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A company follows a market development strategy for a current brand

when it expands the potential market through new users or new uses.
New users can be found in new geographic segments, new
demographic segments, new institutional segments or new
psychographic segments. Another way is to expand sales through new
uses for the product.

The key difference between this growth strategy and market penetration
is that the definition of the target market must change. In other words,
the market potential must increase through this strategy, whereas the
market size is "fixed" with a market penetration strategy.

Always start with the definition of the target market for a brand. If the
target market for Coca-Cola is the US market for soft drinks, then when
Coca-Cola took their products to Russia, that was an example of market
development since the market potential for Coca-Cola increased. One
way that Neon basically doubled its market potential was when it
abandoned its initial feminine positioning (the "Hi!" campaign) and
expanded their target market to include men. If Neon further expanded
into fleet sales, this would be an example of a new institutional segment
adding to market potential. Finally, Evian is placing their bottled water
in both the regular and health sections of grocery stores. This expands
their market potential by appealing to different psychographic segments
—in effect broadening their target market to include regular water
drinkers and health-seeking water drinkers (who perhaps before bought
specific heath drinks).

It is also possible for existing brands to find new uses for their
products. Mica is a mineral that was originally used in industrial
products. But today it's found in everything from pearlescent
automobiles to sparkly cosmetics. So each producer of mica has
expanded their market potential by finding new uses for the product.

Other examples of new uses for particular brands would be the standard
examples of Chex cereal for party snacks, Heinz vinegar to clean
windows and Tums for calcium.
There is an important distinction to be made between selling to non-
buyers and selling to a new customer base, which in a manner of
speaking could include "non-buyers." This is settled through the point
of view of the company or brand's target market. Thus, for the Coca-
Cola example above, its "current" target market would have been the
US market for cola soft drinks (or simply soft drinks). Coca-Cola's non-
customers are those people who buy cola but not Coca-Cola; they may
buy Pepsi-Cola. Coca-Cola's non-buyers do not buy cola at all. But the
non-buyers are always available (part of the current market potential) to
Coca-Cola and Pepsi-Cola as a way to increase sales. Indeed, that was
the point of Pepsi-Cola's "Joy of Cola" advertising campaign—get
more people to drink cola again.

But when Coca-Cola decided to sell their cola drink in Russia, that
changed the definition of their target market from the US market for
cola to the US plus Russia market for cola, thus increasing market
potential by adding a different customer base.
The danger of market development

The main danger facing a company following a market development


strategy for a brand is that it could fail to adequately understand the
new customer base.

When Office Max decided to use a market development strategy in


Japan, they just built the large superstores that were successful in the
United States. But this was a mistake because the Japanese consumer
didn't want to shop at American-style "big box" stores. Had Office Max
thought through who their target market was, they would have realized
that they didn't really understand very much about the Japanese
consumer, even though they understood a great deal about the
American consumer.

Companies expanding to foreign markets often make errors like this.


The online auction company eBay shut down its first Japanese Web site
due to a major failure to recognize that Japanese consumers were
different from American consumers. eBay had emphasized used
collectibles, which is eBay's core business in the US, but Japanese
consumers were more interested in new goods. By not heeding the
main danger of a market development strategy—understanding the
consumer—eBay failed in Japan.

Remarkably, it was reported in 2005 that Wal-Mart—three years after


entering the Japanese market—was losing money. They followed the
same low-price strategy on lower-end products that was so successful
in the US. But Japanese consumers were not interested in low-end
products which they equated with low quality. So Wal-Mart plans to
add more upscale products to their stores in Japan. Wal-Mart said that
they were "surprised" by the preferences of the Japanese consumer.
With a properly-executed market development strategy there would be
no such surprises.

And this is difficult to believe: After Disney messed up the launch of


Euro Disney, in 2006 they messed up the launch of Hong Kong
Disneyland, and for exactly the same reason—not understanding the
consumer.

