Planning and implementing a growth strategy to develop new markets and expand your business before your current market flattens out will not only help your business survive tough times, it could also give you a considerable edge_
WHAT TO EXPECTYour business market, like everything else, will change with time. As your business matures and your market share steadily increases, you will probably begin to encounter the growth limits of your original target market. Planning and implementing a growth strategy to develop new markets and expand your business before your current market flattens will not only help your business survive through tough times, it could also give you considerable edge on the competition. This Business Builder will take you through the process of new market development. It will provide you with some easy-to-follow steps on planning and implementing a market expansion strategy before your current market flattens or declines. WHAT YOU SHOULD KNOW BEFORE GETTING STARTED [top] The decision to develop a new product can mark the beginning of an extremely difficult process for many businesses. Because every business differs in regard to products or services it offers, the information in this Business Builder is designed to be as broad-reaching as possible so that it may be adapted to a variety of situations. Applying the information in this Business Builder to your business will help you become more adept at expanding your business into new markets. This Business Builder was developed to help you expand the market for your established products or services. Another method of market expansion involves developing new products that you will introduce to the same or new markets. The Business Builder "How to Expand Your Business Through New Product Development" provides information on how to grow your business by developing new products. Following are a few things to keep in mind before you get started:
- Target Market is the customer group that you feel will most likely want to buy your products or services. This group is defined by your customer profile.
- Customer Profile is a detailed profile of your typical customer. For individual consumers, it includes information such as age, income, gender, marital status, profession and buying habits. For businesses, it includes the types of business, number of years in business, number of employees, annual revenues and products or services sold.
- Demographics are the characteristics of a population such as size, growth, age, income, gender, marital status and buying habits. This information helps you decide whether this target market is large enough for your products or services in the target area.
- Market Analysis is an analysis of research data that results in determinations about the marketability of a product or service in the given market.
- Define Your New Target Market(s)
- Do Your Market Research
- Decide To Enter This Market Or Look For Another
- Enter The Target Market
- Step 1: Define your new target market(s)
- Step 2: Do your market research
- Step 3: Enter the market or look for another target market
- Step 4: Create a plan to enter the market
- Same Target Group, New Geographic Area
- New Target Group, Same Geographic Area
- New Target Group, New Geographic Area
AGE: 25 to 60 years old GENDER: Men MARITAL STATUS: Single or Divorced Parental Status: No Children or Grown Children Financial Profile:After you perform the market research activities described in the next step, you may find that you will need to modify your target area boundaries, or find a new target area. That’s OK. Identifying the boundaries at this stage will give you some ideas of where to focus your research activities. Now take some time and complete the worksheet for your new target market. Step 2: Do Your Market Research Once you have developed a customer profile and identified the extent of your new target market, then you can do some basic market research to determine the following information:Profession: Not important Buying Habits: Prefer to analyze before purchasing bicycle equipment through catalogs. Willing to spend a little more for quality. Interests: Bicycling, running, hiking and other outdoor activities. What is Important to Him: Personal health, enjoying the outdoors, professional success and personal relationships. Lifestyle: Work 40 to 50 hours per week. Exercise (primarily bicycling) four to five times per week. Healthy diet. Reasons the Targeted Customer Will Purchase Our Products: The target customer would purchase bicycle supplies through our catalog because it is convenient, and we offer a good selection of quality products at the lowest possible prices. How Our Products Differ From Our Competitors: Our products are not much different, but many of our policies are. We have an earned credit program that allows customers to accrue 5 percent of each purchase in a credit account that they can use at any time. We match any competitor’s catalog price (sale or non-sale items), and we have a 60 day return policy (most of our competitors only offer 30 days).
- Income: $30,000 to $100,000 per year
- Investment: Company 401K
- Debts: $100,000 mortgage; $20,000 car; $2,000 credit cards
Interest in your product or serviceYour market research is a very important piece of the market expansion process. The more you know about your potential customer base and your competition, the easier it will be for you to identify your niche in this new market. Your data may even help you to decide whether or not you should focus on this potential market.Where to get the Information Your local college and public libraries are excellent resources for national and regional demographic and business-directory information. Here are some helpful resources that you may want to consult:Current population trends of your targeted customers
- Do customers currently use your product/service?
