Many businesses struggle to become established in their home markets.
But if you establish yourself as a leader in one market, it could make sense to enter a new one. For that, you’ll need a comprehensive market entry strategy.
The news is rife with examples of businesses entering a new market and failing spectacularly – and it isn’t just small businesses. Both Uber and Airbnb attempted to break into the Japanese market only to have thousands of reservations scrapped. Uber was even reduced to only providing one of its secondary service offerings in Japan: food delivery.
Entering new markets for the first time doesn’t have to be a sink-or-swim scenario for your business. If you take the right approach, develop a strategy and scale your business in that market over time, you could come out with significant market share and revenue.
What Is Market Entry Strategy?
A market entry strategy is a roadmap an organization adheres to in order to market their brand and deploy their products or services in a new market.
A market can refer to a country, domestic region or channel.
Types of Market Entry Strategies
Whether you’re looking to enter a global or domestic market, here are several types of market entry strategies to consider.
McDonald’s, Subway, Pizza Hut: these are just a few franchises most Americans are familiar with and which have established franchises worldwide. Franchises are common in the U.S. and are a popular method of entering a new market internationally as well. Franchisees are able to ride on the coattails of an established business model and brand name. (Franchise business loans and financing are available, too.)
Another strategy for entering a new market is to buy an established company, which may be required in order to enter some foreign markets. Although a costly endeavor, the benefit to this strategy is that you’re buying a company with an established name, presence and clientele.
Licensing is another option for market entry, costing less than the purchase of a company. When a firm licenses a product or service, they transfer use rights to the licensee for a fee, and a royalty fee is typically provided from the licensee to the licensor. The product or service can then be used by the licensee for marketing or production purposes.
This can be a solid strategy if the company that buys the license has a strong customer base in the new market. Whether you’re seeking to enter into a licensing agreement as a licensor or licensee, this market entry strategy is one to consider.
A partnership occurs when 2 or more entities combine forces to work together. One partner may already be active in the new market. Additionally, local partners may have existing contacts in the new market as well as a firm understanding of cultural norms and nuances. In some regions of the world, a local partner may actually be required for market entry.
This is a type of partnership that brings together 2 different companies to create an entirely new third one, founded to branch out into a new market. Partners benefit from the knowledge each brings. Profits, risks and costs are shared. Google Earth is an example of a joint venture in which Google and NASA partnered together.
With co-marketing, multiple companies join forces to market their products and services together. While a cost-effective market entry strategy, limited control is a potential downside. Here’s an example of a Hershey’s and Betty Crocker team-up.
Foreign Market Entry Strategies
While all of the previously covered market entry strategies could be used abroad, the following are exclusive foreign market entry modes.
In this direct market entry strategy, you sell directly to buyers in another country, either consumers or businesses. You also can navigate your international sale through a middle person, such as a distributor or sales representative.
Another foreign market entry mode involves selling your products to a company in your home country that has an established presence in another country. If the company is willing to market your product with their global inventory line, you’ve gone international with less risk and fewer costs.
Turnkey projects are what they sound like. Make a deal (often a government is the client) and you’re ready to get to work. It’s a common market entry method for businesses that offer services – think engineering or environmental consulting.
One benefit? These projects are often financed through an international bank, which means there’s less risk of payment falling through.
A company also can enter a new market abroad by building from the ground up, referred to as a greenfield investment. In this case, a company purchases the land it’s going to build on and then operates the business once construction is complete.
While this market entry strategy can be a lengthy process and require the most investment and risk, advantages include complete control and assurance that work is completed according to specifications.
Factors to Consider When Selecting a Market Entry Strategy
Whether you’re looking to enter a new market at home or abroad, there are many factors to consider. When you’re deciding on your business model, consider the following.
You need to have a firm grasp of who you’ll be serving and who you’ll be up against. To understand this, do some research to answer questions such as:
- What is your market?
- Who is your target customer?
- Who are your competitors?
- What are they doing well?
- Where are they lacking?
