9. Growth Models Flashcards
“The iPhone for us was a spectacularly pleasant surprise. We had no idea it was going to be as good for us as it tumed out to be”. (p.10)
a) What are the dangers of a start-up to grow too rapidly?
b) Why is continuous innovation important?
(6 and 6) 2011
What are the four dimensions of growth?
- Financial
- increasing what the business owns, assets, capital - Strategic
- resources and capability, competitive advantage - Structural
- internal system - Organisational
- changes in organisation’s culture
- changes in the role of the entrepreneur and the founding team
Internal Growth Strategies
Product-related
- Improve existing product
- extend product lines
- geographic expansion
- increase market penetration with a particular product
- NPD ( a necessity in fast moving, competitive markets such as FMCG)
External Growth Strategies
Exporting
Licensing (granting other companies the use of its patented IP for revenue)
Joint Ventures
Franchising
Globalisation
External: Joint ventures
A joint venture is an entity created when two or more
firms pool a portion of their resources to create a
separate, jointly owned organization.
e.g.
External: Strategic Alliances
Technology alliances - cooperation in development, technology, manufacturing, engineering
Marketing alliances - matching a company with a distribution system that markets its good
e.g. Waitrose had an alliance with the internet grocery retailer Ocado from 2000 up until mid 2011. Ocado would distribute waitrose goods bought online through their website.
External: Liscencing
Technology licensing - use of patented technology
Merchandise and character licensing - use of copyrighted trademarks, brands
Example of internal growth strategy: franchising
- Starbucks announced that it is adopting the franchising model as a growth strategy.
- The first franchised store will open in London in late 2012
- Starbucks currently operates around 700 stores in the UK, so the move towards franchising is unlikely to have a significant effect on their revenues in the UK in the short-term.
- However, the strategy here is really about sustaining a growth rate in revenues, so the firm is looking to squeeze even more locations into the available space.
- The firm also plan to expand in China and hope to have 1500 stores there by 2015
Internal: Market Penetration
- Market penetration seeks to achieve four main objectives:
- Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling
- Secure dominance of growth markets
- Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors
- Increase usage by existing customers – for example by introducing loyalty schemes
A market penetration marketing strategy is very much about “business as usual”. The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs. It is unlikely, therefore, that this strategy will require much investment in new market research.
Growth through M&A
Merger
In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated.
e.g. merger between Spanish Airline Iberia and British Airways to create International Airlines Group completed in January 2011
Acquisition
When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.
e.g. Unilever takeover of Ben and Jerrys
External: Globalisation
Tesco expands to Korea in 2009 as a joint venture with Samsung
