Growth Strategy: Line Expansion

Growth using a line expansion strategy involves developing and offering new or complementary products to your current market. Customers’ needs change over time. The entrepreneur’s understanding of customers’ needs increases with experience. As one entrepreneur stated, “I started out selling my customers what I thought they needed and ended up selling them what they wanted,” which reflects an important skill of successful entrepreneurs—listening and responding to customers.

In addition to listening to current customers, your experience in the marketplace allows you to improve your products or services to satisfy new customers or solve additional customer problems.

Adding a service component to your product may allow you to better satisfy customer needs. Services such as delivery, assembly, installation, or product training provide additional value. A small computer retailer and parts store quickly found themselves in the computer repair business. As a result of the relationship they established with their customers, they were the first place the customer called when something went wrong.

Your search for new and innovative products may lead you to invent something new. A word of caution about inventions: new inventions are often a poor vehicle for business growth because of the high cost of research and development and the extreme difficulty in marketing. For every successful invention, thousands of inventions fail to become a profitable product.

New product offerings do not necessarily need to be products that you develop and manufacture yourself. Buying the licensing (or distribution) rights to a well-known product or service may be a way of offering your current customers something new or expanding into new markets. Licensing offers several advantages. It may give you a unique selling advantage over competitors. In many cases, because of perceived value, you can charge a higher price than for similar unlicensed products.

A good source of licensing ideas are trade shows and association meetings where entrepreneurs can meet distributors and sales representatives to learn about potential licensing opportunities and marketing trends. Colleges and universities, corporations, and nonprofit research institutes are also resources for licensing information.

Offering a new product or service to your existing market takes advantage of the reputation and relationships you have already established. In addition, your experience and knowledge of the target market greatly increases the odds that the new product or service will succeed. Businesses in the growth and maturity stage are apt to consider this strategy.

Line Expansion Opportunities

Answer these questions to help you determine if you need new or complementary products/services to grow or revitalize your offering:

  • Are sales flat or decreasing?
  • Is market share flat or decreasing?
  • Does my customer feedback offer any hints to explain this trend? My employee feedback?
  • What customer requests have I had in the last year or two?
  • What are my competitors offering in these markets?

A Slight Shifting

“As you consider your business’s area of expertise, also consider the most closely aligned variations,” says entrepreneur Rebecca Smith, founder and president of the A.D. Morgan Corporation.

“A ‘slight shifting’ is really a simple concept,” she continues. “For example, the expertise of the A.D. Morgan Corporation is the construction of commercial and public-use facilities. In addition to constructing new facilities, one closely aligned expertise is an understanding of existing facilities designed for expansions and sizable renovations.”

How did this shift help create an opportunity for A.D. Morgan’s diversification? “Very simply,” says Smith. “We identified that we were offering this service to the clients who retained us for the construction of additions and renovations to their facilities. We also identified other commercial and institutional property owners who needed this type of property evaluation to periodically catalogue the status of their investment as well as guide their development of capital improvement budgets for the future.”

Smith points out this “slight shifting” requires very little capital expense. “We utilized our existing expertise and refocused it for a new and diverse client base that otherwise would not be a target market for our mainstream service.”

© 2006 Ewing Marion Kauffman Foundation. All rights reserved.

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