Market entry is the process of entering a new market, whether at home or abroad. There’s a lot to consider when taking this step, and it’s certainly not a simple process. In fact, for every successful market entry, about 4 will fail.

A new market doesn’t necessarily mean a new geographical area. It could mean selling your product or service in a new language or targeting an entirely new demographic of people. If you do choose to move into a new part of the world — especially if it’s abroad — this comes with its own unique set of challenges.

In this article, we’ll dive into a market entry and some of the challenges involved. We’ll also cover some steps you should take to maximize your chances of success in your new market.

Why enter a new market?

There are lots of good reasons why you should consider expanding beyond your current market. Some of the main ones are:

  • You want to gain more customers, grow your company, and increase your revenue. This is the most obvious reason — new markets represent untapped opportunities for growth and to make more money.
  • You’ve hit a ceiling in your current market. Perhaps you’re struggling to grow more where you currently are, which is an impetus to seek out new pastures.
  • There may be a legal requirement to offer your product in new markets. For example, you might be required to sell your product in different languages.
  • To keep up with competitors. If your competitors are expanding into new markets, you risk being left behind if you don’t do the same.

Domestic vs foreign market entry

Domestic markets will likely be quite similar to your existing markets, whereas international markets present some new challenges to overcome, such as differing cultures, laws, and languages.

However, foreign markets can also bring great benefits and the opportunity to become a truly global brand. If you decide you are ready to take the plunge and expand overseas, this will come with a whole host of brand new challenges.

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How to excel at market entry

Research the market

What is the size of the market? What is its growth rate? Where is the market heading and what are the key trends to watch? These questions can help organizations understand the potential return involved in entering a new market and are typically answered by a combination of desk research, interviews with industry experts and primary research. 

Research your customers and what they want

This is important at any stage of business, but it’s especially crucial when entering a brand new market. The more different your new market is from your current one, the more important this step is.

How do you get to know your customers?

  • Focus groups
  • Online surveys (and other quantitative research methods)
  • In depth interviews (IDIs)
  • Telephone depth interviews (TDIs)
  • Online communities (and other online qualitative research methods)
  • Ask your sales team for their experiences of customers’ opinions
  • Spend time in that market. There’s a lot you can learn – from better understanding consumer behavior to getting a grip on the competitive landscape

In your research, you’ll need to consider a few key questions, such as:

  • Will your product work in the target market? What works well in your current market might not take off at all somewhere else. Is there any real demand for what you’re offering, and does it justify the cost of entry?
  • Will you be dealing with different demographics of people? Will they have different pain points, goals, and budgets? How will you address these differences?
  • Will you need to adjust your marketing strategy or move to new channels? For example, if you’re trying to move to an older market, social media marketing might not be the best approach to take.

Research the competition

Who are your competitors in your new market and what are they doing? These will likely be different from the competitors in your original market, but this may not always be the case.

Entering a new market, you’ll immediately be at a disadvantage to established companies. You’ll need to overcome customers’ long-term brand loyalty and familiarity with other products, and you’ll be competing with brands that already know the landscape well.

You’ll need to work hard to beat your competitors while also fitting into the new market. As such, it’s worth spending time and resources so you can find out as much as possible about your competitors and learn from them. One advantage of being a new entrant is that you can avoid the mistakes other players have made in the past, helping you to optimize your strategy and get ahead.

Understand the culture

When moving overseas to a new market, the cultural differences can be vast. If you want to succeed, you’ll need to make sure your business is on the same cultural wavelength as your new market.

This means adapting to the culture and customs. The best way to do this is by working with people on the ground – or indeed by spending time there and getting a feel for a new place. We have offices across Asia, the US and Europe, so when we work with clients on market entry projects, we’ve already got a deep understanding of the culture of the market they want to target, which can be a huge advantage. 

Understand the local laws and regulations

When moving into a new market, the last thing you want to do is run afoul of the local laws. For example, the EU’s GDPR regulation, built to protect the data privacy of EU citizens, applies strict rules for businesses. Failing to comply can result in a hefty fine.

It’s best to work with a local lawyer who can advise you about all the regulations you’ll need to be aware of and help you navigate this new legal landscape.

Have a clear future plan

When you enter a new market, it’s important to have a clear idea about where you’re going. How are you going to grow and scale? 65% of startups fail because of premature scaling — how will you make sure you grow at the right pace?

Take some time to put together a clear roadmap and market entry strategy that will ensure you develop and grow in your new market in exactly the right way.

Entering a new market is always fraught with challenges. It’s best to work with a team of experts who can help you formulate a strategy that works — guiding you through the complex and demanding process of making a move.


At Kadence, that’s our job. We’ve worked with countless companies, helping them lay the groundwork for a successful move into a new market. To find out how we can do the same for you, read more about market entry in our comprehensive guide, explore our market entry services or just get in touch today.

Market size is a metric that gets discussed a lot in the world of business, but what is market size and what does it actually mean?

There are a lot of misconceptions and a lot of confusion around the real meaning of the term, which can result in people making the wrong decisions or failing to make the most of their strategy.

If you can accurately determine your market size, this gives you a big advantage from day one. It allows you to secure better investment, make more clear-headed plans, and avoid getting sucked into a strategy that simply has no future.

In this article, we’ll break down the basics of market size, and show you how to determine yours and differentiate it from some other concepts.

What is market size?

Essentially, market size refers to the total number of potential buyers for your product. The most common misunderstanding marketers and researchers have about market size is confusing it with the total population of a region or country. Choosing a market based on high population density can be misleading, and does not guarantee the success of your product’s launch. Just because a market has a lot of people residing in it does not necessarily mean that sales will be more than a smaller market with more matches to your target audience.

Alexa defines market size as “the number of individuals in a certain market segment who are potential buyers.”

More technically, it’s the total number of potential customers or sales in a given period (usually a year), or the total potential revenues you can reach in that time.

Why is market size important?

Understanding the size of an existing or potential new market is important for many reasons.

If sales growth is languishing or seems to have reached its peak, one explanation might be the size or potential of the market. The is no reason to keep investing in an existing market if your target audience in that market is not growing or declining.

If you are looking at entering a new market, whether that is locally or internationally, understanding the size of that market, in terms of how many potential buyers there are is an important consideration. Entering a market with a small pool of targets or personas could mean that your product or sales launch falls below expectations, or worse still fails to launch wasting both time and money.

Understanding market size is also important when determining a market’s potential. You may have the opportunity to launch your product in multiple markets. Strategically it makes the most sense to choose a market rich in potential customers. Understanding the potential of a new market also helps formulate pricing strategies, distribution channels and marketing strategies and campaigns.

When you understand the size of a potential market, launching your product or service becomes less of a risk and more of a calculated and strategic investment. If you do not know the size of a market with a high degree of certainty, you should not gamble launching in that market.

