Still, perhaps nothing is as complicated as expanding your business successfully in a new market while maintaining service levels. Although breaking into a new market is difficult, it doesn’t mean it can’t be successfully achieved. With the right market entry strategy, you can capitalize on a new market without sacrificing existing customer loyalty. To that end, this post reviews why you should consider entering new markets and how to do it well.
Why Should You Enter New Markets?Typically, most successful companies need to enter new markets at some point. This happens when continued efforts to maximize existing markets are less valuable than entering new markets. It’s a simple matter of opportunity cost. For example, let's say that you own a restaurant in a small suburban town. At some point, the ROI on investments aimed at increasing revenue and decreasing costs will start declining. Before long, the ROI of opening a new restaurant will surpass that of investing in the existing restaurant. Therefore, any rational investor will prefer to invest in opening a new restaurant. Still, when weighing entrance into a new market, you must consider more than direct revenue and costs. In many cases, establishing yourself in new markets can unlock new competitive advantages. For example, a printing service provider who enters new geographical markets can offer more efficient logistics solutions. In this example, the business gains access to new customers and improves their value proposition. Another advantage of entering new markets is economies of scale. When you achieve economies of scale, you can produce more at lower costs. All that said, why your business might enter a new market also depends on your business itself.
5 Tips For Breaking Into New MarketsIt’s important to understand that breaking into a new target market is a difficult and risky task. However, that doesn’t mean it can’t be done; in fact, about 98 percent of U.S. exporters are small to medium-sized businesses. The problems arise when small businesses don’t properly prepare for their expansion, so it’s beneficial to conduct research first. The alternative is far more expensive than the time it’ll take to create a market entry plan. In this section, we’ll outline our top tips for breaking into new markets.
1. Determine The Specific Market You Want To EnterNew markets mean new problems. Even larger companies need to reinvent themselves in new markets, to an extent. On its own, this is a good thing; a company that can seamlessly cross new market boundaries is more robust and diversified. However, there’s a risk of losing your identity when you’re constantly reinventing yourself. This happens all the time, especially with new companies. They start with a new product or service, then they expand at a frenetic pace. Suddenly, what made the product or service great in the first place is muddied up. Not only does this result in a failed expansion, but it can also damage your existing business. This is what makes determining (and sticking to) what you want to be known for so important. Regardless of the focus you choose for your business, it must be the thing that stays true wherever you go. Apple is a great example of this; the company has moved from the computer market to phones, software, publishing, financial services, and much more. Yet in every market they enter, the Apple brand remains the same. Whether you walk into an Apple Store in Beijing or San Francisco, you see a similar aesthetic. From the Genius Bar to the white apple logo, the overall experience is all familiar to customers. This is why you must establish an identity that enters new markets seamlessly so you can increase your chances of success!
2. Ask Yourself, Is There A Real Need For Change?When you decide to break your existing business into a new market, there must be a need. In other words, it must be clear exactly why you’re breaking into a new market. To start, consider what your justification was for starting your business. Chances are, you were—and still are—addressing a very real need for your clients. Also, you likely had a plan that laid out for how you’d build your customer base. The reason this is so important is to ensure your expansion aligns with your business goals. Often, as entrepreneurs seek growth, they lose focus and do too much in their pursuit of growth. The results of this are varied, but they all end in poor execution. To prevent this, it’s critical to take a measured approach that evaluates both internal and external factors. For example, consider the three common options for growth:
- Increasing market share.
- Partnerships, Joint Ventures, and Mergers and Acquisitions.
3. Prove That You Know What You’re DoingAs you did when you first started your business, you must build credibility in new markets with your target customers. One way to fast track building your business's credibility is to expand into new markets with current clients. For example, let’s say your company offers architectural services for office developers. If those office developers also build homes or retail centers, you can expand by serving their other needs. By doing this, you expand your service mix with existing clients. Still, expanding to reach new clients doesn’t give you a free pass; you still have to prove that you're an expert in your field. The previous relationship may get you in the door, but your service or product must be valuable. For brand new markets, managing your brand reputation is especially key to your expansion plans. So protect it as one of your most valuable assets. One way to protect your brand is to start small when you expand into a new market. That way, you can build up your reputation, test your ideas, and start to scale up. While the slower approach may delay returns, it'll also reduce your risk. Ultimately, going slow may be far more cost-effective than jumping in before you’re ready.
4. Conduct Market ResearchWhen you expand into a new market, it’s impossible to remove all unknowns. There are just too many market intricacies, cultural differences, and legal challenges. However, there are many unknown factors you can remove with careful research. At a minimum, you should be researching the following topics:
- Market analysis/industry assessment
- Major competitors
- Products or services
- Target audience
- Distribution channels
- External factors
5. Prepare Your Business's FinancesBreaking into a new market is like sailing into a storm. You can do it, but your ship must be prepared to weather the storm safely. When you’re breaking into a new market, your finances are what keep your ship together during the storm. Reggie Gilyard, Dean of Chapman University’s business school suggests asking:
- Can you access affordable capital at a reasonable cost for new infrastructure, if needed?
- Is your target growth rate financially sustainable with your current capital structure and profit margin?
- If not, do you have access to capital to support the investments required to grow?
Our Final ThoughtsOvercoming the barriers to entry you’ll find in any new market isn’t easy. However, neither was starting your own business, so you can do this. Ultimately, if you plan on growing your business, breaking into a new market is a prerequisite. Not only that, new markets provide much-needed diversification. That way, should any part of your business decline, you’ll have other profit centers. Still, you need to treat entering a new market like starting over. Do your research, establish your marketing strategies, and prepare your finances. Just like when you first started, building an established company in a new market will take time. However, with proper execution, the benefits will outweigh the cost. [cta-newsletter]
Editor’s Note: This post was updated for accuracy and comprehensiveness in December 2020.