Back to product-market growth matrix

Expand With New Market Development

Overview

The decision to expand your business into additional markets can be both exciting and daunting.
On the one hand, you're hoping for sales and profit growth. On the other hand, however, you're
faced with uncertainty about the effort and cost of expansion. This article will provide a road map
for the expansion process. It will help you sort through your options when looking at expansion
and set realistic targets for growth. Use this tool to research possible market opportunities,
develop your expansion plan, and initiate action. By following the steps outlined here, your
business will have a better chance of succeeding in a new market.

Outline

I. Choosing an Expansion Mode


II. Expanding Geographically
III. Expanding With New Target Customers
IV. Identify Potential Markets
V. Do Your Research
VI. Niche Markets
VII. Begin With Limited Offerings
VIII. Ramp Up to Full Offerings
IX. Expanding Promotions
X. Monitoring Success
XI. Resources

I. Choosing an Expansion Mode

Market expansion sounds wonderful, but it does not come risk-free. You may be successful in
your current market, but that's because you are already familiar with it: You have researched it,
worked in it, and are comfortable in it. Once you move into different markets, it's a whole new ball
game. You're the new kid on the block, having to prove yourself all over again. You're also
running your business on a much larger scale. You'll have more employees to manage, new
customers to service, and new competitors to fend off. Thus, when considering market
expansion, it is generally a good idea to approach it enthusiastically, but also with caution.

That's not to say that you don't have a few aces up your sleeve. After all, you've already
succeeded in a least one market, so you have a good idea of what it takes to win. Also, you
already have a product or service line, and manufacturing and distribution channels in place, so
you aren't starting from scratch, which gives you a huge advantage. You will now have to figure
out how to do more of the same, only on a much larger scale.

Think of yourself standing at a fork in the road. One route has a sign that reads "Geographic
Expansion"; the other route has a sign that reads "New Target Market Expansion." How do you
know which road to go down? A good way to begin making your decision is to list the pros and
cons of each. For instance, branching out geographically has many advantages. You have a leg
up because you already understand your customers, even taking into account regional
differences. Thus, you can continue to do business as you always have, just on a much greater
level.

However, there are times, especially when you venture into new countries, when you may have to
alter things a little in order to meet some very specific customer needs. Are you prepared to do
this? If not, you may want to take the other route and expand by targeting new customers. In
going down this road, you need to carefully examine your product and see if there is a group of
customers out there that you have paid little attention to in the past. Then, list some different
ways you could possibly attract them.

Once you have successfully targeted one market with your product or service, and you have the
staff, processes and implementation strategies in place, it may be time to consider expanding
your target market. Ask yourself if your service or product could be altered slightly to reach a
different market without needing to change the entire operations of your business. For example, a
health club provides high-impact aerobic classes to its high-energy clientele. But with so many
insurance companies now reimbursing senior citizens for exercise programs, the health club
could offer a low-impact seniors class that would attract an entirely new market without having to
make major adjustments other than designing a new class and hiring a qualified instructor to
reach the market.

Remember, in choosing which path to follow, there is no definitive right or wrong answer. It's all
about what works best for you.
Back to Outline

II. Expanding Geographically

Perhaps the most common way to expand into new markets is geographically. Cape Cod Potato
Chips is a perfect example. The company started in Massachusetts and expanded west — all the
way to California. Today, this once-small business has its product in 42 states and five countries.
How were its managers able to accomplish this? Simple. They had an overall understanding of
what their product was and a clearly defined business strategy for geographic expansion.

While your goal may be to take your company immediately to a national level, it is important to
exercise some restraint. Cape Cod Potato Chips didn't take on the world overnight. Instead, they
started slowly, venturing into their immediate backyard, which happened to be New England.
Once successful in New England, the next obvious move for them — or so they thought — was
Manhattan. If they could make it there, they could make it anywhere, right? Perhaps, but they
suffered a setback. They couldn't find a distributor in Manhattan and, for a while, they thought it
was over. New England would be as far as they would go. It was then that they went back to their
original marketing strategy.