There are many reasons why you should be interested in your market size and how to accurately determine it. Here are some of the main reasons:

  • Gaining investment.  Market size is an indicator of the potential for any new business, product or service. If you can show that you have a good chance of making money — and how much — it’ll be much easier to secure investment.
  • Develop a solid marketing and business strategy. Knowing who your market is, how big they are, and how much money they represent gives you a strong foundation for building a strategy and setting clear future goals.
  • Determine budget and hiring plans. Knowing your potential trajectory for growth helps you budget more accurately and hire the right team for the task ahead.
  • Use your Research and Development (R&D) budget wisely by better understanding who your customers are, what they want, and how you can deliver it.
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How to determine market size

So how do you actually figure out your market size? There are a number of ways to go about this:

  • Clearly identify the target market for your product or service
  • Carry out market research to assess the level of interest in what you’re offering — will people buy it?
  • Gather data on the number of potential customers and transactions per year. There are a number of secondary resources you can consult to help you do this.
  • Assess the total revenue generated in that segment of the economy in a given year

Is your market size too small?

So — you’ve calculated your market size, but what does that number mean? How do you know if your business is worth pursuing?

The answer depends very much on the market and the size of your business, but there are some good general guidelines. Usually, $100 million is on the lower end, and if your market size is smaller than this it may prove difficult to convince stakeholders or investors to get on board.

What is the serviceable obtainable market?

Determining your total market size is only the beginning, and this information alone isn’t worth much.

This is because you’ll never be able to reach literally every potential customer. There’s just no way. No business has the marketing tools, scale, and budget to reach every single person in their market.

And that’s without even mentioning competitors. You’ll never corner an entire market, and the most you can hope for is usually a small slice. According to Tx Zhuo of Karlin Ventures “If it’s 1 to 5 percent of the pie, you have a realistic plan.”

This is where we can turn to a useful metric called serviceable obtainable market (SOM). This refers to the potential customers (and potential revenue) you can realistically hope to reach with your marketing tools and budget.

So how can you calculate your SOM?

How to calculate the serviceable obtainable market

There are a number of ways to calculate your SOM. According to Jared Sleeper, an investor in early-stage companies, there are three main approaches you can take.

  1. Top-down. This approach relies on the predictions, forecasts, and assumptions about your market from analysts like Gartner. It’s often based on conjecture and estimates to some extent. Think of statements like: “The wireless headset market is forecast to reach $2.5 billion by 2023”. It’s good for a general overview of the situation, but it’s a little vague and can be challenging to understand what proportion of the market you can realistically corner. 
  1. Bottom-up. This involves starting with your price and how many units you can realistically expect to sell. How many customers can you reach + how much is each sale = your SOM. It’s more tailored to your specific situation instead of just a broad assessment of the market as a whole, so in this sense, it’s a more reliable way to work out your SOM.
  1. Value theory. This final strategy is a little less precise, but it still has some usefulness. It involves considering the value your product or service adds compared to alternatives and estimating how much customers would be prepared to pay for that extra value.

Sleeper recommends options 2 and 3 since they actually consider the specifics of your business and how you would interact with the market, as opposed to a general prediction. It may make sense to use a blend of all three approaches to gain the fullest picture of your SOM and provide as much insight as possible to your stakeholders or investors.

Calculating market size is an important step on the road to building a successful business or launching a new product or service. However, it’s only one step. The metric on its own isn’t worth a whole lot unless you can also show how much of that market you can reach and compete for.


Market research is a crucial part of determining your market size, SOM, and laying the foundations for a successful business. To find out how Kadence can help you with this, take a look at our market sizing services or get in touch with us today.

Many global economies are defined by stagnant growth, falling populations and saturated markets, making growth for brands a tricky proposition. In many ‘emerging markets’ there are still big opportunities grow… if you keep your eyes open.

Many businesses are looking to fast-growth, high-energy markets outside the so-called ‘developed’ economies to fuel their expansion. Unlike congested and sometimes shrinking economies in ‘the west’, many parts of the world are seeing rapid population growth, fast-rising incomes and are adopting transformative technologies without the burden of legacy investments. The result? Vibrant new opportunities for businesses.

But while entering any new market is a challenge for brands, moving into these more dynamic economies – often with very different cultures, business practices and consumer expectations – can be particularly tricky. Berlin isn’t the same as Birmingham, but many of the norms in both markets are recognizably similar. Head to Beijing or Bamako, and the assumptions you make about brand, product and business practices will be challenged.

Take a phased approach to understanding the opportunity afforded by new markets

The best way to understand your opportunity in different markets is to take the traditional phased approach to research. This involves the following considerations.

  1. Which markets might we look at? Consider the number of consumers, the country’s income levels and the stability of its economic and political structures. You can also examine the maturity of business practices and think about geographic location, transport links and accessibility in-market.
  2. What’s the macro environment like in a market we want to enter? Revisit all the above, in more detail. Focus on specifics – such as the transport and tech infrastructure; and business support networks (such as accounting firms or legal protections on IP) – and how the trends are evolving in those areas.
  3. How does the competitive landscape affect its attractiveness? Pay attention to other outsider brands and how they’re doing; but also domestic rivals and potential competitors poised to move into adjacent markets.
  4. What are the practical issues for market entry? In new markets further afield, transport links, language barriers, different cultural norms and local regulations can throw up roadblocks.
  5. How do we adjust our product, service or messaging to optimize our offer there? As above, but remember that very different cultures and climates can challenge even the most basic assumptions about how a product will perform.

Step away from the generalizations

It’s vital to acknowledge that ‘emerging markets’ aren’t as uniform as the term suggests. Far from it. There are so many variations by region or category that talking about common features of ‘emerging markets’ is a dangerous over-simplification. And there are as many differences within countries as between them. This particularly true in countries where rapid urbanization has seen a break with traditional cultures outside cities.

(That’s true for any generalization, of course. Alcohol brands, for example, can’t even treat the US and Canada the same. North of the border, there are drinking-age laws set province-by-province, massively complicating online alcohol sales. They might look the same in terms of development and even geography and demographics. But they’re not.)

That’s not to say there are no rules that apply to entering markets that share particular attributes. The pace of economic or population growth, or the expansion of middle-class consumers with disposable income, might always be a feature of your selection process for target markets.

But in many categories, consumption is growing so quickly that only the real beneficiary of a ‘toe in the water’ market entry is likely to be knock-off brands and domestic substitutes able to adjust output more responsively to local conditions, especially where legal protections for intellectual property are less secure for global players.

All these caveats mean that in-depth research into new-market consumer appetites, infrastructure and competition is just as important in growth areas as it is in more mature markets.

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Assessing new markets – 5 key considerations

All that being said, knowing the likely biggest points of difference when entering markets with strikingly different fundamentals is still important. Five things to consider:

1. Affordability 

In many emerging markets, disposable income may be much lower for large parts of the population. For global products, that means understanding the more affluent segments better and targeting marketing appropriately. For localized or commodity products, the question is cost. Can you use local manufacturing, logistics and even branding to deliver your product to a mass market?

2. Distribution 

Getting product to consumers might be more challenging. For brands that rely on developed economy logistics partners, understanding infrastructure constraints, developing local contacts and ensuring quality of service is crucial. When Haagen-Dazs first entered China, it set up its own warehouse and delivery network to ensure the product reached consumers correctly.