Production and Personnel
What will your production needs look like? For foreign market entry, will your goods need to be produced in that country? If so, is the capability there to begin production? Are there import or export restrictions?
Additionally, you’ll need to consider how much staff your business will require as well as what the hiring process will look like. Think, too, about the level of training and experience you’ll require for various positions. Consider what professional advisors you’ll need to function, such as accounting, legal, quality assurance, etc.
Scale of Entry
Scale of entry refers to the resources allocated for market entry, which may be on a large or small scale. Entering a market on a smaller scale generally equates to less risk as fewer resources are involved. There’s also a chance to gain knowledge of the industry that can be used at a later point, when more resources can be committed.
However, with fewer resources available, a small-scale entry could make it more difficult to build market share. When determining the scale of entry into foreign markets, evaluate timing, competition, level of risk you’re willing to take on and the cost needed to build your brand.
Market Entry Barriers
Another consideration is the laws that govern your industry, location and type of business. There may be specific licensing requirements. Additionally, if you’re entering an international market, you may face heavy regulations and be restricted to a certain type of business model or investment limitations.
In a global setting, trade barriers, such as tariff barriers and embargos, can also pose hindrances. Differences in languages, cultural values and religion could cause additional barriers to entry.
Market Entry Risks
Risks you’ll want to consider with your market entry strategy include the following:
- Financing issues
- Start-up problems
- Human error
- Labor and material shortages
- Logistics issues
- Natural hazards
- Political unrest
- Public health and safety concerns
- Environmental issues
- Market risks
- Cost and currency fluctuations
- Operational maintenance
- Poor management
- Technology issues
Market Entry Strategy Examples
Here are a couple companies that have successfully entered new markets.
Netflix launched in 1997. Today it operates in more than 190 countries and keeps some 193 million members entertained. At times, the company has faced international regulations restricting the type of content it’s able to make available to audiences in certain markets. It has also had to deal with local competitors offering native-language content, a featured preference among many international customers.
Yet, with all of these market entry barriers, Netflix has secured a solid share of the streaming entertainment market in the U.S. and abroad. Its success is because of several factors, including an initially small scale of entry into foreign markets – branching out first to Canada.
As it’s grown, Netflix has established partnerships with prominent local companies. For instance, in Ireland, Netflix hooked up with television-service provider Vodafone, which made remote controls with a Netflix button. Netflix has also produced original content for 17 global markets, satisfying viewer desires for localized programming.
Another market entry strategy example is Red Bull, a company native to Austria – something you might never have realized. The company first began exporting to neighboring countries, including Slovenia and Hungary, followed by Germany in 1994 and the U.K. in 1995. In 1997, Red Bull’s wings facilitated the energy drink’s flight across the Atlantic and its smooth landing in the U.S.
Over the years, the company has leveraged event marketing to make a name for itself among global consumers and businesses. It hosts and sponsors all kinds of events, including concerts, film festivals, soap box derbies, extreme sports competitions and air races.
And those aren’t exclusive to the U.S. Red Bull is involved in events around the world. The company also owns several Formula One and soccer teams, including Red Bull Racing and the New York Red Bulls.
6 Steps for Making a Market Entry
1. Define Your Market
You don’t have to target a market as large or involved as, say, Japan. If you’re a small business, it will likely be in your best interest to target a more niche market. You may wish to start with a small but profitable subsection of a larger market.
For example, instead of targeting Japan, you could target tech-savvy Japanese millennials who make more than $100,000 a year.
A target market is a specific group of people you want to reach with your marketing message. The clearer you define your market, the better.
That means going beyond the typical demographic information. Age, gender and income bracket certainly matter, but you should also consider other characteristics that unite your target audience and make them viable prospects for your offerings, including the following:
- Culture or subculture
- Spending power
- Buying patterns
- Personal interests and hobbies
- Internet browsing and social media habits
- Stage of life
- Life goals
- Career role and pain points
- What a typical day looks like
Most companies understand that blanket outbound advertising campaigns aren’t usually targeted enough to benefit small and unknown companies. But if you have this type of information, you can use digital tools to cut costs and send marketing messages to exactly who needs to hear them.