Cape Cod Potato Chips had decided two important things up front. First, they weren't going to try
and be a chip that was all things to all people. They were a high-end potato chip, which cost more
but tasted better. Second, their goal was to build a loyal customer base; to accomplish this, they
knew they had to get their product into the hands of as many potential customers as they could.
But how was this little mom-and-pop company going to do this? Well, they may not have had a lot
of money, but they were extremely rich in creativity, and it paid off. They began to hand out
samples — not just random samples, but calculated ones. For example, they got their product on
airlines so that people all over the country would have the chance to try them. Thus, these
potential customers would already be aware of the great-tasting chips when the company entered
their geographic region. They also partnered with other businesses, such as beer companies, as
an inexpensive way to get their product out to new regions. In states with beaches, they hired
interns to pound the sand and hand out their product. In short, they created a buzz, and soon,
they were on the shelves in Florida. From there they took off to other geographic regions,
including their dream market: Manhattan.

As you attempt to expand geographically, think of Cape Cod Potato Chips, and don't try to take
on too much territory at once. It is better to expand slowly from region to region than to attempt
too much at once. Also, when setbacks happen, don't automatically give up. Just because one
region says "no thanks" doesn't mean other regions will do the same. If Cape Cod Potato Chips
had stopped at the New York border, they would not be half the company they are today. While
your goal may be to go national immediately, it is important to exercise some restraint.

When thinking in terms of geographic expansion, remember the world can be your oyster. While it
is definitely easier to expand across America, don't feel compelled to stop at the U.S. border if
you truly believe there is a global need for your product or service. Depending on what you are
offering, you may feel there is a greater need for it in a city like London vs. a city like Lincoln,
Nebraska. For obvious reasons, expanding internationally can be a lot more complicated, but if
done correctly, it can also be quite lucrative. For more information, see How to Expand Your
Business Globally.

Self-Assessment:
The following questions are designed to help you determine if you are ready to expand
geographically. Ask yourself:

1. Does my business operate with strict processes, guidelines and standards that are easily
reproduced in different locations?
2. What changes will I have to make to my business to successfully expand into a new
market?
3. Staffing?
Budget?
Operations?
Resources?
Marketing Program?
Marketing Materials?
Sales Staff?
Sales Materials?
Capabilities?
4. Do you need to have a physical presence in the location you are considering? Or could
establishing an Internet presence or mail-order process eliminate the need to physically
move into a new market? If yes, what will that mean to your business?
5. How is the geographic market different from the one you are in now?
6. Can your operations to expand financially support additional office space, new staff,
equipment, etc.?
7. Is it feasible to compete with existing establishments in the geographic region you are
considering?

Back to Outline

III. Expanding With New Target Customers

Believe it or not, it is also possible to expand into new markets without ever leaving your own
backyard. How? Market expansion can also occur when you identify new groups of target
customers in your current region. To begin identifying these potential markets, look at who is
currently buying your product or service. Ask yourself why they are buying. What need are you
filling? Now do some brainstorming. Ask yourself what other groups might benefit from your
product or service. Get creative and dig deep. Are there changes you could make in packaging
your product or service that might appeal to different customer groups? For example, if you own a
dry-cleaning business, what services could you add to make yourself more appealing and attract
a different clientele? You could offer same-day service, for example, that would be extremely
attractive to busy executives who are always racing around doing things at the last minute. Or
you could add a tailoring service. Or how about a weekly discount to attract a less affluent
clientele? Do you see a theme emerging here? The trick is to attract new customers while at the
same time keeping existing ones.

McDonald's is a perfect example of a company that expanded by targeting new customers. When
you think of this fast-food restaurant chain, what images come to mind? A family restaurant with
lots of screaming kids running around? Ronald McDonald, the company clown, Happy Meals and
playgrounds in the parking lot? The truth is, at first McDonald's target customers were children.
But research showed that even though they had been hugely successful with this campaign, they
were in fact missing a much larger customer base: adults. Research proved that adults consume
more burgers than children do, so McDonald's decided to go after two new groups of target
customers: teenagers and adults. They unveiled new ad campaigns that were much slicker and
sophisticated than previous ones, while at the same time promising potential new customers a
burger for adults called an "Arch Deluxe." But look carefully and you will see, despite the new
name, what changed here was not so much the burger, but rather to whom the burger was being
sold.