3. Localized branding and marketing 

What works well in Boston, may not succeed in Beijing. Cultural understanding is key to ensuring that your marketing and branding hit the spot further afield. Caveat: remember the urban/rural split. Many urban consumers are ‘world citizens’ and expect to be treated as such.

4. Watch for local rivals

The cachet of being a global brand can help enter emerging markets. But cost, customization and the risk of ‘brand colonialism’ can make more assumptive Western brands seem out of touch and vulnerable to local alternatives.

5. Native teams

As a global market research agency, we benefit from having local teams in the markets we evaluate for clients. This means we understand the cultural context, consumer trends and broader macro situation. It is possible to enter emerging markets at arms’ length. But having local people in decision-making positions is the surest way to avoid clumsy cultural or operational missteps.

Look for leapfrog opportunities

There are plenty of upsides to emerging markets, too, beyond simply vast numbers of new customers. In some cases, our research will throw up opportunities that just aren’t available in mature markets at all.

Look at the way different platforms have developed to cater to the nuances of local markets, for example. In many fast-developing economies, traditional channels have been leap-frogged by the adoption of newer technologies. This often happens where older tech infrastructure has attained much less penetration, allowing a newer tech to fill a void.

In many African countries, for example, low population density and long distances between conurbations means traditional copper or fiber telecoms can be limited. But mobile telecoms are more practical and affordable. They offer a plethora of additional over-the-top services that have led to an e-finance and e-commerce boom. Entering those markets will require different thinking about distribution – as well as marketing and payments using creative local solutions.

Remember, e-commerce is not the same everywhere

The Philippines is another good example. In other countries, Facebook might be just part of your online marketing toolbox. But there, Facebook has attained an absolutely dominant position in e-commerce – for one simple reason. With lower average incomes, Facebook and local mobile companies realized their penetration was constrained by the cost of network data. So almost every plan has free Facebook data regardless of contract status. For market entry success in the Philippines, Facebook is going to play a big role.

But we need to distinguish between being available on those platforms on the one hand; and entering a market on the other – which involves boots on the ground. Yes, that’s more investment. But you’re also surrendering less of your margin to platform owners and logistics providers.

A staged approach to entering less well-understood markets, starting with the more popular local social networks or e-commerce platforms, allows you to refine the consumer profile. Companies also get time to get to grips with the legal and financial frameworks that might shape future involvement; and see how local fulfilment clarifies their operational options.

Don’t assume that tried and tested e-commerce strategies from the US and Europe will work everywhere in the world, however. Amazon, for example, simply doesn’t have a presence in some markets. In others, consumers can use the site, but limitations on distribution and other logistics mean delivery times, cost and availability are prohibitive. Local research about the best platforms for reach and fulfilment is a must.

Lazada, Shopee, Zalora and Carousel, are some of the top e-commerce sites in South East Asia. These names may not be familiar to firms outside the region. But they can play a crucial role for testing in these markets. Again, it’s worth working with people who understand how to optimize those platforms, as well as interpret the effectiveness of marketing on them; and what the results say about the potential for deeper market entry.

Understand the technicalities of new markets

Even online entry into a very unfamiliar market can be daunting. Moving in for formal distribution, licensing or agent agreements or even setting up locally or buying into a native business brings with it additional issues that need to be researched.

European companies with experience of entering new markets in the EU can find the regulatory and legal considerations in countries farther afield a challenge. Even in the US there are federal laws and individual state regulations over companies and property to contend with. This can make establishing a new business relatively tough. And that’s considered a ‘developed’ market.

In parts of South East Asia, many European companies report lengthy delays in registering businesses. Others discover that in some markets domestic firms have particular benefits. This could be a form of protected status, or reserved access to certain kinds of contract. This is worth exploring in due diligence especially if you plan to sell to government agencies that are often required to ‘buy local’.

Don’t make any assumptions

Most of the key factors for market entry will depend on exactly which market you’re looking to enter. There are very few hard and fast rules that apply across the generalization ‘emerging markets’.

But there is a common theme from this guide that should frame your thinking: these markets change – fast. Before committing to entering any market – and especially ones evolving so rapidly – it really pays to research the opportunity fully. This is something that Kadence has helped many clients with, allowing companies to succeed in lucrative emerging markets. Find out more about our market entry services, or get in touch to discuss a project.

How you enter a market often dictates whether you’ll be successful there. Different approaches have pros and cons – deciding which to choose is as much about market insight as financial logic. So what are the four market entry strategies?

Export? Licensing? Franchising? Partnering? Joint Venture? Merger or Acquisition? There are many ways to get into a new market. What situations typically suit each variety? What do you need to know about the market to select the most appropriate options? How do we assess the strengths and weaknesses – and their long-term effect on your business? Here’s our brief overview of your options for an entry strategy into a new market.

Early exposure: the passive way in

E-commerce and social media mean brand exposure in new markets has become relatively easy. Social media shopping, for instance, is becoming an increasingly popular entry point for brands into new markets, particularly if social media influencers jump on board. 

(Caveat: many global influencers, and those within markets, may need an inducement to feature products or services. While ‘accidental’ market exposure is possible, you’ll still need some strategy for this introduction).

Early exposure could also be by traditional media outlets (like fashionable magazines) or web-based trendsetters (such as popular tech review channels on YouTube). Most markets have local versions of social media channels, with popular global channels like Instagram, Twitter, or Facebook being prominent.

But online retail can be a double-edged sword. Yes, consumers might get exposure to your brand online. But they might buy the next best thing available if it’s unavailable locally. Your brand could be doing an excellent job building the category for local rivals.

It’s also worth looking out for platforms that are not global. In many markets, local e-commerce platforms have emerged. Any attempt to exploit the market will rely on having access to it. (We take a closer look in our guide to entering emerging markets).

In addition to working with local platforms, brands must carefully consider how to fulfill orders and handle customer relations. Managing all these elements through third parties in a commercial relationship can work well. 

That said, there’s a massive gulf between entering a market virtually via e-commerce with third-party fulfillment services and having ‘boots on the ground’. This is not only about visibility and commitment. Each third party you work with is taking a chunk of your profit margin. And in some cases – particularly with perishable or heavyweight products, and especially with services – the arm’s length approach won’t work. 

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To access that pool of consumers, you will need a local presence. Here are some main routes.

Direct exporting

Direct exporting is often considered the default choice for new market entry. Direct exporters often sell directly to a consumer (B2C), a business (B2B), or a distributor in a foreign country. Direct exporting allows consumers or businesses in new markets to easily buy your products wholesale, where you handle the shipping logistics. Or if using a distributor in a foreign country, they will typically take care of fulfillment and local marketing. 

International shipping has become increasingly easy for most products, allowing brands a passive market entry strategy. But assigning a local trusted distributor to conduct transactions with your buyers, and better still, partnering directly with major wholesalers or retailers, is an equally promising strategy to capture new markets.

Working with the right partners can be a make-or-break decision. So thoroughly researching the key players, their terms of trade, and their local reputations is vital. Even seemingly innocuous business practices can greatly affect how products are handled, sold, and supported.

