Product Expansion Strategy For SaaS: Types and Steps
![Product Expansion Strategy For SaaS: Types and Steps cover](https://blog-static.userpilot.com/blog/wp-content/uploads/2024/07/product-expansion-strategy-for-saas-types-and-steps_318c868f8bf4cd7336f59dba87b92a5f_2000.png)
An effective product expansion strategy is the fuel that propels a SaaS business forward. It enables you to capture new markets, increase revenue, and solidify your competitive edge. But navigating the complexities of product expansion can be tricky.
In this article, we explore the benefits and challenges of this critical aspect of product management. We also explore the different types of expansion strategies and the steps you can follow to create a working plan for your business.
TL;DR
- Product expansion refers to any step a business takes to expand its market share.
- A well-executed expansion strategy leads to increased sales and market share, improved customer satisfaction, and better competitive advantage.
- However, expansion poses three broad risks: new market, operational, and financial challenges.
- There are four types of Product Market Expansion strategies. The market penetration strategy is the most used. The goal here is to sell more products in the market you already occupy and gain a larger market share.
- Then, there’s the product development strategy which involves developing new products for existing customers, like when a SaaS product adds a new feature to expand its functions and capture more users.
- Finally, the market development strategy is designed to bring existing products into new markets (such as international markets), while the diversification strategy targets new markets with new products.
- The first step to developing an expansion strategy is to assess your capabilities and resources, as well as the current market landscape.
- Then, you can create an action plan complete with SMART goals, timelines, and an execution roadmap.
- Finally, be sure to test your plan on a small scale and analyze its success before executing on a larger scale.
- Book a demo to learn how Userpilot can help you successfully execute the different phases of your expansion plan.
What is product expansion?
Product expansion is any step a business uses to grow its presence in new or existing markets.
It involves identifying opportunities and evaluating the risks of entering new markets or offering new products, to increase the company’s market share.
What are the benefits of product expansion?
Product expansion offers a range of potential benefits to businesses, including:
- Improved customer satisfaction: Expanding your product line improves your ability to satisfy customer needs. This increase in options or features enables you to cater to specific preferences, leading to higher customer satisfaction and loyalty.
- Increased revenue: An expanded product line also creates opportunities for cross-selling and upselling. With more products, you can encourage customers to purchase complementary products or upgrade to more advanced versions.
- Competitive advantage: Ultimately, a well-executed product expansion strategy helps you differentiate from competitors. By offering unique products or entering underserved markets, you gain a competitive advantage and establish a stronger market position.
Challenges in market expansion
There are numerous hurdles to overcome when venturing into new markets. These hurdles can be grouped into 3 main categories:
- New market challenges: Expanding into new markets often involves challenges like cultural differences and language barriers. You may also need to navigate a complex regulatory and legal landscape, which may hamper your ability to succeed.
- Operational challenges: Setting up a reliable supply chain and new distribution channels can be challenging, especially in new markets.
- Financial challenges: Exchange rate fluctuations, startup costs, legal fees, and cash flow problems may impact your ability to ramp up sales and price your product competitively.
Types of Product Market Expansion Grid Strategies
Also known as the Ansoff Matrix, the Product Market Expansion Grid (a tool used to plan, evaluate, and conceptualize business growth risks) sets out four key product expansion strategies.
Product development strategy: New products for existing customers
This strategy focuses on incorporating exciting new features and leveraging innovative technologies to enhance products, keeping them fresh and current.
To be successful, the company needs to conduct extensive market research to identify customer needs and market gaps.
An example of this strategy is SaaS companies adding new AI-powered features after the rise of generative AI. For example, Userpilot, a product adoption platform embedded an AI writing assistant so users can refine their in-app messages created within the platform in it.
![userpilot feature announcement - product expansion strategy](https://images.storychief.com/account_6827/userpilot-new-ai-feature_bdeb33ad9b3021879b1e8df9a0d75011_800.jpg)
Market development strategy: Existing products in new markets
Also known as the market expansion strategy, the market development strategy focuses on selling existing products to new markets.
This market expansion strategy aims to expand a company’s customer base by exploring new customer segments that may be a good fit for their products or services.
It may take the form of geographic expansion or new pricing policies to attract a broader customer base.
Note, though, that this strategy requires significant investment in research and adaptation. You will have to adjust to the needs and preferences of the new market while combating legal and regulatory hurdles.
For instance, SaaS companies expanding abroad may have to make some adjustments to comply with local data protection laws. They may also need to localize their product to suit the target market’s linguistic and cultural requirements.
![userpilot localization feature](https://images.storychief.com/account_6827/userpilot-content-localization_5eb1b356eb5505d98a07f2957cc9500c_800.jpg)
Market penetration strategy: Existing products in existing markets
For most businesses looking to expand, the market penetration strategy is often the first port of call. This strategy aims to sell more products and expand a company’s share of the current market.
Because the market penetration strategy involves operating in a known market with already established products or services, it costs little, minimizes risk, and improves the chances of success.
A company may fine-tune its sales and marketing strategies to boost awareness and capture more customers.
Some examples of this may include running a customer loyalty program, offering special promotions, investing in new digital marketing channels, or organizing industry events.
