Some say that the grass always looks greener on the other side of the fence. Business leaders and marketers often wish to play in markets in which they don’t currently compete, or even create new markets, wistfully imagining themselves like pioneers in the wild west, scooping up incremental volume like gold from untouched streams in the hills of California. After all, spending years slugging it out in bloody battle for market share, well… anybody might do a little daydreaming.
At some point, most businesses will seek growth by looking carefully at their capabilities and entering a new market. This approach is often flawed, however. Organizations tend to think in terms of internal capabilities as success criteria – their brand, processes, distribution, speed, agility and entrepreneurial spirit. The secret to success, however, is in the honest assessment and understanding of the market being considered, and what is needed to solve an unmet need in the market.
There is a simple approach to examining a new market…..
It is the knowledge of the new market, deeply understood by answering the following 4 questions, which will provide the rationale and insight, and then reveal the entrance model:
- Is the market attractive to enter?
- Is the market growing – which stage of the lifecycle is it in?
- Are the players currently profitable
- Is the market too competitive or the players too big
- Are there external factors that will improve/hurt this growth into the future – consumer trends, supplier trends, cost trends, distribution trends, manufacturing cost structure, etc.
- Are there specific opportunities or needs in the market that are now unmet?
- Where is the unmet need of the consumer or customer
- Where is there room to build a lower cost, or more profitable supply and distribution
- What is your firm’s specific capability that will fill the need of this opportunity
- Products, prices, distribution, etc.
- Approach to enter – organic or outside (license, purchase)
- Is entering the market more or less profitable in the short and long term than staying where you are?
- Several sales and profit scenarios need to run against the current plan to determine the effect on the company’s profitability.
Getting Started – Market Attractiveness Assessment
To answer the items in step one of the above, the following analysis would be a minimum place to start:
- Market Growth Assessment
- 1, 3, 5 year growth in dollar sales and units of measure
- Profit indicators in general of the market
- Consumer Target Assessment
- identification of demographic, behavioral and emotional consumer needs that exist today and are likely to exist in the near future that will impact growth
- Competitor Assessment
- identification and trends in business growth
- Pricing, profitability, and a product or service expansion anticipated
- Supplier Assessment
- identification and trends from organizations that are needed vendors to supply materials and technology
- Distribution Assessment
- description and trends of how these products and services, once developed, are offered to the customer and consumer.
- Technology Assessment
- Identification of any key enabling technologies, (production, supply, customer,
- marketing and innovation, etc.) that are needed now, are in development, or will likely affect the growth (good or bad) of the category.
There is no doubt that the market attractiveness analysis will be quite a bit of work to complete and requires good trend data and profitability estimates of competitors in the new market. This analysis is well worth the effort as it paints a clear picture – often revealing several good opportunities and solutions. Don’t forget, sometimes the outsider, considering a market for entry, the best advantage of objectivity to the real opportunities that players in the market don’t see.