Having local agents doesn’t mean you can ignore the nuances of the local market. It still pays to get under the skin of local retail, for example, understanding consumption patterns and thinking about local tastes and behaviors that might shift how a product is presented. Even in an arms-length distribution agreement, it pays to tailor a product to local preferences. Chocolate brands, for example, must cater to local preferences on their product’s flavor and texture – and the local climate. We’ve supported many businesses with getting under the skin of target consumers in new markets as they’ve entered new territories.

Licensing and franchising

Licensing gives in-market parties legal rights to use your company’s name and other intellectual property. Any licensee can produce and sell products under your name or offer services using your brand. In exchange, you get royalties or other payments. It can be an effective light-touch way of entering a market, especially if you’re a service business that needs a local workforce; or your products would benefit from local manufacturing.

Franchising is similar to licensing but requires much more heavy lifting upfront. In addition to researching any new market before entry, brands looking to franchise should think about how they will structure their franchise agreement. This will require additional research into legal structures, potential franchisee audiences, competitor brands, and franchise fee structures. Working out what the franchisee gets for their investment (for some business models, it’s little more than a license; for others, it’s a suite of processes, marketing support, and even hardware that come with the deal).

But it’s not all plain sailing. How a licensee or franchisee behaves towards customers, the quality of their output, and the local spin they put on your product can affect the brand. That means thorough due diligence on potential partners and brands with detailed research on their new market are much more likely to tie down any important factors affecting those decisions into a contract.

Direct investment

For many companies, setting up a fully-fledged operation in a new market is a big commitment – but it also brings enormous advantages. This kind of ‘greenfield’ investment – ‘greenfield’ meaning the establishment of new facilities – means complete control over the operations in the new market. Many countries welcome and incentivize foreign investment of this kind.

Some companies will choose only to enter new markets where this kind of investment is possible – for a variety of reasons. Direct investment provides a reassuring level of control if the product is sensitive to different handling or needs to be manufactured to particular tolerances or standards.

If a direct investment is the preferred method for new market entry, the legal and regulatory burden of different potential markets should be a factor in the due diligence process right at the outset. In addition to in-market research expertise, local legal and financial advice is essential.

Buying a business

Buying an existing business is a genuine fast track for foreign companies to enter a new market. According to Statista, in 2021, global Mergers and Acquisitions (M&A) deal value reached approximately 5.9 trillion U.S. dollars, with over 63,000 deals completed.

Market research is even more critical in the due diligence required when buying a business in unfamiliar territory. Due diligence is challenging on domestic M&A deals; it’s much tougher abroad. The traditional metrics you might assess – and even the gut feel of key decision-makers – must be translated through entirely different cultural and market norms lenses. 

There can also be a benefit in setting up a joint venture­ (J.V.) – a new partnership between your company and one or more parties where the ownership is shared. You get the benefits of a greenfield start-up; a lower investment than M&A or setting up on your own; local expertise baked in; and legal status as a native in the new market. Many businesses see a J.V. as a turnkey project: each party brings existing knowledge and capabilities for fast deployment.

But be warned: joint ventures only thrive when the contractual commitments of each partner and the beneficial ownership structures are crystal clear. And some big brands have come unstuck in joint ventures where the local partner’s vision for the product or service deviates from their own. Conflict resolution mechanisms are a must. Unsurprisingly, joint ventures are more common in time-limited projects where several contractors need a legal entity to collaborate on a specific mission – and have precise terms for the joint venture’s dissolution.

Building your intelligence network

The choice of entry route will be dictated by many factors, including consumer habits, culture, legal status, taxes and tariffs, local business practices, the transparency you can attain around potential partners, and more. As a rule of thumb, the less exposure you have to cost and risk, the less control and margin you can secure.

Arms-length surveys and analysis can only tell you so much, however. Working with international agencies who have their own people on the ground in a new market not only means better access to the nuances of consumer behaviors and local trading rules – it also means dealing with people who have first-hand experience of running a business in that market. This approach has enabled us to successfully support clients entering new and lucrative markets.

You can learn more about our market entry expertise, or get in touch to discuss a potential project. 

Entering a new market can lead to a massive boost to sales, brand strength and long-term profits. But there’s more to a market entry strategy than great products or services. Understanding the local market – its distribution channels, culture, economic and social trends – through a market research-driven due diligence process is crucial. And sometimes the most valuable insight is the hidden reason why you shouldn’t proceed…

The art and science of market entry

Over the past 40 years globalization has redefined what it is to be an international brand. For decades, a handful of dominant players in markets such as food and drink (driven by marketing prowess) or automotive (reliant on economies of scale) had been able to enter new markets in ways that most businesses simply couldn’t imagine.

The rapid growth of global trade capacity, and particularly the ubiquity of the internet, has levelled the playing field. Today, a business in Bolton has myriad options for selling in Beijing; an Australian specialist retailer has lots of ways into the Austrian market.

But the process of choosing which markets to enter, how and why remains fraught with danger. The rewards of opening up a new market are potentially great. On the other hand, the cost can be significant, and the list of powerful global brands that have failed to successfully enter new markets is a long.

The factors to consider are varied: there are economic and social dimensions, competition from local companies, the quirks of regional distribution channels, cultural mismatches… and much more. That means undertaking a market-research-driven due diligence project before entering a new market is a must.

Why look elsewhere? The reasons for market entry

What motivates companies to investigate entering a new market? Every organization will have its own reasons. Exploring them in detail is a useful first step in defining the later market entry strategy.

Brand growth 

A huge proportion of value in modern enterprises is wrapped up in intangibles. That means increasing enterprise value requires diversification of the brand. Some very strong domestic brands can move into adjacent markets (Dyson, for example, can leverage its reputation for air-moving engineering from vacuums, to hand-dryers, to room fans and even hair straighteners). A select few can jump into non-adjacent categories (Virgin, for example). But opening up a whole new geographic market can establish a brand with many more consumers, boosting its value.

Saturation of existing markets

Once you have gained significant market share and consumer penetration domestically, it’s easy to see growth stall. Launching new products to address existing customers is costly and high risk. But taking proven products or services to a new market can create fresh upside for growing brands.

Optimizing overhead costs

As businesses grow, they build up overheads – around head office functions, for example. They also build up niche skills and experience – in fields such as logistics, legal or financial. These scale well: the more times you can put your experts to work in a new market, the more productive they are. And the more markets you have, the lower the amount each one pays to meet head office costs.

Strategic partnership

Globalization has meant businesses can easily work with partners in new markets – creating new opportunities for blended products and services. Local distributors, for example, might be pathfinders for a brand into a new market – demonstrating the potential for a more structured entry into that market.

There are plenty of other motivations, often overlapping. Knowing which is driving the decision to explore new markets will help frame the strategy for successfully entering one.

A phased approach to market entry

There are different phases to a market entry project. You need to size the opportunity to judge whether it’s worth entering a new market. There ought to be concept testing, especially for new categories or innovations in that market. Many clients focus on competitor analysis when they’re dealing with less well-known rivals.

Market entry has many dimensions – and no business is too big to skip them.

We work with a number of high-profile Japanese brands, global names that are already present in different countries in some form of another. But they still need to tailor particular products or brands to the local markets they’re looking to exploit; and understand the specific needs of consumers in those categories.

