What is market entry strategy?

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How do you enter a new potential market?

Expanding your business to new markets allows you to reach potentially vast numbers of new customers and grow your revenue massively. However, the process can be difficult and filled with complications.

A market entry strategy maximizes your chances of success when moving into a new market. In this article, we’ll look at some reasons to consider when expanding your company, the differences between domestic and international markets, and some strategies you can use.

Why move to a new market?

Now, let’s delve into the reasons why entering a new market is a strategic move worth considering. Although it can be demanding and entail significant expenses, the following factors make it a worthwhile endeavor:

  1. Expanding customer base and boosting revenue: The primary motivation behind entering new markets is to expand your customer reach and increase profitability. By accessing untapped customer segments, you can sell more products or services and achieve higher revenue streams.
  2. Exhausting growth opportunities in the domestic market: If your business has reached its maximum revenue potential in the local market, exploring new markets becomes imperative for sustained growth. Expanding into new territories allows you to tap into fresh customer segments and unlock additional sources of revenue.
  3. Diversifying business and reducing risk: When you venture into multiple markets, you decrease the risk associated with relying solely on one market. By diversifying your operations across different markets, you can mitigate the impact of market fluctuations, economic downturns, or unforeseen circumstances that may adversely affect one market but not others.
  4. Leveraging competitive advantages: Entering new markets provides an opportunity to capitalize on your competitive advantages. These advantages can include unique product features, technological expertise, brand recognition, or operational efficiencies that give you an edge over competitors. Expanding into new markets allows you to showcase and leverage these strengths to attract customers and gain market share.
  5. Accessing new resources and talent: Expanding into new markets can grant you access to valuable resources, such as raw materials, production facilities, or distribution networks that may not be readily available in your current market. Additionally, entering new markets may enable you to tap into a diverse pool of talent, fostering innovation and driving business growth.

What are the signs that it might be time for your brand to enter a new market?

Timing is everything when it comes to expanding your brand’s reach into a new market. But how do you know if the time is right to expand? The list below is just some signs that your brand might be ready for this move:

  1. Strong demand: The brand has received positive feedback from customers in other markets and has a solid reputation.
  2. Market saturation: The brand has reached its maximum potential in its current market and is looking for new growth opportunities.
  3. Positive market trends: The market you are considering is experiencing growth and presents a favorable economic environment for the brand.
  4. Competitive advantage: The brand has a unique selling proposition or advantage over competitors in this market.
  5. Resource availability: The brand has the financial and human resources needed to enter and succeed in the new market.
  6. Market fit: The brand’s products and services align well with the needs and preferences of the target audience in this market.
  7. Appropriate market entry strategy: The brand has a clear plan for entering the market, including a tailored marketing strategy and an established network of partners and suppliers.

What are the different frameworks for entering a new market?

  1. Market development: This involves expanding the brand’s presence in existing markets by offering new products or services. Pros include leveraging existing customer relationships and brand recognition and being less risky than entering completely new markets. Cons include potentially limited growth potential in existing markets and increased competition.
  2. Market penetration: This involves increasing the brand’s market share in existing markets through promotions, advertising, and other marketing efforts. Pros include leveraging existing infrastructure and relationships and being relatively low risk. Cons include limited growth potential and increased competition.
  3. Market diversification: This involves entering markets with existing products or services or developing new products to meet the demands of the new market. Pros include reducing dependence on a single market and product line and increasing growth potential. Cons include increased risk and the need for significant investment in product development and market research.
  4. Product development: This involves introducing new products into existing markets to replace existing products or meet new customer demands. Pros include the potential for increased sales and revenue and the ability to remain competitive in existing markets. Cons include the need for significant investment in product development and the potential for failure if the new product does not meet customer demands.
  5. Geographic expansion: This involves expanding the brand’s presence into new geographic regions through exports or new operations in the target market. Pros include access to new customers, increased market share, and the ability to diversify revenue streams. Cons include increased cultural and regulatory challenges and the need for significant investment in infrastructure and relationships.
  6. Mergers and acquisitions: This involves acquiring or merging with another brand or company to gain a foothold in the new market. Pros include the ability to enter quickly and access to established customer relationships and market share. Cons include potential cultural and operational challenges and the risk of overpaying for the acquisition.
  7. Joint ventures: This involves partnering with a local company or brand to enter and succeed. Pros include access to local expertise and resources and reduced risk and investment compared to going it alone. Cons include potential disputes over control and revenue sharing and the need to find a compatible partner.

