There are two categories of business growth such as Internal Growth and External Growth.
Internal Growth occurs when a business grows organically using its own resources to increase the scale of operations. Internal growth is typically a slower process than External Growth.
Example 1: Many of the leading UK companies such as Cadbury Schweppes and Portakabin owe much of their early growth to Internal Growth, where through hard work and careful planning the original owners were able to grow their businesses successfully.
The business expands organically and evolves by using its own capabilities inside the firm to sell existing products in new ways and to develop completely new innovative products by the marketing department. Both existing products and new products can be offered to both the existing markets and new markets as well.
A. Selling current products:
- Penetrating the existing markets by selling current products.Â
- Developing new markets to sell current products both locally and abroad.Â
B. Inventing new products:
- Developing new products to sell in existing markets.
- Diversifying by launching new products to new markets both locally and overseas.
How to grow a business using Internal Growth?
A business can grow internally in several ways such as:
1. Create new products and improve current ones
Innovation can be a very lucrative source of Internal Growth for a business. By conducting market research, the business can develop new products that are more appealing to customers. At the same time, the business can also improve its existing products making them more attractive to the market. These two approaches will thereby raise sales.
However, most new products, the same as most start-up companies, that enter the market fail miserably. So, it is more common for firms to improve existing products, e.g. by making the design more appealing or adding new features, rather than introducing completely new ones. When it comes to launching totally new products, test marketing could be conducted first in a small part of the market to see the customers’ reactions and to collect feedback. It will minimize potential losses of launching the new product across the whole market.
Example 2: In 2018, Starbucks Korea began a trial run of paper straws to replace plastic ones at its stores as part of the company’s drive to protect the environment. The two-month test began at 100 stores in Seoul, but the company plans to expand the introduction of the paper straws to all of its stores throughout the country. The straws, developed by the coffee chain operator, will be provided in two colors, white and green. Starbucks Korea will choose one color for official adoption after the trial period, reflecting customers’ preference.
2. Provide better value for money
Businesses that can provide perceived value for money are more likely to experience Internal Growth than companies with poor added value for customers. It is because customers will tend compare the price when making purchasing decisions taking into consideration other factors such as quality and the raw materials used, after-sales services such as warranty periods and customer support, maintenance costs, branding or the company’s overall approach to Corporate Social Responsibility (CSR). In my previous article, you can find a few proven ways how to add value to keep your customers satisfied.
Example 3: In addition to the quality and clean design, Apple managed to make all devices such as MacBook, iPad, Apple Watch or iPhone work together. If a customer puts any two or more Apple’s devices together, they all see each other when in close proximity and can share date and information automatically. You can start working on one Apple device and switch to another that better fits your task. This coordination between Apple devices truly adds value for customers as it is a true game-changer for both work and play.
3. Change prices
Customers always love to buy a product at a bargain. For daily products in highly competitive markets with many substitutes where demand is price elastic such as milk, bread or drinking water, a price reduction should generate proportionately more sales revenue. For unique products in niche markets with very few substitutes where demand is price inelastic such as golf shoes or scuba diving equipment, the business will earn more sales revenue by raising prices.
4. Open more shops
Selling through a greater distribution network should boost Internal Growth. When a product is widely available, it is easier for potential customers to buy it. Expanding distribution networks can be done in the form of internal expansion of the business into new locations both domestically and overseas. An investment appraisal will be needed beforehand as investment in new factories or shops will require huge capital expenditure.
Example 4: Coca-Cola and Pepsi have been widely available throughout the whole world. These two carbonated drinks can be easily bought in many different places such as supermarkets, restaurants, small convenience shops, vending machines, or even during sporting events. The number of Coca-Cola vending machines that are estimated to be on the planet today is 2.8 million.
5. Produce more goods
In order to meet an increase in customer demand now, or an anticipated increase in customer demand in the future, the business will need to make investments in improving production capacity.
Production capacity is the maximum number of products your manufacturing operation can produce. Immediate production capacity can be increased by using existing equipment for more time such as adding extra shifts or asking workers to work overtime, or outsourcing production to someone else’s company. Any future production capacity can be increased by introducing new production processes to use existing equipment more effectively or purchasing new equipment, either more of the same or faster machinery.
6. Increase promotion
To drive sales of a product, the business needs to promote it. It is because people are more likely to buy that product, if they are informed about it, reminded about it and persuaded to buy it. Promotion is all about showing the benefits of the product to a customer, as well as highlighting details what the product is all about, what the price is and where customers can buy it.
Example 5: The Coca-Cola Company is the most recognized brand in the entire world with brand recognition reaching almost 100%. The company spends the most on global advertising and marketing than any other soft drink producer. It sells 1.7 billion servings of Coca-Cola products each day. It means that one out of six people in the world drink Coca-Cola every day. However, in order to achieve such huge sales, The Coca-Cola Company spent as much as USD$4 billion each year on promoting its products between 2015 and 2020.
7. Offer preferential credit terms
Some customers are more likely to make a purchase, if they are offered the option to buy the product now, but pay for it later. By allowing customers to pay after 30, 60 or 90 days, or in regular instalments perhaps over 12 or 24 months, the company can attract those customers to the market who are not able to afford the product today, but will be able to do so after some time. Those companies selling cars, home appliances or even clothes can use this approach to increase their sales.
However, firms must be careful not to offer too much credit, or offer credit to unreliable customers, as this can affect the cash flow position of the business and increase the amount of accounts receivable (or debtors) on the balance sheet at the expense of cash.
Example 6: Sovcombank is one of the largest privately-owned banks in Russia with a branch network of 2,413 offices and 17,500 employees. Back in 2017, the bank developed and launched a product called Halva. Halva enables customers to make purchases in interest-free instalments in stores from the Bank’s partner network, which includes more than 25% of all retail shops in Russia. While stores pay interest for the buyer to the Bank, they attract new loyal buyers, so customers buy goods by using interest-free instalments. With 220 thousand shops and more than 7 million cardholders, Halva is by far Russia’s biggest Buy-now/pay-later system owning as much as 55% of the market share, as of 2021.
8. Develop your employees
People are the company’s greatest asset, some say. Highly skilled employees, who have detailed product knowledge, will greatly improve the level of customer service, thereby improving customer loyalty which will then result in repeated purchases in the future. Training of employees is vital not only to help workers feel more confident in front of a customer, but it can also help motivate the workforce as they feel more valued by the employer who invests in their personal and professional development. It is widely known that better employees generate higher sales contributing toward Internal Growth of the business.
When expanding the business, internal growth can take place when larger numbers of existing goods are produced or services provided, when new products are launched or when new markets are found.
Let’s do not forget that all of it will require money, therefore additional capital might be necessary to fund Internal Growth.