Market entry projects usually involve a series of questions, and typically each of these is a discrete engagement.

Key questions for any market entry project

  1. Which markets might we look at?
  2. What is the macro environment like in a market we want to enter?
  3. How does the competitive landscape affect its attractiveness?
  4. What is the best way to enter the market in practical terms?
  5. How do we adjust our product, service or messaging to optimize our offer there?

While market entry studies are a vital tool in successfully growing a brand somewhere new, sometimes their value comes from showing that entering a new market will not be successful. Around 50% of these projects results in a recommendation not to go ahead as planned. That finding can emerge at any one of the stages above. Far from being bad news, it’s often the most valuable insight a brand can get. Market entry can be costly and complex – not doing so when the conditions aren’t right can save massive amounts of money and time.

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The world is your oyster. But where’s the pearl?

A crucial first step in investigating markets for entry is to analyze why a brand, product or service is successful in its existing markets. How is it used? Who are the type of people that love it? What are those customers’ attitudes across different domains? What role does it play in their lives – and why?

The next step is to look for markets where groups like this already exist. A good starting point can be detailed desk research – using tools like the CIA World Factbook for demographic information, or understanding cultural similarities to your home market through cultural awareness studies like the Hofstede Insights Culture Compass. But ultimately, it’s approaches developed precisely for the brand or product that will reveal good matches. Narrowing down the high-probability markets is hugely valuable for brands that don’t have other clues to go on.

Sometimes brands do have a clear idea from the outset which markets they want to enter. We worked with a company producing ceramics which had a light-touch arrangement with an international distributor. They started to notice a significant uptick in orders from Korea – which was obviously a strong signal that entering that market could pay dividends.

But that also meant understanding why was key to a successful market entry. Closer research revealed that an increase in purchasing power among the country’s middle class had made the designs more attractive; plus online shopping had taken hold and made previously hard-to-get products more visible.

Target acquired. Now what? Next steps in a market entry project

Specific country research starts with fundamental market insight and competitor intelligence work. Initially, that’s secondary research, analyzing available insights for the particular category in question. After that, we might move on to interviewing people whose knowledge of the market will provide more nuanced insights.

Companies usually see this as their feasibility study, helping them understand who else is operating in their category, what regulations might be applicable, what the domestic distribution and supply chain infrastructure is like, and what investment they’re likely to need to make under different scenarios.

That industry analysis and expert insight helps generate a strategic overview of the market tailored to the client. Often that’s enough to substantiate the decision on whether and how to enter a market, especially if it’s a close match with the brand’s existing markets.

A good example is some work we did with an electronics brand looking to launch a new product in the US. The group already has a huge presence in America – but not for its new product, a battery system for domestic renewable electricity.

Our project involved interviewing a range of potential stakeholders – such as real estate developers, housing associations, planning authorities and environmental regulators – to get a holistic view of how that market might evolve. That enabled the client to take a realistic view of both the existing appetite for the product and current regulations; and how the landscape might change as they developed the product.

It’s not uncommon for a company to walk away at this point – there might be competitive, regulatory or infrastructure barriers that no mode of entry can overcome cost-effectively.

Frameworks to assess a new market

A structured framework can be valuable in assessing a new market. You might see great consumer interest – but if the regulatory stance is hostile, you have to think twice. One way of conducting a thorough overview of a market to pick up all those factors is to analyze the environment through different PESTLE lenses:

PESTLE

  • Political – how stable is the country? What’s the prevailing ideology? What biases – intervention in markets, say, or taxation – do politicians have?
  • Economic – how rich is the country? How is wealth distributed? What’s growth like, and where is it likely to continue?
  • Social – what’s the culture in the country? What are the typical social structures – family, work, community? What about religious norms? Education levels?
  • Technological – what’s the infrastructure like? How wired is the country? How lumpy is technology penetration? What about population ‘techiness’?
  • Legal – what rules are there about business ownership? How about liability laws? What recourse do overseas businesses have in the courts?
  • Environmental – how might the local climate affect the product or service? What about use of resources? Or end-of-life disposal of products?

Porter’s Five Forces

The next step is to get a grip on the competitive landscape, and that’s where tools such as Porter’s Five Forces come in. Michael Porter worked at Harvard University, and in 1979 he published a paper aiming to describe the ‘microenvironment’ for the attractiveness of any given industry – or, in this case, a new market.

There are three forces from ‘horizontal’ competition:

  • The threat of substitute products or services – what’s the alternative to your own offering that people might use? How are they achieving the same goals now, and what might shift their views?
  • The threat of established rivals – bearing in mind that in a new market for you, there will be lots of players who know how to operate there better than you do.
  • The threat of new entrantsbeing a new entrant to a market doesn’t mean others won’t follow, too. And if you’re establishing a new category in a market, that might tempt others in, or prompt local businesses to muscle in.

Two forces come from ‘vertical’ competition:

  • The bargaining power of suppliers – opening up a new market might help you gain economies of scale from higher sales volumes. But it also makes you more reliant on suppliers – especially around issues such as logistics.
  • The bargaining power of customers – understanding the broader competitive landscape will help you see what choices customers have; but, especially in the initial phases, they might need to be tempted to switch brands or try a new category.

Digging into the nuances

Those kinds of analytical tools mean companies can enter a new market with their eyes wide open. But they’ll still need to develop a sophisticated view of customers, competitors and regulations – the kind of insights that will tell them how they might enter a market, not just whether it’s a good idea.

That’s when they’ll commission more in depth market research and run projects like a market segmentation analysis to dig deeper into nuances they can exploit later to optimize their market entry.

At this point, they’ll be starting to research more detail on potential partners; exactly how they would use infrastructure to import, manufacture and distribute in that market; what specific customer niches exist; and even financial planning to take into account the kind of regulatory and cost-of-trade analysis they revealed in the feasibility study.

But above all they need to understand how their brand might be received. It’s not a given that you can simply transplant over your image or core messages.

Culture and behavior: getting the key variables right

Cultural fit is hugely important. In this phase of the project, we would drill down into the local factors that might help a brand; or create barriers for its acceptance. This is typically a traditional market research exercise, exploring the behavioral aspects of consumers in the new market.

For example, we worked with a Japanese food manufacturer looking to expand into new Asian markets. But in the Philippines, it quickly became clear that there was no appetite for the more subtle flavorings and preservatives in the Japanese product. It was the perfect case of a potentially costly market entry being avoided through strong research findings.

That’s a lesson Pret a Manger learned in Japan, where it opened 14 sandwich shops across greater Tokyo in 2003. Just 18 months later, the company withdrew after its local partner, McDonald’s Japan, pulled out citing heavy losses. Superficial research indicated that Japanese people would love the convenience and novelty of eating-on-the-go sandwiches. But once the novelty wore off, sales dipped quickly. That combination of financial and cultural barriers hadn’t been picked up.

Speaking the language

As well as deciding whether the consumer will use the product, it’s important to explore the way in which it’s marketed. This is particularly important for brand with an established global image – the logos, slogans and even color palettes that they’ve invested in heavily to define themselves – because those might have unexpected connotations in a new culture. Take, for example, the beauty treatment marketed in Japan as “for clear skin” – which translated elsewhere in Asia as “ghostliness”.