Each framework has its advantages and disadvantages, and the choice of which one to use depends on the brand’s goals, resources, and the characteristics of the market you are entering.

The choice of the framework will depend on various factors, such as:

  1. Company goals and resources: The brand’s overall goals and the resources it has available, such as financial resources and human capital, will play a significant role in determining the best framework.
  2. Market characteristics: The size, growth potential, competition, and regulatory environment of this market will also be important considerations.
  3. Industry factors: The state of the industry, including trends and technological advancements, will also play a role in determining the best framework.
  4. Company strengths and weaknesses: The brand’s strengths and weaknesses, including its existing infrastructure, brand recognition, and reputation, will be important factors in choosing the most appropriate framework.
  5. Customer preferences and needs: Understanding the target audience and their preferences and needs will help the brand determine which framework best suits them.

By considering these factors, a brand can determine which framework best suits its goals, resources, and the characteristics of the new market. It is also necessary to adjust the framework over time as the brand gains more experience and insight.

Questions to ask when considering entering a new market?

  1. Is there a strong demand for the brand’s products or services in the target market?
  2. Is the target market growing and presenting a favorable economic environment for the brand?
  3. Does the brand have a competitive advantage over other brands in the target market?
  4. Does the brand have the financial and human resources needed to enter and succeed in the desired market?
  5. Is the brand’s product or service offering a good fit for the target market and its customers’ needs and preferences?
  6. Does the brand have a clear and well-defined market entry strategy?
  7. Has the brand conducted thorough market research and competitor analysis in the target market?
  8. Does the brand have the necessary local partners and suppliers to succeed?
  9. Does the brand have the necessary infrastructure, including distribution and customer support, to support its entry into this market?
  10. Does the brand need support from key stakeholders, including employees, investors, and board members?

10 questions a brand should ask itself when considering the feasibility of entering a new market or “can I enter?”

  1. Are there any regulatory barriers to entry in the target market?
  2. What is the level of competition in the target market, and does the brand have a competitive advantage?
  3. What is the cost of entry into the target market, including setting up operations, marketing and advertising expenses, and distribution costs?
  4. Does the brand have the financial resources and funding to enter and succeed?
  5. Does the brand have the necessary human resources and expertise to support its entry into the new market?
  6. Does the brand have the necessary distribution channels and partnerships to reach customers in the target market effectively?
  7. Does the brand have the necessary marketing and advertising capabilities to promote its products or services in the target market effectively?
  8. Is the brand’s product or service a good fit for the target market and its customers’ needs and preferences?
  9. Does the brand clearly understand the target market’s cultural and language differences, and is it prepared to accommodate these differences?
  10. Does the brand clearly understand the target market’s economic and political landscape, and is it prepared to navigate any potential challenges?

Domestic markets vs. international markets

Are you planning to enter a new domestic market or take your products overseas to sell in a foreign country? The approach for each of these will be very different.

Domestic markets

Typically, this will be much easier than entering an overseas market. The culture will be the same, everything will probably be geographically closer, and things will likely be very similar to your existing markets.

International markets

This is where things become more complicated. You’ll have to factor in a number of differences compared to how you currently run your business. These include:

  • Cultural differences
  • Administrative differences
  • Economic differences
  • Logistical challenges involved in transporting goods abroad

Things to consider

Before you enter any market, it’s crucial to take some time to confirm whether you can afford the move. Can you afford the costs of exporting, working with intermediaries, tax, and all the other expenses involved? And what proportion of the market can you realistically expect to be able to serve? 

You must also consider if the product or service will work in your intended market. Market research (both online and offline) plays an important role here — ensuring demand for your product justifies the export cost.