- Do customers have a need for your product/service?
- What would customers be willing to pay?
- What other products/services would they be interested in?
How to get your product/service to your customers
- Expanding, shrinking or stable?
The number and strength of competitors in the target area.
- What do your customers prefer?
- What are your competitors doing?
- What is the most economical?
- Can you establish a competitive advantage?
- Who are they?
- Where are they located?
- What products or services do they offer?
- What is their image?
- What is their pricing structure?
- What is their performance history?
- What is their current share of the market?
- What are their strengths and weaknesses?
- County and City Data Book (U.S. Census Bureau, triennial). Provides information on population, education, employment, income, housing and retail sales.
- American Marketplace: Demographics and Spending Patterns. (New Strategist Publications). Listings of characteristics of U.S. Consumers.
- Sourcebook of County Demographics and Sourcebook of Zip Code Demographics. (ESRI, annual). These volumes identify dozens of local potential-customer characteristics.
- Demographics USA, City and County editions, (Trade Dimensions International, annual). These volumes are similar in concept but have little overlap with the Sourcebooks from ESRI.
- Lifestyle Market Analyst (SRDS, annual). Statistics on regional consumer interests.
- U.S. Industry and Trade Outlook, (U.S. Department of Commerce, annual) forecasts growth rates and reports on production in the past year for 200 industries.
- Current Industrial Reports (U.S. Census Bureau). CIRs provide information on production, shipping, inventories, consumption, and the number of manufacturing firms for over 5000 products.
- Economic Censuses. (U.S. Census Bureau, every fifth year). TheEconomic Censuses report sales figures and trends. The Census Bureau publishes the Annual Survey of Manufactures in the years between Economic Censuses.
- County Business Patterns (U.S. Census Bureau). Local industry statistics. The printed version includes listings for each industry having more than 50 employees in an area, and the CENDATA computerized version has listings of every North American Industry Classification System (NAICS) category with at least one employee.
- Encyclopedia of Associations (Gale Research, annual). Lists U.S. trade and professional associations, many of which produce publications with industry and market statistics.
- What are the market trends?Try to determine if your new target market is growing, stable or declining. You may be able to compete successfully for a good market share now, but if the market trend shows declining demand for your products or services, then the future may not be promising. It is better to enter into a market that shows healthy growth trends.
For example: The owner of the Pedal Power bicycle shop believed that he could compete successfully in the targeted area since none of the bicycle shops in the areas offered mail order service. He estimated that with his purchasing incentives, such as the earned credit plan, and his low prices, his mail order catalog could capture at least 10 percent of the market share in this area. Capturing this market share would increase his annual sales by 40 percent.
What are the trends for your market? - Can I compete successfully in this new market?Decide whether the market is large enough to make it worth your while. Analyze all your trend data carefully before you answer this very important question. Next, take a look at the competitive information that you’ve gathered. Is the market already saturated with competitors or is there room for one more? What is the relative strength of your competition? Do you already compete with them in other markets?Also, supplement this information with your own experience and knowledge. If you are successful in your current markets, then you probably already know a great deal about what it takes to sell your product. You should be able to identify some unique features and benefits of your products or services and the way you promote them. Remember, features are the special characteristics of your product or service, but it is the benefits that sell a customer on your product or service. The customer wants benefits; they satisfy his needs. For instance, you may sell an air-conditioner that is efficient, is computer-controlled, has few moving parts, and is economical. The customer, however, buys it because it saves money on his electric bill, is easy to use, is quiet, and affordable — all benefits to him. Think about your prospective competitors. How are they likely to react if you enter the market? Are your product or service benefits strong enough to compete against theirs?
- What will my market share be?Try to estimate the market share you hope to gain and the amount of time it will take you to gain it. Most business owners overestimate their expected market share so start conservatively. You may want to conduct some limited-scale test marketing in the area you are targeting. For instance, if you’re planning to expand your home inspection services into another region, then try out your marketing plan in a smaller new area. Promote your service. Test the waters. Find out what the response will be and base your estimate on that trial.What is your market share projection?
