Many companies successfully operate in a niche market without ever expanding into new markets. However, some businesses could achieve increased sales, brand awareness and business stability by entering a new market. Developing a market entry strategy involves a thorough analysis of your potential competitors and possible customers.
Some of the relevant factors that are important in deciding the viability of entry into a particular market are suggested below:
Barriers: Are there any legal barriers that need to be overcome in order to enter the market? For example, you need a licence to enter the pub trade. Consider whether you will need an export licence to enter a particular international market. What are the limitations to trade, such as high tariff levels and quotas? Do you have the required level of knowledge and training in exporting procedures?
Product or service: Look at the product or service that you are intending to sell. Consider the following questions:
- How easy is it to maintain?
- Does it have a unique selling point (USP) or direct competitive advantage (DCA)?
- Is it fashionable?
- Does it have limited appeal? If yes, would a new market be receptive?
- Will it be in demand for a long or short period of time?
- Is it easy to transport or will it need special treatment?
- Is the product restricted abroad? (e.g. tariffs, quotas or non-tariff barriers)
- Are there product modifications required?
Resources: Work out how much of your company's resources can be dedicated to launching in the new market - factor in time and the organisational, marketing and technical skills needed. Will you be stretching your resources too tightly? It is better to keep a small customer base happy than to dissatisfy a larger one.
Competition: Look at the competition - is it aggressive? Are most of the suppliers to your target market domestic or international? Will this impact on your likely success? How will you position yourself in the market to stand out from competitors?
Public policy: Find out whether the government offers subsidies or takes taxes from the market in question. Are there any governmental incentives for exporters?
International markets: There are several methods of international market entry. These include:
- Exporting (directly or indirectly)
- Licensing
- Joint venture
- Offshore production
There are two ways to export: selling your product or service directly to an international company or customer, or indirectly by using an export intermediary. These include commissioned agents, distributors and export management or trading companies.
A joint venture with an already established business may be the most effective way to gain entry into a market. They already know the market, have the distribution framework in place and less capital is required. International joint ventures are often accomplished through licensing or offshore production, which requires either establishing your own facility or subcontracting the manufacturing of your product to an assembly operator.
Pricing: Having decided that it is viable to enter the market, the next major decision is that of pricing. Just how much should be charged for the product or service? Take into account the following costs:
- Production
- Packaging
- Transportation
- Promotion
Also consider the basis on which you will sell the goods, i.e. who is responsible for the various exporting costs?
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