Steps to consider when entering a new market

  1. Conduct market research: Determine the size and growth potential of the market, as well as the cultural and legal factors that may affect the brand’s success.
  2. Identify target customers: Define the demographic and psychographic characteristics of the target audience.
  3. Analyze the competition: Evaluate the strengths and weaknesses of competitors in the market and determine how to differentiate the brand.
  4. Develop a tailored marketing strategy: Based on the research findings, create a marketing strategy specific to this market and addresses the target audience’s unique needs.
  5. Establish partnerships and networks: Build relationships with local suppliers, distributors, and other partners to help the brand enter and succeed.
  6. Plan for cultural adaptation: Take into account cultural differences in the market you are considering and make necessary adjustments to products, marketing materials, and other business practices.
  7. Prepare for any regulatory requirements: Research and understand any legal or regulatory requirements that may impact the brand’s operations.

Risks of entering new markets

There are also numerous risks involved in expanding, including:

  • Country risks, like the possibility of political unrest, sudden changes, or financial issues that could impact your business
  • Foreign exchange, such as the possibility of currency exchange rates changing drastically, could seriously affect your bottom line
  • Cultural risk, which essentially means the possibility of your new business venture running into challenges due to major differences in culture and customs
  • Weather unpredictability. Are you moving into a market where natural disasters and weather conditions could cause damage to your facilities and cost money?

Once you have carefully researched your desired market and weighed the potential risks, you may decide it’s worth entering. If so, there are a number of different strategies you can employ, each with its own pros and cons.

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Different market entry strategies

Direct exporting

This is where you export your products into the new market directly. You’ll have to handle all the aspects of the process independently, from transport to payments to operations.

This method requires more resources and time compared to working with an intermediary. You’ll need to create an exporting infrastructure, train employees, and make and receive international payments among many other challenging tasks.

On the plus side, this approach maximizes your profits as you don’t need to pay any third parties. You’ll also have complete control over your sales and marketing processes.

Indirect exporting

Indirectly exporting involves working with an intermediary. It has a number of advantages, such as:

  • Much lower risk. An experienced third party will take care of the exportation process, minimizing the risk of failure.
  • You can focus on your own business and domestic markets without being occupied by your new ones.
  • Fewer resources are required on your part

On the other hand…

  • Profits are lower since you have to pay your intermediary
  • You’ll be disconnected from your customer base, so you’ll miss out on important insights and lessons
  • You’ll lose full control over sales and marketing abroad

There are a number of different options when it comes to indirect exporting. Here are some of the most common ones.

Indirect exporting with buying agents

Buying agents are representatives of foreign companies that want to buy your products. You’ll work through them when selling your products.

They’re usually paid by commission and will try to negotiate the lowest possible price. Sometimes, buying agents are government agencies.

Indirect exporting using distributors

You can sell your product directly to distributors or wholesalers, who will then take care of distributing the product to retailers.

Indirect exporting through management and trading companies

Export Management Companies (EMCs) exist to take care of all your export and sales processes in your desired market.

It’s worth taking some time to research and find the right EMC, as most specialize in a particular market and region. They’ll help you identify markets, find customers, handle all shipping and logistics, and much more.

Indirect exporting through piggybacking

Piggybacking is where you allow another, non-competing company to sell your product. This can work extremely well if your target market already has an existing customer base and distribution infrastructure.

You’ll get immediate access to your market but for a fee.

Producing products in the target market

Another option is to manufacture your products in the target market. This saves you the cost of transport and the many logistical challenges involved in exporting your product abroad.

However, you’ll also need to consider the many challenges in manufacturing your product abroad, legal issues, costs, possible risks, and more. Depending on your situation, this could be a good option.

(For more information on the most effective strategies for entering an unexplored market, check out our top four marketing strategies article).

Entering an unknown market can be extremely rewarding and can allow your business to move to the next level and achieve new growth. It’s important to research all the options and ensure the export strategy you deploy is the safest and most effective for you. You’ll also need to thoroughly research the market to understand its potential and position your product for success, something we cover in our Ultimate Guide To Market Entry.

Kadence can help you do that. We have extensive experience helping businesses carry out research and create effective strategies for market entry. To find out more, learn about our market entry services or get in touch.