A word of caution: When looking to expand into different markets by generating new customers, it
is important to thoroughly think about what adding new benefits or features would mean to you.
Same-day service seems like a great idea on the surface, but providing that service may be much
more difficult than it sounds. Ask yourself how you will logistically provide a same-day service.
Will you farm out the task to a larger firm and simply take a percentage, or will you have to add
equipment and manpower to your current operation? In contrast, adding a tailor a couple of days
a week or offering discounts seems much easier.

Self-Assessment:

The following questions are designed to help you understand if you are ready to venture into new
markets. Ask yourself:

1. How well is my product or service doing in its current market? If your business is going as
planned, what are the contributing factors? Will these factors be present if targeting a
new market? If your business is not going as planned, what are the barriers prohibiting
growth? Will these barriers be present in targeting a new market? Will there be new
barriers that arise when targeting a new market?
2. How is the target market you wish to enter different than the one you are in now? What
are the positives? What are the negatives?
3. What changes will I have to make to my business to successfully expand into a new
market?

Staffing?
Budget?
Operations?
Resources?
Marketing Program?
Marketing Materials?
Sales Staff?
Sales Materials?
Capabilities?

4. Have I completely researched my new customers? What will they expect from my
business?
5. Have I thoroughly investigated my new competitors?

For additional information, see Conducting A Market Analysis, Analyze Your Competition and
Targeting Your Market.
Back to Outline

IV. Identify Potential Markets

The first step to identifying potential markets is to first determine precisely who the market is. To
whom do you wish to sell your product or service? What are the demographics? Male or female?
Wealthy or middle class? What is the age range? Are you selling to housewives or women who
work outside the home? Do they live in a particular geographic location? Does the market have
seasonal or annual needs? You must have answers to all of these questions before you can
begin to move forward.

Once you have established a potential new market, you must determine their needs and desires.
You must not only discover what your prospects want, but why they want it. Then — and this is
crucial — you must find out if your product or service meets those wants and needs.

Market Assessment:

Do your company and your potential new market have a perfect fit? The following questions
should help you discover if the potential in the markets you are pursuing really exists.

1. What are consumers in this new market looking for?


2. Why are they looking for it?
3. How does my product or service meet their needs and desires?
4. Do I consider my product or service to be a perfect fit with what I know about this new
market? Why or why not?
5. Now take out a piece of paper and list the specific reasons that your product or service
fills the need of that particular market. If the paper is more than half blank, you should
probably consider other options.

Back to Outline

V. Do Your Research

Assuming you were able to list many reasons, it is safe to say that a potential market may very
well exist for you. How will you know for sure? You can't ever be 100 percent certain, though you
can greatly increase your chances of successful expansion by researching your new potential
market. If you are unsure how to research a new market, think back and ask yourself how you
evaluated the potential of your existing market. Even if you used a non-scientific method, chances
are you did some sort of informal research to determine that people would want to buy your
product or service.

It is important to remember that while you are indeed venturing into new waters, you are not an
inexperienced swimmer. You have already been successful in a least one market. Don't be afraid
to fall back on that experience and knowledge as you forge ahead. Some common ways to
research a new market include the Internet, industry publications and trade shows. If possible, go
out and talk to target customers. They are the ones who can give it to you straight. And don't
forget when you research your potential market to make sure you check out your competitors. If
you fail to determine who you are going up against, the results could be devastating.

Once you have established a potential new market, the time has come to pay the piper. You must
approach target customers and see if they are as excited about your product or service as you
are. Is your company the answer to their prayers? Some easy ways to get potential customer
reaction is through focus groups, and telephone or direct-mail surveys. If you want to get creative,
you could go to an event or location where you know you will find your target customers. For
instance, if you are targeting young-to-middle-aged men, a sporting event or a golf course might
be a good place to talk to them. On the other hand, if your target customers are teenagers, check
out pizza parlors, video stores and record stores. If applicable, bring along product samples or
brochures that describe your services and ask if it is something that interests them.

