamlining operations, reducing costs per unit and improving profitability.
Download Your Sales and Marketing Strategy Guide
9 business expansion strategies
Here are the nine different types of business expansion and how each contributes to a company’s growth:
1. Market penetration
Market penetration involves increasing the sales of existing products in existing markets. The goal is to capture a larger market share with enhanced marketing efforts, sales promotions or competitive pricing strategies. It leads to heightened brand presence and increased sales without new product development.
Example: Brands like Coca-Cola use market penetration strategies like promotional campaigns, price adjustments and sponsorships to encourage beverage consumption in existing markets.
2. Market development
Market development focuses on selling existing products in new markets or to new customer segments. It involves expanding geographically or finding potential customers interested in the company’s products. This strategy opens new recurring revenue streams and reduces reliance on current markets.
Example: Companies like Starbucks expand into international markets by tailoring store ambiance and offerings to match local preferences.
3. Product development
Product development involves creating new products or improving current ones. Companies innovate according to customer feedback, technological improvements and emerging trends. Product development can address unmet needs or enhance features to entice current customers and attract new ones.
Example: Tech companies like Apple use product development to consistently introduce new versions of their products, adding new features to maintain consumer interest.
4. Diversification
Diversification is expanding by launching new products in new markets. It spreads risk across different areas, helping stabilize income. Diversification can turn a company into a flexible industry leader with broad influence.
Example: Disney diversified its offerings by acquiring companies like Marvel and Lucasfilm. It has since entered new markets with movies, merchandise and theme park attractions that are beyond its original focus.
5. Mergers and acquisitions (M&A)
M&A involves a company joining forces with or buying another company. This approach helps businesses enter new markets, access new technologies or gain more customers. Acquiring another company’s assets and know-how means they can expand and strengthen their brand positioning.
Example: When Facebook acquired Instagram, it tapped into the photo-sharing service’s user base and technology to expand its social media influence.
6. Strategic partnerships and alliances
Some companies partner with others to share technologies, products or market access without fully merging. These strategic alliances combine resources and expertise, lowering the risks of going alone. This collaboration leads to shared growth, a more decisive competitive edge and access to more customers.
Example: Spotify partnered with Hulu to offer bundled subscriptions, pooling their resources to provide a combined service that appeals to a broader user base with shared benefits.
7. Franchising
Franchising is when a business lets individuals run brand locations using its business model. The company offers these franchisees support, training and systems in exchange for fees and royalties. This approach helps the brand grow and reach new markets without managing day-to-day operations.
Example: Fast-food companies like McDonald’s expand globally through franchising, allowing operators to run outlets.
8. Licensing
Licensing involves a company letting another business use its products, technology or brand for a fee. This approach helps companies enter new markets with little investment and risk. If done well, licensing can boost brand recognition and create more income without extra operational work.
Example: Nike licenses its brand to third-party manufacturers for clothing, using its widespread brand recognition to generate revenue streams without direct investment in those product lines
9. Vertical integration
Vertical integration involves buying distributors to control more of the supply chain. This strategy helps a company manage supply, cut costs or make deliveries more efficient. Owning more of the supply chain strengthens the company’s position and makes it more competitive.
Example: Tesla acquired battery and solar panel manufacturers, gaining more control over its supply chain, reducing costs and improving efficiency for its vehicle and energy products.
5 business expansion best practices
Here are five best practices to ensure a successful business expansion strategy:
1. Conduct thorough market research
Thorough market research helps you understand consumer behavior, market trends and competition. Depending on your expansion strategy, you must research different areas to guide better decision-making. Here’s what to focus on for each strategy:
Business expansion strategy | Research focuses |
Market penetration |
|
Market development |
|
Product development |
|
Diversification |
|
M&A |
|
Strategic alliances |
|
Franchising |
|
Licensing |
|
Vertical integration |
|
2. Create strategic goals
Strategic goals guide your business expansion efforts, providing a clear roadmap to achieve growth objectives. Actionable goals should be specific, measurable, achievable, relevant and time-bound (SMART).
Here are some example goals for each type of business expansion:
Market penetration. Set a goal to grow your target market share by a certain amount in a year (e.g., by 10%). Use loyalty programs, adjust prices or launch promotions. Track your monthly sales growth and new customer numbers to stay on track.
Market development. Plan to expand into three to five new sales areas in two years. Customize your entry strategies to fit local preferences. Measure success by tracking market entry timelines and customer acquisition rates.
Product development. Plan to launch new products within a set timeline, prioritizing innovation and customer feedback. Set goals like achieving sales targets or getting a certain number of positive reviews in the first six months. Gather and evaluate customer feedback to refine products.
