Contemplating taking an existing or new product / service into a
new market? A systematic analysis of 14 critical market segment
attributes should be considered before any additional company
resources are applied to any new market pursuit.
Sometimes it is obvious that entering a new market is a “no
brainer” or it is perceived as the “right thing to do” because
a competitor has taken the plunge or a handful of existing
product or service users, within that market segment, are
asking for your market participation.
Taking on a new market is an integrative decision process,
cutting across a broad number of competitive issues, internal
company functions and various targeted organizational entities.
A decision of this magnitude should not be taken lightly
because of the overall affect it can have on the total direction
of your company and prudent use of limited resources.
The cost of making a wrong decision here can be significant
both in actual capital outlays and the opportunity costs
realized of NOT pursuing another, “better” market alternative.
In Al Ries and Jack Trout’s, “The 22 Immutable Laws of
Marketing”, being FIRST in a new market is everything, first is
best! Sometimes deciding to venture into a new market segment
just because a competitor did only makes the same decision one
of duplicate failure.
Anyone who has ever been involved in sales management knows that
sales personnel have a tendency to sell what they don’t have …
always trying to solve all of every customer’s problems no
matter whether it makes financial sense for the company they
represent or not. Marketing managers also have to learn to
systematically justify entering a new market not because a
handful of existing market participants have asked them to
enter their market.
The first step in evaluating the overall merit of entering a new
market should be to discuss and determine the applicability of
these 14 market segment attributes:
14 Critical Market Segment Attributes
1) The number of products/ services required to effectively
compete:
* Ideally the more “full service” you can be the better your
chances of success
* Customers prefer “one-stop shopping”, if you cannot provide
the complete customer solution package, they have little
reason to switch suppliers
2) Capital required to effectively compete:
* Understand your costs to enter a new market before you assume
your revenues
* Sales projections are typically too high and cost estimates
too low in new business ventures
3) Long term sales potential:
* Accelerating advances in technology reduces long term customer
retention possibilities. In many markets customer needs are
constantly changing.
* Priority should always be give to retention of existing, short
term revenue streams, ultimately the best means to fund
potential long term growth
4) Relative Profitability:
* Is return on investment greater via a new product or pursuing
another market?
* It is always less costly to grow profits from existing
customers in existing markets than to pursue new customers in
new markets
5) Ease of product distribution:
* New markets are often best penetrated with non traditional
distribution/ sales representation
* Does this potential market “fit” with your current
distribution structures?
6) Post sale service requirements:
* Product/ service information demands of new market customers
can require more and new forms of post sale customer service
* Technical support for state-of-the-art product/ service
offerings can be in limited supply and very costly, difficult
to staff
7) Degree of customer loyalty:
* Every market has a varying degree of customer loyalty
depending on number and quality of competitive product/
service offerings
* Do key targeted users within the new market buy on product/
service value or well established relationships with existing
suppliers?
8) Time required to get into the market:
* Product/ service “life cycles” in some industries last only a
couple of months
* Can your company develop, test, certify and fill distribution
channels of a short life cycle product/ service within the
time frame required?
9) Anticipated competitive response:
* New market entrants are greeted with new competitive marketing
tactics upon entry by established suppliers who seek retention
of existing market share
* Will existing pricing levels remain once you have entered the
market?
* How will market pricing degradation eventually affect your
margins and ROI?
10) Number of viable competitors:
* If there are a relatively few number of viable competitors
participating within the targeted market, it may more than
justify your market entry
* Sometimes it is less expensive to acquire an existing,
resource limited, market participant than try to take market
share with a new approach
11) Ability to maintain a technical advantage:
* Can you protect your technology within the time frame required
to cover your new market entry investment?
* Maintaining technical advantages requires quality, technical
talent. If your current technical staff is over burdened or
limited you will not compete
12) Fit with existing company resources:
* Can your company absorb the financial, emotional and physical
changes required to effectively compete in the new market?
* New markets often require new, certainly more, talent and
personnel
13) Fit with established customer perceptions:
* How will your existing customers be affected by your pursuit
of a new market and new customer base?
* It is critical to define and evaluate your existing customer’s
perceptions of all your major strategic moves
14) Financial status of key targeted customers and market share
mix:
* Are key targeted customers financially stable?
* Is there a diverse mix of new market participant market
shares?
The justification of entry into a new market segment involves
effectively identifying viable competitors, relevant target
market attributes, competitor and key customer market shares
while correctly defining your company’s current financial,
technical and human resources.
For marketing and sales management this 14 market attribute
checklist is more intuitive than measurable. However, it is an
excellent means to initially come to a “pass or fail” decision
before any additional resources are applied to any market
expansion effort. If you want to further quantify this analysis
you can numerically weight each market attribute with your own
specific market attribute priorities and give numerical
“grades” to any or all new market entry candidates to calculate
a weighted value for any new market.
Like trying to address any noteworthy marketing challenge,
whatever you can do to quantify and measure your potential
marketing alternatives, the more relevant your analysis, the
better your management decisions will be.
About the Author:
Mark Smock is President of
, the
FIRST international business buyer directory of its kind.
Business Buyer Directory provides a non-traditional means for
proactive business buyers to locate businesses for sale
worldwide that meet their exact registered purchase criteria.
