What Is Market Expansion? (With Types, Benefits, and Tips)

Updated August 29, 2023

Growing a business through market expansion is the process of carrying out changes that allow companies to increase profits, add jobs, and establish a brand presence. Expanding the marketing strategy is fundamental to any business development plan. If your aim is a career in management, marketing, or business consulting, understanding the different expansion strategies in a dynamic marketplace is essential. In this article, we define business expansion in the marketplace, explore the different types, and detail how to implement an expansion strategy to meet the changing demands of a business.

What is market expansion?

Market expansion is the strategy a business uses to increase its revenue by changing its method of engagement within the marketplace. A company typically works with vendors, manufacturers, warehouse managers, and retailers. It also controls its products' or services' branding and public relation strategy, which are essential components of its marketing structure. Expanding is the process of outward growth that a company pursues with the ultimate goal of increasing profits while minimizing risk.

Types of expansion

There are multiple approaches that a company can take when expanding within a marketplace. Depending on the company's industry and its current situation, it may use a single or a multifaceted approach to expansion. Here are a few ways a company can grow its business in a marketplace:

Product variation

Product variation is a multifaceted way of changing the end-consumer service or product, whether literally or through perception. For example, if a company's product proves successful beyond the purpose it indicates, an advertising campaign that focuses on its additional values is a type of variation. Adding value without actually changing the product may capture a larger segment of the market while maintaining the existing consumer base.

Another variation involves a company adding or changing a product or a service. For example, a company may add a new type of mouthwash to its existing line of products. Companies can also add services, such as warranties or insurance on products, to expand into a larger market. A product variation is when the change is obvious to the end-user.

Retail opportunities

When manufacturers look to expand their market, one of their main aims is to seek out additional income opportunities. Physical goods require shelf space in stores where consumers can see and perhaps purchase them. Digital sales are similar, as an online presence through a reputable retailer can increase market awareness. When a company expands its retail opportunities, it's referring to the sales aspect of the product or service.

Unless a business has an exclusivity agreement, it's free to retail its product with the merchants of its choice. To expand their retail possibilities, managers and developers look for opportunities to affiliate with those already in the marketplace. The expansion occurs when more stores sell a company's product or service and an increasing number of consumers see it as a purchasing option.

Vendor development

The market expansion process includes not only the retailer or the product, but also the supply chain. Expanding the company's suppliers may facilitate market growth as the business engages directly with a broader audience. In certain situations, a company may engage with suppliers outside its current supply chain.

Marketing is the process that helps connect a business to the economy. By diversifying the vendors a company uses, it creates new market opportunities. In some situations, it's a matter of quality and convenience, such as a syrup manufacturer offering new flavours. In other cases, the vendors may reduce a company's cost of goods sold, which allows it to expand within the market through vendor diversification.

Geographical expansion

Geographical expansion may be a company's primary focus when looking to develop the business. For example, a fast-food chain in one province may decide to open new restaurants in a different province. This typically occurs when there's both demand and opportunity. For example, if a fast-food company discovers a real estate opportunity in a new city, it may assess whether the demand exists. If it determines that there's profit potential, it may decide to expand into that new geographical location. This also applies to stores that open multiple locations within the same municipality or even internationally.

The digital approach is another way to expand geographically. If a company has its headquarters in one city but wants to pursue a new market elsewhere, it can expand using geo targeting. The company studies the various locations it has in mind and then carries out an in-depth analysis of the potential demand. If the company establishes that demand exists, it can target the chosen areas with online advertising, which may help increase its sales. Providing the company can maintain its supply chain, this expansion strategy may achieve international results without disrupting the business's fundamental approach to sales.

How to expand in the market

The process of expanding into a new market is unique to each company, though the fundamental economics follow a standard pattern. The steps below outline how businesses expand their markets:

1. Research business options

The first part of any expansion project is to research the business's present and future opportunities. This involves analyzing consumer feedback and carrying out active research through interviews, surveys, and data analysis. Businesses often work with third-party survey companies to obtain data relating to expansion opportunities. By setting a goal, the company can determine the best source of information and use it to inform its research.

The company's assessment of various opportunities may include economic changes, geographic diversification, or the effects of entering a new sector. An economic change may involve supply chain alterations to meet a new pricing bracket. Geographic considerations may highlight locations where the business could expand successfully. New sectors typically involve selling the same product and existing business structure to new retailers. By conducting an in-depth study and then cross-referencing it, a company can determine the best expansion opportunities for its business.

2. Evaluate the opportunities

The ideal expansion involves maximizing potential while reducing costs and minimizing risks. Most standard analyses involve a thorough assessment of a business plan's strengths and weaknesses relative to those of its competitors. A proper evaluation involves assessing the opportunity and considering the risks or threats that may affect the company's success. This is known as a strengths, weaknesses, opportunities, and threats (SWOT) analysis, and it can help provide honest feedback on the company's expansion potential.

By taking these factors into consideration, a company can compare its business to those already in the marketplace and can define the necessary requirements for it to succeed. An in-depth study of the existing marketplace typically reveals whether there's room for competition, estimates the potential size of the market the business can capture, and calculates the potential risks for the company. The company carefully evaluates the business's expansion potential before making a decision.

3. Forecast the potential

The forecasting process has its roots in predictive analysis. Although using historical data to inform future likelihoods is valuable, it has inherent risks. To mitigate the financial risks of expansion, companies perform a range of financial manoeuvres, such as cost-benefit analyses and growth forecasts. The information may be less precise, but, if the data set is accurate, it can still offer a valuable insight into the marketplace. The prospective expansion forecast balances the likely profits against the potential risks, and proceeds when the projected results are positive.

4. Consider the practicalities

There are many real-world factors that risk analysis is unable to predict, such as the tactical aspects of expanding, which a company typically monitors closely at all times. When determining the value of a plan, there are a series of questions to consider. The company typically weighs these against its values and goals before making a final decision. Below are some questions that require consideration prior to taking action:

Does the company have a well-established presence in its existing market?
Is the expansion likely to cause the business to incur new debt?
Are there other market opportunities the business can pursue?
Has the business continually grown its market presence in the existing areas?
What is the likely timeline for the financial recuperation of the investment?
When is the investment likely to be profitable?

5. Reassess the business's success

After a business expands into a new market, it's important that it continues to assess its success in the area. Competitor research isn't exclusive to expansion. It's a significant aspect of retaining the business's market share and ensuring the continuance of its success in the marketplace. When a company puts an expansion plan into action, it establishes a framework to determine its level of achievement. It can use this data to inform future market expansion endeavours.

What Is Market Expansion? (With Types, Benefits, and Tips)