India Economy

Chasing growth

Shyam Pattabiraman | Updated on November 09, 2013 Published on November 09, 2013


A company can expand using various strategies such as increasing market penetration, diversifying products and through M&As.

Nothing excites markets more than growth plans announced by listed companies but investors need to understand that every growth strategy comes with a certain degree of risk, which is what separates expectation from actual results at the end of the day. One of the oldest, yet most widely used framework for evaluating growth strategies, is the Ansoff matrix (refer table).

Market penetration

This is the least risky strategy since it merely involves selling more of the same products/services to the same customers or finding new customers within existing markets.

For example, educating people about brushing twice daily, attending to sensitive teeth, shaving every day or washing hands often could potentially increase the sale of toothpastes, razors and handwashes/sanitisers.

GSK Consumer, Colgate and HUL continue to use this strategy to increase market share. In the wristwatch business, Titan has managed to increase market penetration by encouraging the trend of owning multiple wristwatches for various occasions.

A few ways in which companies increase market penetration are by advertising, introducing loyalty schemes, launching price or other special offer promotions, and increasing sales force activities.

This strategy is moderately risky and entails finding new markets for existing products/services. It is appropriate when the core competency of the company lies in its product/service.

Companies follow this strategy by targeting different geographical markets at home or abroad using different sales channels (such as e-commerce or modern trade) and targeting different groups of people (based on age, gender, demographics or psychographic factors).

For example, Nike was first known for running shoes. Later, it moved into shoes for basketball, tennis, football and now, most leading sports shoe companies have re-segmented the whole market to address the casual user who, incidentally, is the largest customer group. GSK has taken Horlicks from being a bedtime drink in the UK to an all-day, all-ages drink in India.

Product development

This strategy is also moderately risky and involves developing new products/services for existing markets/customers. It is often most appropriate where the strength of the business lies in its relationship with customers.

Crisil (a subsidiary of S&P) has used this strategy to start offering research and analytics services to its financial services clients. L&T has expanded to offer a wide gamut of infrastructure/construction/core engineering-related products/services to clients.


This strategy is considered high risk since it involves multiple unknowns, that is, both getting into entirely new markets and entirely new products. The common risks seen in getting into unrelated businesses is lack of synergy, execution risk and sub-optimal resource utilisation — so much so that markets usually discount the valuations of such diversified listed entities.

However, a few business groups such as Virgin and Tata have defied the perception by using their brands as the largest synergy providers. Their strong brands have helped in diversification. These conglomerates have also managed to cultivate a strong managerial talent pool that is fungible across their companies.


In addition to these growth strategies in the Ansoff matrix, companies often consider acquisitions — horizontal, forward or backward. But despite the expectation that acquisitions could fast-track growth, they are usually fraught with risks such as winner’s curse (over-paying) and post-merger integration. Statistics estimate that nearly 80 per cent of mergers and acquisitions fail to deliver value. Needless to say, ex-ante all companies that pursue acquisition-led growth believe they belong to the remaining 20 per cent.

(The author is a business consultant. Feedback can be sent to >

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Published on November 09, 2013
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