There have been plenty of cases of companies that didn’t do their market research with disastrous consequences:

  • Clairol’s ‘Mist Stick’ curling iron flopped in Germany: ‘Mist’ is slang for manure.
  • Coors’s slogan ‘Turn It Loose’ translated into Spanish is slang for diarrhoea.
  • KFC is known globally for being ‘finger-licking good’ – which translated as ‘eat your fingers off’ in China.
  • Also in China, ‘Pepsi Brings You Back to Life’ was interpreted as ‘Pepsi Brings You Back from the Grave.’

But rival Coca Cola entered the China market much more deftly. Initially, signs produced by local distributors for ‘ko-ka-ko-la’ (using symbols for the closest phonetic translation) were translated as ‘bite the wax tadpole’. But the company was developing its own local brand positioning, and settled on the symbols ‘K’o-K’ou-K’o-lê’ – which means ‘to allow the mouth to be able to rejoice,’ a far more apt trademark that it registered in 1928.

The money question – how to approach pricing

The other marketing fundamental that research can steer is pricing – a factor every market entry project needs to examine. Where is the competitive price point for consumers in the new market? What volumes and margins might you expect, based on the market opportunity? How does the new market stack up cost-wise – are you importing or manufacturing locally, for example – and what does that do to your opportunity to flex prices?

More broadly, the profitability of different business models often dictates whether and how to enter a new market at all. For some businesses there’s relatively little financial penalty to operating exclusively through local distributors. But at a certain point, issues such as volume of sales, cost of distribution, tariff levels, changes to local taxes and so on will shift the financial rationale. For example, we’ve already seen many UK businesses enter EU markets directly as a mean of offsetting post-Brexit tariffs, staffing, distribution and other costs.

The financial calculations can also dictate the viable means of getting into a market. At one level, that’s purely a ‘treasury’ consideration. How will profits be repatriated? What are the currency risks associated with the new market? How does banking and taxation work there? But how much you can control the brand locally – rather than relying on local agents – is also a factor. (We’ll look at the different modes for entering new markets in more detail in a separate guide.)

Know when to hold… and when to fold

All these factors are a reminder that even strong and established global brands don’t always have an easy time expanding into a new market. They might have some leverage with their global brand name. They have the resources to invest in market penetration. But to do so effectively – and without incurring higher opportunity costs elsewhere – they need data and insights to ensure their entry is tailored.

Even brands that take precautions to adapt to local culture can miss valuable clues as to their viability in a new market. Starbucks famously waited 47 years to open its first branch in Italy – wary of the very particular approach to coffee there. In 2018, its first shop opened in Milan. But the brand has struggled in the country. Limited research into new markets had affected the brand before, with its Australian business failing to meet the demands of local coffee-lovers; its Israeli operation closed in 2003 within two years of launch.

Granular, holistic research is the key

To gain the right insight to inform your market entry strategies, you’ll need to work with external agencies. For some very fast-growing and global brands, there might be a case for building an in-house team with the kind of expertise and experience needed to evaluate new markets in sequence. But when it comes to local research expertise and cultural understanding, the insights can often be two-dimensional.

McDonald’s Japan is a great example of using local insight to tailor what is, on the face of it, a universal brand. Every country has their tiny variations in the McDonald’s menu. But visitors to Tokyo will find radical departures such as Ebi Filet-o (a burger with breaded shrimp); Teriyaki McBurger; and even chocolate fries.

For many businesses – and business models – international expansion is likely to be a multi-year project with long pauses. That means bringing agencies to advise and evaluate each market entry is the only practical solution – especially if they bring specific knowledge on particular markets to bear.

At Kadence, with offices spanning Europe, the US and Asia Pacific, we are well positioned to support brands with market entry research. Find out more about our market entry services or get in touch to discuss a potential project.

How do you calculate your market size and the serviceable obtainable market??

This is a crucial part of any business plan, allowing you to gain a clear idea of how many customers you can potentially reach and how much revenue you can generate. This allows you to make more concrete plans and secure budget and buy-in from key stakeholders..

Top-down market sizing is one of the two main methods we can use to calculate the serviceable obtainable market.  In this article, we’ll take a look at what top-down market sizing involves, how you can use it in your own business, and the strengths and weaknesses of this approach.

What is top-down market sizing?

When we calculate our serviceable obtainable market, there are two main ways to approach the calculation: top-down and bottom-up.

  • Top-down market sizing starts by looking at the current market as a whole, taking a macro view of all the potential customers and revenue, and then narrowing it down to a section you can realistically target. This gives you your serviceable obtainable market, (SAM).
  • Bottom-up market sizing, on the other hand, is where you start with your own product and the basic units of your business and work out how you can scale them. Where can your products be sold, how much for, and how much of the current market could you command? You start small and build up to the result.

What is Serviceable Obtainable Market or SAM?

The SAM refers to the portion of the total addressable market (TAM) that a company or business can realistically target and serve. It represents the market segment that aligns with the company’s resources, capabilities, and competitive positioning. The SAM is determined by considering factors such as geographical scope, customer demographics, and market demand.

In the context of top-down market sizing, the SAM is the result of narrowing down the initial macro view of the market to a segment that the company can effectively target. It represents the potential customers and revenue that the company can realistically obtain within its market segment. The SAM is an essential metric in market research as it helps businesses understand the true size and growth potential of their target market.

What is Total Addressable Market or TAM?

The Total Addressable Market (TAM) represents the entire demand for a specific product or service within a particular market or industry. It is the maximum potential revenue that can be achieved if a company were to capture 100% market share, considering all potential customers and their willingness to purchase.

TAM provides an estimation of the market size and serves as a starting point for market analysis and business planning. It encompasses all potential buyers who have a need for the product or service, regardless of whether they are currently being served by existing competitors or are aware of the product’s existence.

Calculating TAM involves considering various factors such as market demographics, geographic scope, industry trends, and customer behavior. TAM helps businesses understand the market’s overall revenue potential and serves as a benchmark against which to evaluate their market share and growth opportunities.

It’s important to note that TAM represents the theoretical market size and may not be fully reachable or realistic for a company due to constraints such as competition, resources, and market saturation. Nevertheless, TAM serves as a valuable reference point for strategic decision-making, market segmentation, and assessing a company’s growth potential within a specific market.

How to use top-down market sizing

To use top-down market sizing accurately, you should aim to start with a macro view of your market and work towards a micro view.

The first step is to look at industry size estimates to find the largest possible market size for your product. Then, reduce it to a segment that you can realistically target, and then calculate how many potential customers are in that segment.

For example, if you’re selling a payment management system for hair salons in the US, you’d start by calculating the total number of hair salons in the US. Then, reduce that to a smaller segment — how many of those salons have enough customers to justify a payment system? Finally, find out which ones you have already sold to, or which ones are already serviced by competitors and unlikely to buy from you, and so on, to find your serviceable obtainable market.