- Can I make a decent profit?Consider pricing and profitability. Can you sell your products at a competitive price and still make a profit in this new market? It doesn’t always follow that an increase in revenues results in an increase in profitability, especially if your costs are higher. But how can your costs be higher for this new market? Simple! Your promotional costs will be greater. Your distribution costs could be higher. Your labor costs may increase, etc. Before making any concrete decisions on entering this market, you’ll want to have a clear understanding of your sales and associated costs. Estimate the numbers for the following abbreviated profit and loss statement (also known as an income statement) to get started on your analysis. If you need more information in this area, you may want to refer to the Business Builder How to Prepare a Profit and Loss Statement.INCOME Net sales (gross sales – returns & allowances) - Cost of goods sold = Gross profit on sales EXPENSES - Direct/selling (variable expenses) Advertising/Marketing Freight Fulfillment Packaging Salaries and Wages Travel Miscellaneous Selling Expenses Depreciation - Indirect/Administration Insurance Licenses and Permits Office Salaries Rent Expenses Financial Administration Utilities Other overhead Depreciation = Net Income From Operations – Other Income and Expenses = Net Profit (or Loss) Before Taxes – Taxes = Net Profit (or Loss) After Taxes Now, determine your potential profitability for this new target market. Does it make financial sense to enter the market?
- Promoting your products or services.Develop a marketing plan that details how you will introduce and promote your products or services to the new target market. This plan should include any media, point of purchase, mailing, telemarketing or other advertising you plan to use. If you market through a sales force, then you will need to develop some sales strategies and prepare your sales people with all the promotional tools and information they will need to solicit new customers. Since you are already in business, you should have some ideas of what has worked for you in the past. If you use a marketing or advertising agency, then involve them in this process after you have decided to enter the new market. They will be able to help you determine the best marketing method for establishing and increasing market share. For additional information on how to promote your products/services, you may want to refer to the following Business Builders: For example: To promote his mail order business, the owner of Pedal Power mailed free catalogs to the people on his mailing list. He included a coupon for 10 percent off any catalog purchase. This offer was also good for anyone who brought the coupon to his retail store. In addition, he sent his mail order customers a letter that highlighted the features and benefits of his mail order catalog. Decide the best way to promote your products or services. What promotional channels are you going to use? How will you allocate your promotional funds to get the best mix? Outline your plan with targeted dates for each.
- Delivering your products or services to the customerSupply and distribution are the logistics of doing business. If you are in retail and you are moving into a new geographic area, then you will need to find a good location for your new store. You will also have to establish a method of supplying the new store with products. If you deal with suppliers, then you will need to involve them in the planning. If you are a mail order company, then you may need to contract with a carrier who is well established in the target area. If your product delivery requires data transfer over telecommunication lines, then you will need to be able to establish the proper connections and provide your new customers with some means of receiving and sending data. In short, create a detailed plan addressing all the logistics of getting your supplies and delivering your products or services to the new market.For example: Pedal Power established a contract with Federal Express to provide delivery service for its mail order products. It also established a purchase agreement with a local container company to provide a variety of boxes and other shipping materials. How will you get your products and services conveniently to your customers? What are the logistics for distribution? How are your competitors currently getting their products to customers? Is there any potential to establish a competitive advantage here? Considering all this, outline your distribution plan.
- Cultivating new market share and sustaining current business through customer satisfactionAs you begin to establish new customers in the target area, you must remember to stay focused on meeting their needs. It is much easier to lose customers than it is to gain them. Conduct customer surveys to find out what your customers like and dislike about your products. Talk to them personally and ask them what they think. If your business is driven by a desire to meet your customers’ needs, then you will always be successful in new, as well as established markets.For information on surveys and other assessments, you may want to refer to the Business Builder How to Create a Customer Service Plan. Now, outline your customer service plan. How will you determine customers’ ongoing needs? Will you use surveys, interviews? Will you rely on referrals to increase your customer base?
- The process for thoroughly defining a new target market.
- The process for developing a profile of the target customer.
- Market research, including a sense of the information needed for good market research, and where to go for market research information.
- Market analysis its purpose and expected outcomes.
- The overall process of expanding your business into a new market.
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