Which growth strategy is being used when a firm introduces a new product or service to a market segment?

Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.

Different types of diversification strategies

There are several different types of diversification:

• Horizontal diversification is when you acquire or develop new products or services that are complementary to your core business and appeal to your current customers. For example, an ice-cream business adds a new type of confectionary into its product line. You may require new technology, skills or marketing approach to diversify in this way.


• Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. For example, a PC manufacturer starts producing laptops. You may be able to leverage your existing technologies, equipment and marketing to diversify in this way.


• Conglomerate diversification occurs when you add new products or services that are entirely different from and unrelated to your core business. For example, a film studio opening up an entertainment park. The risks are high, as this approach requires you not only to enter a new market, but also to sell to a new consumer base.


• Vertical diversification or integration is when you expand in a backward or forward direction along the production chain of your product. In this approach, you may control more than one stage of the supply chain. For example, a film distributor produces its own content, or a technology manufacturer opens its own retail store.

Deciding how and when to diversify will require:

• detailed market research for the new product or service
• a thorough assessment of customer needs
• a clear product development strategy and market testing
• sales, marketing and supply chain operations able to cope with the added demands

See how to diversify your business.

Advantages and disadvantages of diversification

There are pros and cons to each of the different diversification strategies. A successful diversification can help you:

• increase sales and revenue
• grow market share
• find new revenue streams
• achieve higher margins compared to existing products
• limit the impact of changes in the market

On the other hand, diversification will incur development, sales and marketing costs. It will also require additional skills, management and operational resources. If these demands exceed the potential revenue and profit gains, diversification can put your business at risk. For example:

• diverting funds and resources into diversification may limit potential growth in core areas of your business
• lack of knowledge or expertise in the new industry or markets may lead to costly delays or mistakes
• diversifying too quickly may cause you to lose track or dilute your core products or services
• if you stretch your resources too widely, you may struggle to provide a consistent level of service, which can lead to dissatisfaction and customer losses

In general, diversifying with similar products or services and selling them to a familiar customer base is less risky than some other business growth strategies, such as creating a product for a completely new market. Diversification can be a great way to maintain business stability. It allows you to hedge your bets and, if one of your markets or products fails, you have another to back you up until you recover.

Market Development Strategy Definition

“A market development strategy is a kind of growth strategy that enables companies to bring their current products into the new market.”

A market development strategy is called a business growth strategy which focuses on introducing existing products to new markets. 

A market development strategy supports businesses in a growing period. It recognizes and enhances new sales opportunities for the current range of products in the otherwise untapped markets.

The market plan is a strategic move to develop the current market instead of seeking a new market. 

Bonus: Learn the A-Z Basics of Product Marketing here.

The company searches for new customers to introduce the product to a varied segment of consumers.

Companies do this to diversify and expand sales through a market development strategy. 

The first part of the market development strategy is to perform detailed market research. The motive of the study is:

• To do a segmentation analysis of the current market. 
• To mark out the target segments of the market you want to approach. 

You can decide on a target segment based on the demographic, customer needs, lifestyle, interests, and preferences of the new customers.

Using Chisel, you can circulate customer surveys to find answers to your research questions. Moreover, you can shape your strategy by prioritizing the work items on your roadmap.

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Factors To Consider For Market Development Strategy

You should consider the following specific points while making a market development strategy: 

1. Is the target segment ready for your product? Do they need it? 
2. Is there any segment that you might have ignored?
3. Is the company (or the concerned teams) prepared to undergo the market development process and implement the strategies? 
4. What is the ROI? Is it profitable at the moment to explore the untapped markets?

Importance Of Market Development Strategy

The market development plan is essential for the growth of the business. 

It’s not safe to depend on a niche customer base because it is a total downfall if that slips.

Market development strategy divides and reduces disaster possibilities in many ways.

Market development strategy drives the market development process in a structured way involving risk management and in-depth market research.