Here are some tips to do this process as effectively as possible:

  • Use reliable data sources. Some of the data that can help you calculate your market size is available for free or at low cost and can be obtained from analysts like Gartner and the Bureau of Labor Statistics. This can be supported by primary research to give you a rich picture of the market. Spend some time analyzing multiple, reliable sources to come up with an  estimate..
  • Be consistent and clear in your approach. Make sure your calculations are well-documented and rely on the same data.
  • Ask lots of questions throughout the process. Who are our customers? Where are they located? Is the market growing? Aim to get as full and accurate a picture of your market as possible.
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What factors to consider when using market sizing

When deciding which approach to use for market sizing, it’s essential to consider various factors that align with your business, product, and market dynamics. Here are some considerations to help you choose the most suitable approach:

  1. Market maturity: If you are entering an established and well-researched market with ample data available, a top-down approach might be more appropriate. The existing market data can provide a solid foundation for estimating market size and potential customers.
  2. Product uniqueness and disruption: If your product or service is innovative, disruptive, or targets a niche market, a bottom-up approach can be advantageous. This approach allows you to analyze specific customer segments, understand their unique needs, and project adoption rates more accurately.
  3. Available data and resources: Consider the availability and reliability of data sources. Top-down market sizing heavily relies on existing market research and industry reports. If comprehensive data is readily available, a top-down approach can provide a quick estimate. On the other hand, if you have access to internal data, customer insights, or primary research capabilities, a bottom-up approach using your own data can yield more accurate results.
  4. Granularity and specificity: Depending on your business objectives, you may need a more detailed understanding of your target market. In such cases, a bottom-up approach allows for a more granular analysis, enabling you to assess market segments, customer behaviors, and potential adoption rates on a more specific level.
  5. Time and resource constraints: Consider the time and resources you have available for market sizing. Top-down approaches are generally faster, as they rely on existing data and industry research. Bottom-up approaches require more in-depth analysis and data collection, which may be time-consuming. Evaluate the trade-offs between accuracy and the resources you can allocate to the market sizing process.

Ultimately, the choice between top-down and bottom-up approaches depends on your business context, market characteristics, and the level of precision required for decision-making. In some cases, using a combination of both approaches can provide a more comprehensive view of the market size and potential opportunities.

Remember, market sizing is an iterative process, and as your business evolves and gathers more data, you can refine and update your estimates using the most suitable approach for each stage of growth.

The top-down and bottom-up approaches — which one is best?

So, which approach is better? The reality is that each method has its pros and cons. What works extremely well for one business might not work well for yours, and vice versa. Let’s take a look at the advantages and drawbacks of each method.

Top-down market sizing: the pros

  • It tends to be faster than a bottom-up approach..  The process of gathering existing data to estimate your market size isn’t enormously time-consuming, making it .  the best option to get a quick estimate of the serviceable obtainable market, which you can supplement with primary data at a later date to reach a more accurate forecast. .
  • It tends to work well for big, established markets, where there is already plenty of data and existing analysis

Top-down market sizing: the cons

  • It doesn’t work as well for new, smaller markets and disruptive products. If there’s a good chance your product could have a disruptive effect on its market, this could significantly affect serviceable obtainable market and render your top-down analysis largely meaningless.
  • The initial research relies on general information collected by others, so the data isn’t specific to your business and situation. It’s a good general guide, but does need to be supported by primary research that’s specific to your particular market for greater accuracy. 

Bottom-up market sizing: the pros

  • It’s tailored to your specific circumstances and uses your own data 
  • It’s especially useful for new markets and markets where your product is likely to make a big, disruptive impact
  • It tends to result in better forecasting and more accurate data on amore granular level, helping you better understand how your individual projects will make an impact

Bottom-up market sizing: the cons

  • It can take longer and require more resources than a top-down approach, as a bottom-down approach requires much more in-depth analysis of your own business.
  • It has a tendency to assume there will be more customers than there actually will. This is important to look out for.
  • Any errors you make early on at the micro-level become compounded as you work up to the macro-level. It’s important to ensure you’re doing everything the right way, or these mistakes and misunderstandings will carry through your entire analysis.

Examples of Top-down and Bottom-up Market Sizing

To provide a clearer understanding of top-down and bottom-up market sizing, let’s explore some real-world scenarios:

  1. Top-down market sizing example: Imagine you are launching a new line of organic skincare products. To calculate your serviceable obtainable market (SAM) using a top-down approach, you would start with a macro view of the market and narrow it down. Here’s a step-by-step breakdown:
  • Step 1: Begin with industry size estimates: Research industry reports and studies to determine the total skin care market size.
  • Step 2: Identify your target segment: Narrow down the market to a specific segment that aligns with your organic skincare products, such as “organic skincare for sensitive skin.”
  • Step 3: Calculate potential customers: Determine the number of potential customers within your target segment. For instance, you might find that there are 5 million people in your target market based on demographics and consumer behavior analysis.
  • Step 4: Refine the SAM further: Consider factors like geographical location, purchasing power, and competition to determine the portion of the target market that you can realistically capture.

By following this top-down approach, you can estimate the SAM for your organic skincare products and make informed decisions about market entry and potential revenue.

  1. Bottom-up market sizing example: Let’s say you’re a software startup developing a productivity app for freelancers. To perform bottom-up market sizing, you would start with your own product and gradually build up:
  • Step 1: Identify your target audience: Determine the specific segment of freelancers you are targeting, such as graphic designers or copywriters.
  • Step 2: Determine the basic units: Calculate the number of potential customers within your target segment, considering factors like industry reports, freelance platforms, and online communities.
  • Step 3: Assess market penetration: Estimate what percentage of the target market you can realistically capture based on your value proposition, pricing, and competition.
  • Step 4: Calculate revenue potential: Multiply the estimated number of customers by the average revenue per customer to determine your potential revenue within the target market.

By employing a bottom-up approach, you can analyze the granular details of your specific market segment and tailor your strategy accordingly. This approach allows you to make projections based on your own data and assumptions.

These examples showcase how top-down and bottom-up market sizing approaches can be applied in different scenarios. Remember, the choice of approach depends on factors such as market maturity, product uniqueness, available data, and the goals of your business.

Ultimately, it can be useful to use both models in your market sizing. If they both roughly agree, then you can probably assume you have a fairly accurate estimate of your market size. The approach you opt for will also depend to some extent on the type of business you’re building and the product you’re selling.

Regardless of which approach you go with, it’s important to do it right. At Kadence, we have many years of experience helping businesses with their market research, and in sizing the market and we can help you do the same. To find out more, get in touch.

Since the onset of the pandemic we’ve been working with Bloomberg to understand the priorities, actions and attitudes of business decision makers across APAC. Take a look at the infographic for the key insights from our latest wave including:

  • 69% of companies foresee adopting a hybrid model post-pandemic with a mix of in-office and work-from-home
  • Yet of the surveyed companies only 4% will no longer keep a physical office
  • The pandemic has placed greater attention on sustainability with 67% believing that COVID-19 has increased the importance of green / environment protection
Infographic explaining the shift in business decision makers' priorities

Marketing textbooks are filled with examples of products or services that flopped when they hit the market.