A good starting exercise is to compile data from your existing customers. Once you have all this information, create and document buyer personas for each type of customer in your target market. You’ll use these throughout your campaign.
2. Perform a Market Analysis
In addition to your target buyers, also consider how you stack up against other players in the market. For example, if you’re attempting to sell a productivity app for manufacturers in the midwestern U.S., you might discover that the market is already saturated. What can you do to stand out?
A market analysis is both a quantitative and qualitative assessment of your target market. A thorough market analysis typically includes assessments of the following:
- Market size
- Customer segments
- Economic environment
- Barriers to entry
Consider organizing all your qualitative and quantitative data into a report that is easy to present and understand. This is especially important if you need to pitch a market entry concept to other stakeholders.
At this point in the process, you should have a strong understanding of how viable your business model will be in your target market. You may even find that entering this market isn’t in your best interest. But if the numbers look good, you can move on to an internal analysis.
3. Perform an Internal Analysis
Entering a new market is a big undertaking. You’ll be devoting significant time, resources and funds to the project, so you need to be sure your company is up to the task. Before entering a market, do an internal analysis to learn your company’s strengths and weaknesses.
Many companies accomplish this with a SWOT analysis. (SWOT stands for strengths, weaknesses, opportunities and threats.)
A SWOT analysis should involve every stakeholder and employee, even your leadership team. It’s a collaborative process that helps your entire organization improve.
Most companies ask themselves a series of questions surrounding the elements of SWOT:
- What competitive advantages do we have?
- Which of our business processes are most successful?
- What knowledge or skills do we have?
- What are we lacking that can make us more competitive?
- Which of our business processes need improvement?
- Do we need any additional assets, such as money, software or equipment?
- Is our target market growing?
- Are any of the barriers or regulations in our target market being lifted?
- Do we have a successful customer base we can leverage?
- Are any other competitors entering this market?
- Could this market be disrupted soon by new technologies or regulations?
- Do long-term trends suggest this market is shrinking or growing?
Since you’ll be launching a new marketing initiative, you may need to identify skill gaps and outsourcing opportunities.
For example, if you intend to work with a marketing agency, it might be in your best interest to find one that works in your target market. You may also consider a short-term or working capital business loan to help you fund your initiative.
4. Develop an Action Plan
Your new market entry strategy must consist of high-level goals, but also a ground-level roadmap for how you’re actually going to execute it. Additionally, you should consider an exit strategy in case you fail. This isn’t the most exciting thing to plan, but it could help you dramatically reduce losses if your plan is unsuccessful.
Altogether, your action plan should include the following:
- Business plan
- Case for investment
- Implementation work plan
- Key milestones
- Exit plan
5. Run a Pilot Program
If your target market looks viable and you have all the assets in place to take advantage of it, you may be tempted to go all in. But one of the best ways to execute a successful market entry strategy is to run a pilot program first.
Whether you offer a product or a service, a pilot program can help you mitigate risk and obtain proof of concept before you fully engage your new market entry strategy. You’ll also get the opportunity to obtain feedback and address unforeseen challenges.
A pilot program may consist of a scaled-back version of your product, a limited version of your services or a time-restricted engagement of your full offering in the target market.
6. Scale Gradually Over Time
If your pilot program proves successful and you have a strong proof of concept, it’s a good indicator that you should move forward with your full-scale market entry plan. You can either expand upon your pilot program or roll out your full strategy.
Keep in mind that your initial goal should be to increase your market share, not just revenue. As you gain more visibility in the market, you’ll achieve a more secure foothold.
Entering markets for the first time is challenging. It isn’t an initiative you should take idly, especially when so many of your resources will be dedicated to it. It takes timing, strategy and an actionable plan.
But if you take the necessary steps, you could see unprecedented growth in your business and even more opportunities down the road.