Which type of strategy focuses on increasing sales of an existing product to existing customers?

In a now classic Harvard Business Review article, Ansoff (1957) identified four strategies for business growth. These four strategies also identify four basic types of marketing plans and the types of investments and activities associated with each. The strategies are defined by whether the focus is on new or existing products and new or existing markets.

1. Market Penetration Strategy

When a firm focuses on selling its current products to existing customers, it is pursuing a market penetration strategy. The marketing activities that will dominate in this type of marketing plan are those that emphasize increasing the loyalty of existing customers so that they are not vulnerable to loss to competitors, attracting competitors’ customers, increasing the frequency of product use, and converting nonusers into users.

Increasing awareness through marketing communications and increasing availability through expanded distribution are common marketing activities in this type of plan. Identifying new use occasions and new uses for a product may increase usage frequency or convert current nonusers into users. For example, the advertising campaign for orange juice that has the tagline “It’s not just for breakfast anymore” was an effort to expand usage. Price promotions might be used to encourage competitors’ customers to try the firm’s product if there is reason to believe that such a trial will result in repeat purchases. Loyalty programs can be very effective in retaining existing customers. This strategy reduces risk by relying on what the firm already knows well—its existing products and existing customers. It is also a strategy where investments in marketing should pay back more quickly because the firm is building on an existing foundation of customer relationships and product knowledge.

2. Market Development Strategy

The efforts to expand sales by selling current products in new markets are referred to as a market development strategy. Such efforts may involve entering new geographic markets, such as international markets. Creating product awareness and developing distribution channels are key marketing activities. Some product modification may be required to better match the needs of the local market. For example, as fast food restaurants have moved into international markets, they have often changed their menus to better match the food preferences of customers in local markets. Expanding into a new market with an existing product carries some risk because the new market is not well known to the firm and the firm and its products are not well known in the market. The return on marketing investments in such a strategy is likely to be longer than for a market penetration strategy because of the time required to build awareness, distribution, and product trial.

3. Product Development Strategy

Creating new products to sell to existing customers, a product development strategy, is a common marketing strategy among firms that can leverage their relationships with existing customers. For example, American Express has been able to leverage its relationships with its credit card customers to also sell travel-related services. Similarly, cable television companies have expanded their offerings into Internet and telephone services. Research and development activities play a dominant role in this strategy. The time required to develop and test new products may be long, but once a product is developed, creating awareness, interest, and availability should be relatively rapid because the firm already has a relationship with customers. A product development strategy is also riskier than a market penetration strategy because the necessary product may not be possible to develop, at least at a cost acceptable to customers, or the product developed does not match the needs of customers.

4. Diversification Strategy

A diversification strategy involves taking new products into new markets. This is really the creation of a completely new business. This is the riskiest of strategies and the strategy likely to require the most patience in waiting for a return on investment.

Contributed to Branding Strategy Insider by: David Stewart, President’s Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions.

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A company’s market share is the percentage it controls of the total market for its products and services. Market share is an essential metric for businesses because it’s an indicator of a company’s profitability and success. It can signal dominance in an industry and how well a company’s revenue-generating efforts are working to achieve business goals.

Market share can affect operations, pricing of products and services, and, potentially stock market performance. A growing market share corresponds to growing revenue. That, in turn, means a business can scale up its operations and opportunity for greater profitability. To gain market share should be a serious business goal.

There are a number of strategies a company can put to work to increase market share. These include improving innovation, building and solidifying customer loyalty, employing a talented, dedicated workforce, acquiring other companies, deploying effective advertising, and pricing products and services efficiently.

Key Takeaways

• Market share is a company’s total sales in relation to total industry sales for the same period.
• Market share can highlight dominance over competitors.
• Market share helps a company measure the effectiveness of its strategies and strategic execution.
• Gaining market share should be one of management’s primary goals because of its effect on operations and profitability.
• The enormous benefits of market share underscore the importance of the strategies that can increase it.

How Can Companies Increase Market Share?

Understanding the Benefits of Market Share

Market share is calculated by measuring the percentage of sales or percentage of units a company has in the overall market. Using the percentage of sales method, if a company has $1 million in annual sales and the total sales for the year in its industry are $100 million, the company’s market share is 1%. Under the percentage of units method, a company that sells 50,000 units annually in an industry where 5 million units are sold per year also has a market share of 1%.

A higher market share places companies at a competitive advantage:

• Companies with high market share often receive better prices from suppliers, as their larger order volumes increase their buying power.
• Increased market share and greater production go hand-in-hand, with the latter providing a company with the opportunity to decrease the cost to produce an individual unit due to economies of scale.
• Higher market share can help improve sales when existing, brand-loyal customers buy more of a company’s products.
• Market share may also widen a company’s overall customer base as potential new customers follow the lead of existing ones.
• Gaining market share can strengthen and spotlight a company’s reputation. In addition to boosting sales and increasing bargaining power, that can attract new, more talented employees.

Tip

Using sales, the formula to determine market share for a specific period of time is (total company revenue/total market revenue) x 100. Using units sold, the formula is (total number of units sold by company/total number of units sold in the industry)/100.

How to Gain Market Share

The importance of market share lies not simply in maintaining your company’s current share of the market. After all, as the industry grows, a company’s market share must grow as well to stay competitive and profitable. Increasing market share is crucial and involves gaining a bigger share than you have already. That would indicate that your growth is greater than average and you’re outperforming your competition.

