Just about every business would just love to have more customers. Just how you go about getting them is the million dollar problem. Here's some insight into the two basic ways to build up your customer base.
An expansion strategy seeks to add new markets to a product, service, or company. This could be geographic or demographically based.
When a company decides to launch it's products into a new country - that's an expansion strategy. If you have been selling locally and all of a sudden put your products on the Internet for a global audience, that's also expansion.
Penetration focuses on gaining more share of an already served market. It may involve getting customers to switch from competitors to your product. It may also involve getting non-customers in your target market to become customers.
If you ran a grocery store, getting more people in your town to shop there would require a penetration strategy. If you wanted to sap customers away from a competitor - that would also require a penetration strategy.
Which one is right for me?
Both types of strategies have their strengths and their weaknesses for adding new customers. Ultimately choosing a strategy will require some creative thought and research.
Expansion Strategy Pros:
- You can be the first to offer your product or service in a certain market.
- You may serve a totally unmet need.
- You may bypass a lot of competition by being the only player in a new market.
- You may have to work to mature a market if the product is so new that there's little perceived need.
- You may have to repackage what you do to serve the new market.
- Unpredictability creates risk in entering a new market.
Pros of a penetration strategy:
- Since you're already serving the market you know that market and may use tactics that you're already using.
- Word of mouth works well in penetration strategies because peer groups tend to talk amongst themselves.
- Depending on the competition you may be able to dominate a particular market without the need to expand into other markets
- If there's heavy competition brand loyalty will work against you in converting customers.
- You must make sure that your market is large enough, and has enough money, and a need for what you sell to support a penetration strategy.
- If you penetrate a limited target market you are at risk if buying behavior changes, new competitors enter, or economic conditions change.
Large companies will use a mix of strategies and tactics to maximize their effect. Expand, then penetrate or vice versa. It pays to think about your strategy for adding new customers and then use tactics that support that strategy.
J D Moore - Marketing Comet