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 Rie’s 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
- 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
- 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
- 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
- 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
- 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?
- 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
- 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?
- 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?
- 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?
- 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
- 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
- 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
- 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
- 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.