In the world of business, you should develop the best strategies to grow your brand. With that, you can stay ahead of your competitors. By implementing the right strategy, you can achieve the goals of your company.
Among the commonly used growth strategies by many companies are vertical and horizontal growth strategies. Which is the best growth strategy for you? Read more to know about these two growth strategies.
Horizontal growth strategy
A horizontal growth strategy involves expanding services or products to new markets. It can be done through the development of a new market or penetration of the existing market.
You can also use existing assets for a new business domain, like transitioning from a product to a SaaS model.
With horizontal development, you can receive excellent long-term ROI. This growth strategy is highly lucrative. On the other hand, a horizontal growth strategy is associated with some disadvantages. There is increased competition with this growth strategy. In addition, you can also encounter unique challenges to new markets.
Advantages of horizontal growth strategy
Bigger customer base
Since a horizontal growth strategy involves merging two companies into a new organization, you can achieve a bigger customer base.
Bigger market share
One of the advantages of implementing a horizontal growth strategy in your business is increasing market power or market share. If two companies merge, they can also combine technology, product base, and services available in the industry.
With a horizontal growth strategy, you can boost the revenue of your company. With an increased customer base, you can get more sales from your products or services.
Other benefits of a horizontal growth strategy include:
- Improves other synergies like marketing
- Reduces competition
- Reduce other production costs
- Making economies of scope and economies of scale
Disadvantages of horizontal growth strategy
One disadvantage of a horizontal growth strategy is scrutiny, especially from government agencies. It makes the idea that the bigger corporation can take advantage of consumers with their high prices.
Since your company is bigger, the flexibility can be reduced. It means you need additional processes and personnel.
Vertical growth strategy
The vertical growth strategy involves scaling services or products inside an existing market. In this strategy, companies add additional capabilities or features to their existing services or products. You can also add other services or products to complement existing services or products.
With a vertical growth strategy, you can go deeper into existing markets. It is considered the most popular growth strategy used by many businesses today. Meanwhile, this strategy also has its disadvantages. It needs more money, and you can encounter workforce capacity problems.
Advantages of vertical growth strategy
Make new centers of profit
With a vertical growth strategy, you can establish new profit centers. So, you can reach out wide audience that allows you to gain more potential customers.
Reduce risk in the supply chain
A vertical growth strategy allows you to have more control over different supply chain levels. It helps to reduce possible disruptions that can lead to financial hardships. Aside from lowering disruptions and delays, you can also reduce turnaround times.
Enhanced quality control
Quality control is essential in every business. The strategy can improve quality control in your business. It can also be easy for you to enforce high standards. You can receive supplies or components that pass your internal quality standards.
If you have better control over your supply chain, you can reduce the costs of your goods and raw materials. You can make subsidiaries on the levels of your supply chain, which significantly reduces costs.
Direct link to the market
Implementation of a vertical growth strategy in your business gives you a direct link to the market. You can have a practical assessment of whether the product generates enough sales. You can also get helpful insights for your retail operations. So, you can have better plans and satisfy the needs of your customers.
Lower prices for your customers
With vertical growth strategy implementation, you can reduce production costs, purchase bulk raw materials and enhance efficiency. In addition, you can also get a lower cost per unit on the finished product. You can offer your goods to your customers at lower prices. Don’t worry since it doesn’t have any negative effect on your profit margins.
An advantage over the competition
Integrating a vertical growth strategy in your business can provide you with an advantage over the competition in your market. The strategy allows you to have better pricing, enhanced efficiency, and an enhanced value chain. With that, your products or services can get an advantage over your competitors.
You can invest in retail channels which can also provide your customers with unique experiences. With this, you can win their trust and make them your loyal customers. If you want to gain complete control of supply chains, integrating a vertical growth strategy into your business is a good decision.
Disadvantages of vertical growth strategy
High capital requirements
In some cases, it is not a viable growth strategy for small and medium enterprises. It needs high capital for investment.
Risk of inefficiency in the organization
A vertical growth strategy can result in a drastic increase in your business size. So, it can be challenging for you to manage your organization effectively.
Growing your business with the right strategy
Now that you have learned about the difference between vertical and horizontal growth strategies, you can choose the best one you think can work for your business.
Once your team applies your chosen growth strategy, you can expect a successful change in your company. The growth strategy can be your essential partner to make the best results from your business operations.
Many businesses of different sizes use horizontal and vertical growth strategies to grow their brand success. With this strategy, you can plan, build and grow your company in a cost and time-efficient way.
It depends on you what is the best growth strategy you’re going to choose for your brand. Now that you have an idea about vertical and horizontal growth strategies decide wisely to make satisfying results for your business operations.
To sum it up, vertical growth and horizontal growth strategies can give your business many advantages. Meanwhile, keep in mind that apart from their benefits, they also come with some disadvantages. Be careful in choosing the strategy that suits the needs of your business.