Many companies often start as niche players with a very specified value proposition in a single market. After facilitating the company's initial growth, founders and C-suite staff quickly recognize the need to expand into new markets to sustain growth targets. Therein lies the challenge as many companies fail in their effort to penetrate a new market. This is often due to poor preparation. To avoid this, we have developed a six-step approach to clearly identify the opportunity, position the company for success, and ultimately capture the perceived value that has been identified:
- Define the target segment
- Competitor analysis
- Product positioning
- Marketing strategy
- Pilot launch
- Full launch and scale
Identify the Opportunity
For a smaller company with low risk tolerance, a cautious approach is required to enter a new market to avoid their sales efforts hitting a wall.
1. Define the Target Segment
Prior to entering a new market segment, it is key to identify where the company’s product or services will play. This exercise should be as specific as possible, because too broad a focus will lead to wasted time and energy in areas of the market that aren’t interested in your offering. Narrow the broad market into various sub-markets, focusing on the niche segments that will lead to the greatest success, based on things like company size, industry, focus, and capabilities.
2. Competitor Analysis
Next, analyze the competitive landscape that you are entering, and consider the differentiation that you offer to prospective customers. It is unlikely that your company will be entering a blue ocean scenario with little competition or barriers to entry. It is necessary to understand who the incumbents are in the space, what their strengths and weaknesses are, and how your company’s offering is differentiated from existing options. By taking an objective, dispassionate view of the target segment, you and the leadership team will be able to determine the opportunity size and competitiveness of your offering before dedicating additional resources to expansion. If there is an opportunity, then you and your team can take the next step to enter the new market segment.
Position for Success
Once a new market segment opportunity has been identified, you can start dedicating time and resources to strategy planning.
3. Product Positioning
As a newcomer to a market segment, it is important to position your product so that it aligns with the needs of your target audience. Your team should put time into identifying potential buyers of your product, developing customer personas, and mapping out buying processes. This will enable you to clearly address key questions in this new selling environment, such as:
- Who is this going to help?
- Why should people care?
- Why do we deserve to win?
- What’s in it for me (the buyer)?
- How should we price and package our offering to drive penetration?
As you answer these questions, you may have to modify your offering in order to meet the buyer’s preferences and price your product appropriately. As you learn about the market, continue asking questions about how your customer buys. By aligning your pricing strategy with the product’s perceived value, you ensure that the “juice is worth the squeeze” from a revenue generation perspective.
4. Marketing Strategy
Once you understand your product’s position in the new market, you can develop a marketing plan to pursue prospects. This will include efforts such as brand positioning, content marketing, and advertising through the appropriate mediums (digital, tradeshows, industry publications, etc.). If you lack name recognition, you may also explore potential partnerships or alliances that can be leveraged to gain credibility or break into the right distribution channels. As you only get to make a first impression once, it is key that your message is clear, targeted to the right audience, and effective in addressing their needs. Skip this step, and even a great product can fall flat in an expansion play.
Capture the Value
For portfolio companies that make it this far, entering the new market segment will likely become a key strategic initiative. The final two steps of our best practice guidance are meant to help your company establish a beachhead and successfully enter the market.
5. Pilot Launch
Select accounts within the new market segment with the highest likelihood of success based on your research. Conduct a pilot launch in a controlled environment to gather feedback and identify potential issues, then proceed through the sales cycle. Be sure to analyze customer feedback and adjust marketing, product, pricing, and distribution strategies accordingly to reduce friction in the full launch. This is your final chance to pull the plug if your assumptions turn out to be wrong. If there are major flaws identified in the pilot, cut bait and chalk previous work done up to this point as a sunk cost. But, if things go according to plan you can then take the final step into the new market segment.
6. Full Launch and Scale
This is it. After the many hours of planning and strategizing, it is time to put your plan into full swing. The launch of your product into the new market segment should be accompanied by a comprehensive marketing campaign laser-focused on your core customers. Based on the initial response, be prepared to implement strategies for scaling operations to meet demand. Be sure to monitor your predetermined KPIs closely and continue to gather feedback so that you can adapt to changing conditions and maintain competitiveness in the new market segment.
Entering a new market segment is not a light undertaking and can be prone to setbacks. While challenging, the benefits of a successful expansion can be incredibly rewarding when it comes to value creation. By following the best practices outlined in this article, your company will be better positioned to identify the opportunity, position themselves for success, and ultimately capture the perceived value that has been identified in a new market segment.