And be sure to listen to all feedback, even if it's not what you want to hear. The biggest mistake
you can make is to forge ahead in a market if everyone is holding up "not interested" signs. If you
think you are disappointed now, wait until you've spent blood, sweat and tears introducing your
product or service only to find out the market doesn't want it, based on everything you were
already told ahead of time.

Back to Outline

VI. Niche Markets

Quite simply defined, niche markets are small, definable groups of people that have a shared set
of demographic characteristics. Think of the niche market as a specialty market of like-minded
individuals that can be a valuable and profitable customer pool for your products or services.

If you own a small bed and breakfast in New England, for example, your customers probably tend
to be both travelers on annual vacations as well as those who just happen upon you looking for a
place to spend the night. In other words, your market is any and all travelers. By adding a few
simple services, you may be able to expand into a niche market. What if you hired a driver and
chauffeured guests to and from airports in style? What if you added a gourmet chef and
expanded your meal service to include quiet romantic dinners? Or hired a masseuse and really
spoiled your guests?

For more information, see Creating a Competitive Advantage.

Back to Outline

VII. Begin With Limited Offerings

Once you have done the research and decided that you are going to expand into new markets,
you must think about how you are going to introduce your products or services to your target
customers. A common mistake in market expansion is the tendency to spread yourself too thin
and try to do everything at once. One way to avoid this is by employing a gradual roll out,
expanding region by region, market by market rather than trying to be everywhere at the same
time.
This roll out strategy can be extremely successful for a number of reasons. First, you conserve
your resources. Imagine the money you would need up front in advertising and promotion to enter
10 regions, as opposed to just one. And, by entering one market at a time, you should also be
able to generate revenue that you can put back into the advertising pot for the next region.

By going slowly but surely, you will also insure that you are able to meet consumer demand. The
last thing you want is to have eager customers who can't purchase your products or services
because you can't keep pace with their needs. Of course, on the flip side, if the market proves
unsuccessful, you also won't end up with a warehouse full of unusable product.

Additionally, a gradual roll-out allows you to cash in on word-of-mouth promotions. If one region
gets excited about your product or service, the next region may be salivating, waiting for you to
come down the road. A perfect example of this is a product called Clean Shower, developed by
Automation Inc., which promises that you will never have to scrub your shower walls again. Of
course, what human being wouldn't jump at the chance to stop cleaning shower walls? Clean
Shower was introduced with a limited offering but word of mouth from state to state had
customers anticipating its arrival.

An alternative to a regional roll-out is a roll-out to select distributors. For example, if you have
created a special blend of herbal tea, you may want to look at certain types of restaurants or
hotels where you think your product might do well. If your tea takes off, you can then expand not
only to hotels and restaurants, but also to coffeehouses and gourmet specialty stores.

Back to Outline

VIII. Ramp Up to Full Offerings

Once your product takes off in the initial regions, you can graduate to a full offering. Again, a full
offering can mean geographical regions, or it can mean scaling up to additional distribution
channels. One entrepreneur recently invented a Bloody Mary Mix intended to put all previous
Bloody Mary mixes to shame. He began by marketing his recipe to local restaurants. As the
product took off, he was able to branch out to more restaurants; then he added hotels and liquor
stores to his list of distributors. Now that he has proven success in his own backyard, he will be
able to scale up and eventually graduate to a full offering. The key to this strategy is to think big,
but start small.

So how do you know when it is time to graduate to a full offering? The following questions should
help you understand if the time is right for you to move forward:

1. Have I been successful in the markets I have attempted? Why or why not?
2. Do I have the money to venture into new markets? If I need to obtain outside funding,
how will I attempt to raise it?
3. Do I have a sufficient staff to enter new markets or do I need to hire?
4. Is my product or service heavily anticipated in other regions due to word of mouth from
my current markets?
5. Is my product moving or do I have an overstocked warehouse?