Diversification. Aim to earn 20% of revenue from new business areas within three years. Identify markets that match your strengths and develop suitable business models, then track sales and market acceptance in these new sectors.
Mergers and acquisitions. Target cost savings and revenue increases after merging with a company (say 10% within 12 months). Set metrics to track savings and growth, such as operating expenses, revenue and market share expansion.
Strategic alliances. Set a clear goal to create a new product line by a specific date. Track progress through product development milestones. Monitor shared revenue targets to ensure success and guide organizational strategy adjustments.
Licensing. Aim to earn a specific amount from licensing agreements by the end of the fiscal year. Track the number of new contracts and their financial impact. Measure revenue growth and market reactions to find expansion opportunities.
Vertical integration. Set a goal to cut supply chain costs by 15% in two years by buying essential suppliers or distributors. Track progress by monitoring cost savings, production delays and delivery times.
Note: Create a comprehensive business plan to outline the objectives, strategies and benchmarks for your growth strategy. It will help you monitor progress and make data-driven adjustments, managing resources as you grow.
3. Prioritize financial planning
Strong financial planning ensures resources for new initiatives. It involves forecasting costs and revenues, saving emergency funds and securing reliable funding. Anticipating business needs helps businesses make smarter decisions and avoid overextending themselves.
Here are a few tactics to help manage financial planning during business cycle expansion:
Financial planning tactic | Actionable steps |
Create detailed budgets | Develop comprehensive budgets that outline expected costs and revenues and regularly update them to reflect changes in the business environment |
Develop financial models | Use financial services to project different growth scenarios and assess their impact on your finances |
Set up an emergency fund | Allocate funds equaling three to six months of operating expenses to ensure liquidity during unexpected downturns |
Secure reliable funding sources | Establish relationships with lenders and potential investors so you have access to loans or funds when needed |
Monitor financial metrics | Track financial metrics like cash flow, profit margins and debt levels to stay informed about your financial health |
Adjust financial plans as needed | Pivot financial plans based on performance and market conditions so you remain flexible |
Conduct risk assessments | Conduct risk assessments to identify potential financial threats and develop mitigation strategies |
4. Create scalable infrastructure
Your systems, processes and technology must efficiently handle growth to remove bottlenecks and keep operations running smoothly. A scalable setup supports expansion and allows quick adaptation to market changes.
Here’s how to ensure scalable infrastructure:
Assess current systems. Evaluate your existing systems to find and address inefficiencies or limitations. For instance, if your data management system lacks advanced data analysis software, you should invest in it.
Develop a scalability plan. Create a plan detailing how infrastructure will expand with business growth. If you identify a need for increased production capacity, you could create a phased plan to expand manufacturing facilities as demand grows.
Invest in scalable technology. Use software that grows with your business and reduces the need for frequent upgrades. For example, you could implement a cloud-based CRM provider to accommodate a growing customer base.
Automate repetitive tasks. Use automation tools to handle routine tasks more efficiently, freeing resources for more strategic activities. You could automate email marketing campaigns, allowing your team to focus on other marketing strategies.
Standardize and document your processes. Develop standardized procedures to ensure consistency and simplify training. For instance, if you find that different store locations manage inventory inconsistently, create a universal method.
Build flexible IT infrastructure. Design IT systems that adapt to increased demand or new business processes without significant disruptions. If your servers are nearing capacity, you could invest in cloud services to scale resources quickly.
Optimize supply chain management. Streamline supply chain processes to ensure they can scale smoothly, reducing delays and enhancing performance. If you experience delays, invest in logistics software to reduce lead times.
5. Hire quality leadership and management
Strong leaders help manage expansion challenges and provide direction for growth, ensuring everyone works together toward shared goals.
To hire quality leadership, identify the skills and experience your organization needs to support growth. For example, seek candidates with a proven track record in scaling operations or managing teams.
Conduct interviews that assess strategic thinking, decision-making skills and cultural fit. Incorporate scenario-based questions to evaluate how new employees handle challenges related to expansion.
Finally, consider promoting high-performing internal candidates who understand your company’s culture and goals. Encourage their growth through leadership training programs and mentoring.
Note: Start a development program to identify and train potential leaders in your organization. A management course will create a pipeline of prepared executives who know how to expand your business and are ready to take on new roles as your business grows.
Final thoughts
Business expansion is essential to growth and profitability. It mitigates risks and gives business owners the knowledge to expand effectively.
Pipedrive’s scalable CRM solution streamlines operations, enhances customer relationships and supports growth. Start a free trial today and explore how Pipedrive can help you expand your business.