For example, every year, Userpilot co-hosts the Product Drive Summit, where product experts and thought leaders share free product growth insights.
![product drive summit](https://images.storychief.com/account_6827/product-drive-summit_2be0aef02c78b96bf84013dbe597bae1_800.jpg)
Diversification strategy: New products in a new target market
The final part of the Product Market Expansion Grid is the diversification strategy, which aims to reduce dependence on a single product or market.
This strategy is the riskiest of all and requires significant investment in time and resources in the form of market and product development research.
To be successful, businesses must also adopt new skills, technological capabilities, and even facilities.
There are three diversification strategies: concentric, horizontal, and conglomerate diversification.
- Concentric diversification is when a company uses its existing expertise and capabilities to launch related products in new markets. The idea is to find synergies between current operations and new opportunities, helping the business grow and become more stable.
- Horizontal diversification entails launching new products that are unrelated to the company’s core offerings but target existing markets.
- Conglomerate diversification is a growth strategy where a company expands by acquiring or merging with businesses in unrelated industries. This approach helps create a diversified portfolio, reducing risks and stabilizing overall performance.
A famous SaaS example of this strategy is the acquisition of WalkMe by SAP. Primarily known for its ERP (Enterprise Resource Planning) software, SAP acquired WalkMe to tap into the complementary DAP (Digital Adoption Platform) market.
![SAP's walkme acquisition - product expansion strategy](https://images.storychief.com/account_6827/sap-walkme-acquisition_d2bfae653d746fc882e6b5c9c3052bbb_800.jpg)
Steps to develop a product expansion strategy
Developing a product expansion strategy requires careful planning and structure. Here’s a step-by-step approach you can follow:
Step 1: Assess your business resources and capabilities
This initial step is crucial for understanding your starting point. It involves evaluating your company’s resources – financial, human, technological, and operational.
Your goal here is to understand your capabilities so you can set realistic expansion goals.
As part of your assessment, you may wish to identify your company’s unique strengths and skills, supply chain capacity and efficiency, and budget constraints.
Step 2: Conduct market research
Next, you need to conduct your market research. This is essential to understand your target market and the competitive landscape. To be effective, your market research must include:
- Competitor research: This involves evaluating your competitors to determine their strengths and weaknesses. What are their product offerings? How do they hold up against user’s needs and pain points? What makes them attractive?
- User research: For this part, you’ll analyze the market from the user’s perspective. What are their needs, preferences, and buying behavior? How satisfied are they with existing offerings? One way to get the answers to these questions is by surveying your existing customers.
![userpilot in-app survey](https://d37oebn0w9ir6a.cloudfront.net/account_6827/customer-experience-survey_c2e9f955819e746bb7e0c8c7a7f49125.gif)
Step 3: Create an action plan for your product expansion strategy
Once you fully understand your market and resources, you can begin work on your action plan.
The first step to creating an action plan will be to define your goals. Ensure these goals are SMART (Specific, Measurable, Achievable, Relevant, and Time-bound).
Next, you’ll need to pick a strategy (market development, product development, market penetration, or diversification). You’ll also need to outline a working roadmap that outlines timelines, milestones, and operational plans in detail.
Finally, create robust sales and marketing strategies to promote and sell your product.
Step 4: Test your plan on a small scale
Before fully committing resources to your plan, it’s wise to test it on a small scale.
This allows you to validate your concept through early feedback, identify any potential issues, and fix them before the big release.
If you plan to launch a new feature, for example, you can run a fake door test to track interactions and gauge user interest.
For instance, consider a hypothetical scenario before Asana included the GOALS feature. First, they may include a Goals button and help users discover it using a tooltip.
![asana fake door test - product expansion strategy](https://images.storychief.com/account_6827/asana-fake-door-test_2bcbcaca8002e3a6d67d6e7961a817f8_800.jpg)
Then, after the user clicks the button, they’re shown a modal that tells them the feature will soon be available and have them sign up as beta testers.
![asana fake door test modal](https://images.storychief.com/account_6827/asana-fake-door-test-2_327f65d7d7bb03566f8694c24ff3e5c9_800.jpg)
After a pre-defined testing period, Asana may then analyze the percentage of users interested in the feature before deciding whether it’ll be a worthwhile investment of time and resources.
Step 5: Implement your strategy and analyze the results
Finally, if all your tests were positive, execute your product expansion plan and monitor its performance.
Continuing from our previous example, this will involve developing and releasing the new feature, driving engagement with in-app messages, and tracking the feature’s success.
The final part of this step is ongoing and iterative. Analyze how the feature is performing relative to your goals, collect feedback to identify areas for improvement, and make necessary adjustments.
![userpilot engagement tracking - product expansion strategy](https://d37oebn0w9ir6a.cloudfront.net/account_6827/userpilot-element-tagging-feature-release_eb830b55adf0d881ffab90993dc6eace.gif)
Conclusion
A successful product expansion strategy can be a major driver of business growth. However, it’s not without its challenges and risks, and must be carefully planned and executed.
From user research to localization, announcements for awareness, and analytics, Userpilot can help you execute the perfect plan. Book a demo today to learn more.