INTENSIVE BUSINESS GROWTH STRATEGIES – HOW TO GROW WITHIN THE CURRENT MARKET (PART 1)
Intensive growth strategies focus on exploiting the current market fully – that is, expanding the market share to the greatest extent fully. This is accomplished by increasing the volume of sales to current customers and the number of customers in the target market. There are three methods for implementing an intensive growth strategy: market penetration, market development, and product development.
With market penetration, the entrepreneur attempts to increase using more effective marketing strategies within the current target market. This is a common growth strategy for new ventures because it allows entrepreneurs to work in familiar territory and grow while they are getting their systems and controls firmly in place.
Under this strategy, the company would move out gradually from the initial target market, whether it is a geographic area or a customer bae. For example, the initial target market for a portable electronic travel guide might be travel agencies, Efforts and resources would be focused on getting those customers solidified and then gradually moving on to other target customers, such as hotels and convention bureaus.
Promoting additional uses for the product persuades customers to buy more. Yet another way to employ market penetration is to attract customers from competitors by advertising product qualities, service, or price that distinguishes the entrepreneur’s product from others.
A fourth way is to educate nonusers of the product or service about its benefits, in an effort to increase the customer base.
Market development consists of taking the product or service to a broader geographic area. For example, a company that has been marketing in in Lagos, South-West Nigeria, may decide to expand across the rest of Nigeria. One of the most popular ways to expand a market geographically is to franchise because this approach is generally less costly than setting up a national distribution system.
Read: HOW FRANCHISING CAN AID BUSINESS GROWTH in the blog.
Like franchising, licensing is a way to grow a company without investing large amounts of capital in plants, equipment, and employees. A license agreement is a grant to someone else to use the company’s intellectual property and exploit it in the marketplace by manufacturing, distributing, or using it to create anew product.
For example, a company may have developed a new patented process for taking rust off machinery. The process could be licensed to other companies to use on their equipment in return for paying a royalty back to the company. Conversely, an entrepreneur may have an idea for a new line of promotional products and want to license a famous name and likeness to use on them, to make them more attractive to consumers. This would entail seeking a license agreement from the owner of the trademarked name and likeness to use it commercially.
But licensing is much more than this, and entrepreneurs need to understand the value of an intellectual property and how it can provide income in a variety of different ways. For the purpose of this article, anything that can be patented, copyrighted, or trademarked, and anything that is a trade secret, has the potential to be licensed.
If a company has intellectual property that someone else might pay to use or commercialize in some ways, certain steps should be taken to ensure that both parties to the transaction win. Licensor and licensee depend very much on each other for the success of the agreement, so the outcomes must be worthwhile at both ends of the deal.
The following are steps that licensors should take to ensure a successful transaction.
Decide exactly what will be licensed. Te license agreement might be for a product, the design for a product, a process, the right to market and distribute the right to manufacture, or the right to use the licensed product in the production of yet another product. It will also be important to decide whether the licensee may only license the product as is or may modify it.
Understand and define the benefits the buyer (licensee) will receive from the transaction. Why should the licensee license from the company? What makes the product, process, or right covered by the license unique and valuable? The licensee should be convinced that dealing with the licensor offers many advantages and will be much more profitable than dealing with someone else.
Conduct thorough market research to make certain that the potential customer base is sufficient to ensure a good profit from the effort. Of course, the licensee will also have done market research, particularly if he or she approaches a company with a proposal for licensing agreement. But the latter situation is typical only with the intellectual property that is well recognized in the marketplace. A company with a new intellectual property that unproven in the marketplace may need to seek out-licensing agreements to get the product commercialized.
Conduct due diligence on any potential licensee. It is important to make certain that any potential licensee has the resources to fulfil the terms and conditions of the license agreement, can properly commercialize the intellectual property and has a sound reputation in the market. A license agreement is essentially a partnership, and choosing partners carefully is vital.
Determine the value of the license agreement. The value of a license agreement is determined by several factors:
The economic life of the intellectual property – that is, how long it will remain viable as a marketable product, process or right;
The potential that someone could design around the intellectual property and compete directly;
The potential for government legislation or regulation that could damage the marketability of the intellectual property;
Any changes in the market conditions that could render the intellectual property valueless.
Once the monetary value of the license has been calculated on the basis of these four factors, the license becomes negotiable.
Generally, the licensor wants the money upfront, as a sign of good faith, and then running royalty for the life of the license agreement. The amount of this royalty will vary by industry and by how much the licensee must invest in terms of plants, equipment, and marketing to commercialize the license.
Create a license agreement. With the help of an attorney who specializes in license agreement or contract that defines the terms and conditions of the agreement between licensor and licensee.