Back to Outline
IX. Expanding Promotions

You have to pay special attention to how you will promote your products and services in the new
markets. Once again, you can fall back on your previous experience, but previous promotional
methods may not be effective with a new geographic location or niche market. As you know,
traditional promotional methods — such as TV, radio and billboard advertising — are costly, and
in today's technologically advanced society, it is hard to capture prospects' attention at all, let
alone hold it long enough to sell them a product. Therefore, you may want to consider some
creative, nontraditional promotional methods to reach your new markets in new ways — and save
on the costs as well.

Here is a sampling of ways to raise product awareness without spending an arm and a leg:

• Write and distribute a newsletter about your product or service. Make it humorous, eye-
catching and full of useful information about the benefits offered by your product or
service.
• Take out ads in church bulletins, yearbooks or community theater playbills. You will still
reach a large group of prospects, but at a much lower cost.
• Sponsor a contest. Don't underestimate the number of people who get a thrill thinking
about the possibility that they could win something. The prize you offer can be as simple
as one free month of services or one free product, depending on what you can afford. In
the end, all things considered, you will probably spend the same amount on a contest
that your competitors will by handing out traditional coupons and rebates on their
products or services — but you will get a much bigger bang for your buck with the buzz it
creates.
• Rent a booth in a prime location at your industry's annual trade show. The prospects you
reach will be targeted and open to your sales message, and you will have the opportunity
to talk one-on-one with potential customers to obtain valuable feedback on how you can
improve your products and services. The key to making a trade show work for you is to
give your booth pizzazz. Whether you plan an off-the-wall booth design, giveaways,
music or food, you will need to give people a reason to stop by and talk to you. Also,
bring staff along to man the booth while you walk around networking with attendees.
• Give away free samples. Most people love to get something for nothing. Free samples
may seem like a hassle, but don't write them off. They are an excellent way to get
prospective customers to try your product, and if they like it, they will surely come back
for more.
• Be willing to go to extremes. If you have invented a super new deodorant, for example,
set up a stand outside a ballpark in the dead of summer. When sweaty customers roll out
of the stadium, let them compare your deodorant with that of your top competitors and
see which they prefer.
• Go against the grain. If most of your competitors typically advertise in radio, go for TV or
print. Come up with an ad campaign that instantly knocks people's socks off.

Next Step: What other ideas can you think of to creatively promote your product and service in
your new market(s)?

When venturing into new markets, many people are concerned that they won't be able to promote
their product or service correctly simply by virtue of the fact that they don't live in the region.
Thus, your temptation might be to hire a PR firm or contract a sales representative. Both of these
options are extremely expensive, however, and these outsiders don't share your knowledge or
emotional attachment to your product or service. The bottom line is, no one can promote your
"baby" better than you can.

For more help, see Promoting Your Business.

Back to Outline

X. Monitoring Success

Now that you are up and running in more than one market, you must continuously monitor your
success and be willing to make changes based upon public reaction to your product or service.
The best way to do this is by listening to your customers. How you respond to customer feedback
can mean the difference between the success and failure of your product or service. Remember,
customers are people, and they like to feel that they have been heard. Asking for comments
about your product or service and then getting defensive is not going to serve any purpose,
except perhaps to insure the death of your product or service.

Just because a product or service has done well in one market does not mean it will do as well in
all markets. Different geographic regions often have different tastes and expectations. But don't
sweat it. Even if you start out slowly in a market, you may be able to tailor your product or service
to a particular region, providing you listen to what your customers tell you and you act upon what
you hear.

How do you know what customers are thinking? It's very simple. You ask them. Obtaining
customer feedback is not a difficult task, and there are many ways to do it. Including a survey
within the packaging of your product or service is a common way to go. Be sure the questions
you ask are direct and to the point. A survey that looks too time-consuming almost guarantees
that most customers will toss it. You will also want to be sure that you include a section for
comments.

Sample Survey Questions

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