Take Juicero, for instance. Investors pumped a staggering $120 million into a Wi-Fi-connected juice maker that nobody indicated they wanted or needed. Unsurprisingly, it was scrapped within two years.

Or consider ESPN’s mobile phone service, priced at $400 and lacking handset choice for the target audience. The service was swiftly shut down, and ESPN opted to provide content to Verizon instead.

And who could forget New Coke? Launched in 1985, it remains a major marketing misstep. After only a few weeks, Coca-Cola abandoned the product and reverted to its old formula.

Even some of the world’s most innovative companies have failed to foresee the impact of new launches on their target market. Google, for example, arguably launched its wearable Google Glass concept too soon. Its high price did not help, and it failed to connect with consumers.

Fortunately, there is a way to avoid such failures. By conducting product concept testing before a product launch, businesses can develop their ideas in a safe and controlled space with the target audience.

What is Concept Testing?

Concept testing involves presenting potential product concepts or ideas to a target audience and collecting feedback to assess market potential. The concept can be a new set of product ideas, a redesign, or a rebrand.

Testing methods can be online, such as quantitative surveys or online communities focused on qualitative insights, or face-to-face, such as focus groups or in-depth interviews.

The Role of UX Designers

UX designers play a crucial role in concept testing by employing user-centered design principles. They create interactive prototypes that simulate the user experience, allowing participants to engage with and provide feedback on proposed concepts. UX designers ensure that concepts are intuitive, usable, and aligned with the target audience’s needs. They facilitate user testing sessions, observe interactions, and gather valuable insights to refine the concepts.

The Importance of Concept Testing

Here are the five key reasons why concept testing is so important:

1. Concept Testing Helps Filter Ideas

Concept testing helps you move beyond blue-sky thinking and determine which ideas will be a hit. It provides data that can bring the whole team on board by providing consensus on which projects to develop and which to shelve.

Great concept testing unites teams behind ideas with real potential, eliminating the need for office politics or frustrating ‘design by committee.’ With concept testing, you hear directly from consumers about what will work and what won’t.

Using a range of qualitative and quantitative techniques, you can understand the consumer view of different concepts and explore whether the types of products or services you want to develop will resonate. Employing a range of testing tools enables you to identify the product concepts with the highest appeal and understand how these can be refined. This allows you to move to the next stage of development with confidence.

It’s no overstatement to say that a well-designed, concept-testing survey or a skillfully moderated online community can pave the way to success. But any survey template or discussion guide needs to be designed to ensure that the overall package, as well as individual features or attributes, are each assessed and fed back on.

This is something that needs to happen in the early stages of decision-making, too. It cannot be left too late as concept testing aims to help you iterate your ideas and tweak them ahead of launch so that they are primed for success.

2. Concept Testing Prevents Bad Decision-Making

Testing concepts in detail before launch may seem like it delays your go-to-market strategy, but it saves significant time and financial losses in the long run. Failed products or services are costly, but concept testing helps you avoid bad ideas and uncover those with untapped potential.

Concept testing helps you find the strongest option to take forward or improve underperforming concepts, ensuring your plans have a solid chance of success. In this way, concept testing can help you avoid an embarrassing failure and take your product development processes from good to great, thanks to that all-important feedback from those who matter – your customers.

3. Concept Testing Identifies Key Elements

Even if you gauge that your product ideas will fly, there are additional considerations, such as positioning, packaging, branding, and pricing. Concept testing optimizes your innovation, reducing the risk of project failure and limiting excessive costs.

Concept testing is crucial for product developers to determine the innovation’s chance of success. It can shed light on blind spots, inefficiencies, misinterpretations, or problems that can lead to failure. Using concept testing methods like surveys as well as qualitative research via a focus group, in-depth interview, or online community can all help to tease out your target audience’s wants or needs.

4. Concept Testing Fixes Problems Early

The sooner concept testing is undertaken, the more flexibility you have to optimize your initial idea. Concept testing helps you understand what elements don’t work, allowing you to refine ideas swiftly based on consumer feedback.

Through concept testing, you can understand what elements don’t fly with customers so you can ditch underperforming elements to save costs or iteratively improve concepts so that they better meet consumer needs. With an online community, for instance, it’s possible to develop concepts based on consumer feedback and then upload them for further feedback, in this way allowing you to refine ideas swiftly.

5. Concept Testing Ensures Market Fit

Concept testing puts the consumer voice at the heart of product development, ensuring new products resonate with customers and increase business performance. It helps you identify pain points or delights relating to new ideas, establish how your product fits into the lives of your target audience, and determine which concepts they would be willing to pay for.

Good concept testing means getting under the skin of your customer and letting their feelings and needs guide you toward the solutions with the most potential. By putting consumers central to product development, you can develop products and services that outperform the competition.

Conclusion

Concept testing is a crucial step in the product development process, providing valuable insights and feedback from the target audience. It helps businesses refine their concepts, build better products, and increase their chances of market success. By partnering with skilled market researchers, you can gain the insights needed to focus efforts in product development and outperform the competition.

Concept testing is a critical market research method that allows businesses to gather feedback and validate their ideas before investing significant resources into product development. It involves presenting potential product concepts or ideas to a target audience and collecting their feedback to assess market potential and make informed decisions.

By conducting concept testing, businesses can identify and address potential issues or shortcomings in their product concepts early on. This process helps refine and optimize the product’s features, design, and overall value proposition. It enables brands to gather valuable insights into consumer preferences, needs, and expectations, allowing them to align their product development efforts with market demand.

The feedback gathered during concept testing provides actionable data for designers and product teams to improve their concepts iteratively. By incorporating user insights, businesses can make informed decisions about product features, functionality, usability, and overall user experience. This iterative approach ensures that the final product aligns with user needs, expectations, and preferences, increasing the likelihood of market success.

Moreover, concept testing helps in minimizing the risks associated with product development. By validating concepts early on, businesses can avoid costly mistakes and reduce the probability of launching a product that fails to resonate with the target market. It allows companies to make data-driven decisions, optimize resources, and ultimately build better products that are more likely to succeed in the marketplace.

Concept testing plays a pivotal role in the product development process by providing valuable insights and feedback from the target audience. By leveraging this feedback, businesses can refine their concepts, build better products, and increase their chances of delivering solutions that meet customer needs and expectations. This iterative and user-centered approach enhances the overall product quality and increases the likelihood of market acceptance and success.

Product development need never be a risk. If you’d like our support with a concept testing project, please get in touch or request a proposal.

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We’ve been working with Bloomberg to understand the priorities, actions and attitudes of business decision makers across APAC as the pandemic progresses. In the second of five waves, we explore attitudes towards travel, media consumption patterns and brands.

Take a look at the infographic for the key insights including:

  • 7 in 10 decision makers say their companies are restricting travel, up by 18% from the last wave in May
  • In 1 in 4 organizations, employees are given the flexibility to work from home.
  • 57% are looking for brands that are customer-focused and are flexible enough to accommodate their rapidly changing needs

We partnered with our friends at Measure Protocol to take part in a first-of-its-kind trial to harness blockchain for market research. Watch the video to discover what we learnt about the potential for this new technology.

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