Click here to read about Strategic Marketing Management and how it can boost your sales!

Common Market Development Strategies

Geographic expansion

One way to develop your market is to expand it geographically to gain new leads and opportunities.

Research and then reach out to those areas where your product or service has not registered its presence.

If the existing market is in one geographic region, then analyze the needs of another region, measure the risks and enter it.

Pricing

Introduce offers and discounts to attract more customers, specifically those who are not existing users or clients.

Distribution

Create innovative distribution channelsto reach out to the customers.

Attracting competitors’ customers

They are delivering the same product as you are. Hence, to attract their customers to the side, you must provide a better user experience, discounts or lower rates, and better marketing.

Branding

Another way to develop your market is to introduce a new brand for a specific target market.

Product development

Tailor an existing product or introduce a new one for a new market.

What Are the Examples of Market Development Strategy?

Below are a few of the most sought-after ways companies often use to develop their marketing strategies.

Through geographical expansion

The market development strategy is popular among market players. It involves entering the market by increasing the number of outlets where one’s product is sold.

By upselling to existing users

Upselling is the market development strategy of offering additional benefits to existing customers without increasing the price.

By attracting new users

The market development strategy of attracting new users is popular among market players.

It involves gaining market share by increasing the number of people who use a product and assuming that existing customers remain loyal.

By attracting the competitors’ users

The market development strategy of attracting the competitors’ customers is popular among market players. It involves gaining market share by attracting market users who currently buy products from competitors.

Through the expansion of the target market

The market development strategy of targeting customers in new geographical areas or with different needs/wants is popular among market players.

How to Develop a Market Development Strategy?

Here are a few of the core steps which you should follow to develop an efficient market strategy:

Research

Market research is the backbone of development strategy. It’s vital to undergo continuous research to sustain in the competitive market.

Establish growth goals

Companies must ensure that their development strategy achieves market expansion growth goals.

Allocation of resources

Market players must carefully distribute resources as per development strategy.

Marketing plan development

Market players must create a strategy according to market needs.

Product launch

Market players must continually launch market development strategies and products.

Bonus: Check out our detailed guide on how to make a successful Product Launch.

Result analysis

Market players must analyze how effective the market development strategy has proven and accordingly modify plans.

Mistakes To Avoid When Creating Market Development Strategy 

There are a few slip-ups that you should avoid while creating your market development strategy.

They are as follows:

Developing market strategy without proper research

Before developing their strategy, companies should do consumer and market research. If you choose to proceed without adequate research backup, your plan is bound to fail.

Making long and complicated plans

Companies should make market strategies simple, short, and easy to understand. Else it becomes challenging for team members to understand.

Developing plans without thinking about the delivery mechanism of the strategy

Market strategies should be focused on the target audience. You should take changing customer preferences and the latest trends into account. 

Being inflexible to new changes

Strategies should be flexible and be made to adapt to circumstances that are sometimes out of control—for instance, the pandemic.

You may also be interested in:

• What Is Strategic Marketing and Its Process?
• What is Market Penetration Strategy?
• Product Development Strategy: Stages and Types
• How to Create a Customer Facing Roadmap (With Chisel)?
• Customer Feedback Management: Best Practices and Platforms
• Customer Feedback Loop: How to Create & Close it

FAQs

When a company wants to expand its market, to reach new customers of a different region, to attract new customers in the existing market, and to measure the risks and returns involved.

Market development requires capital investment and resources. And, after that, it’s a more extensive process of striving in the new market, so if it doesn’t pay off, it’s a significant loss for the company.

Market penetration is the process of entering an existing market, and it focuses more on selling current products & services in different retail channels, online or geographical locations. While market development creates market opportunity, it focuses on developing new markets by offering new products/services that are not readily available.

Market Development is a process by which marketer initiates & carries out market-oriented projects to create market opportunities. Product development is a step in the product management cycle that includes market research, market forecasting, concept creation, and engineering design.

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