Here are some areas a company can focus on to increase market share.

Innovation

Innovation that attracts customers can come in different forms. One is useful, new technology that a company develops, introduces, and continues to improve before competitors gain a foothold. Consumers excited about the technology buy it, use it, and can become repeat customers. Innovative technology can build a company’s customer base with consumers new to the industry as well as consumers who leave another company for it.

A few other ideas for innovating to gain market share can include product innovation, production method improvements, and marketing strategies. The potential for high-value innovation exists throughout a company.

Customer Loyalty

Building and reinforcing relationships with existing customers by cultivating their loyalty is a smart strategy to gain market share. First of all, existing customer loyalty can help prevent customers from leaving a company for others when new products come to market. What’s more, a company can broaden its base with the word-of-mouth marketing so often provided by satisfied, happy customers.

Take advantage of chances to engage with customers who desire a closer connection and to deepen their positive experience. An added benefit is that this organic opportunity to welcome new customers and increase market share often can come without specifically related increases in a company’s marketing costs. Plus, loyal customers can sometimes share ideas for innovations to the products they love.

Skilled Workforce

A company that focuses on attracting and keeping talented employees is focused on increasing its market share. That’s because skilled employees can become dedicated employees. That, in turn, can cut expenses related to hiring and training. Plus, a skilled workforce that excels at its tasks can allow a company to maintain its focus on producing exceptional products and sales. Attracting the best requires competitive salaries and a strong selection of benefits, including options for flexible work schedules and relaxed office settings.

Acquisitions

To win market share and dominate an industry, a company can consider buying its competition. Such a move actually offers multiple strategies to increase market share in one action. With an acquisition, a company takes a competitor out of the market and assumes its market share. It captures its customer loyalty. Moreover, it can put products, services, and other strategic opportunities already developed by its acquisition to work immediately. If a company can’t buy another due to financial constraints, it can consider acquiring key employees to improve its own workforce and for the customer loyalty connected to those employees.

Advertising

Effective, frequent advertising offers a good opportunity to gain market share. Innovative branding and marketing through advertising can garner the attention of consumers, build connections with existing customers, and spur widespread desire for the products and services a company offers. High-impact advertising in different forms can help buyers understand and align with a company. No matter which advertising media is used, it’s wise to maintain continuity across design, voice, and message to ensure a strong, positive, and lasting impression. Companies should also make sure that their advertising actually targets the right market segment for their products and services.

Price Reductions

Lowering prices is a solid strategy to help a company win market share. Lower, more attractive prices can attract consumer attention and loyalty. That can increase the all-important sales that drive market share higher. In addition to decreasing the actual price for products, a company can consider promotions, coupons, bonus items, and other customer benefits. For instance, incentives such as referral programs and free shipping can generate extra interest and added sales.

How Can I Improve My Market Position?

One way a company can increase its market share is by improving the way its target market perceives it. This kind of positioning requires clear, sensible communications that impress upon existing and potential customers the identity, vision, and desirability of a company and its products. In addition, you must separate your company from the competition. As you plan such communications, consider these guidelines:

• Research as much as possible about your target audience so you can understand without a doubt what it wants. The more you know, the better you can reach and deliver exactly the message it desires.
• Establish your company’s credibility so customers know who you are, what you stand for, and that they can trust, not simply your products or services, but your brand.
•  Explain in detail just how your company can better customers’ lives with its unique, high-value offerings. Then, deliver on that promise expertly so that the connection with customers can grow unimpeded and lead to new customers excited to join your base.
• Highlight the advantages that your company offers customers that competitors can’t match. Underscore your expertise in what you do and why that matters.
• Create messaging that is focused, personal to customers, meaningful for those who might become customers, and actionable in a way that can achieve results for both the target audience and company.

How Can I Attract New Customers?

One way to win market share is to win new customers. A company can increase its customer base in a variety of ways. Here are a few to consider:

• Improve marketing communications directed at potential new customers as well as existing customers.
• Refresh contact with customers not heard from lately with warm greetings, special offers, and discounts.
• Introduce existing customers to a referral program with appealing rewards as an incentive for providing the contact information of their friends and families. Or, if a program isn’t possible, ask for referrals from your most satisfied customers.
• Ask your most active customers to serve as brand ambassadors and actively spread the word about your company using their chosen medium.
• Review your website to be sure it has the look, feel, and message you wish to convey. A website review is a great opportunity to explain your company’s mission and goals as well as the goals developed to better the lives of customers and others.
• Monitor sites and platforms that promote business ratings and reviews. Respond to both complaints and compliments sincerely. Make every effort to help those whose posts require action. Consider linking positive reviews to the company site.

How Can I Prevent Loss of Market Share?

To avoid losing its market share, a company should monitor its market share metric, keep an eye on the performance of its competitors, and take steps to improve the aspects of its business that can affect its market share standing. These can include things like product and service quality and pricing, customer satisfaction, the growth of its customer base, marketing, and advertising, the quality of its staff, and the potential for the acquisition of competing companies.

The Bottom Line

Increasing market share can be vitally important to the financial health and continued success of a business. A company has a number of opportunities at hand to, not just maintain, but gain market share. Every company should understand the value a strong market share offers and commit to the ongoing effort that it can take to build it. 

How do you increase sales to existing customers?

What strategies will you use to increase your sales?

Which of the following is a strategy of increasing market share for current products in existing markets?

What type of strategy is growing the business from existing customers?