Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products. Companies utilize the market development strategy to discover new potential buyers of their products or services.
Aspect
Explanation
Concept Overview
– Market Development is a growth strategy employed by businesses to expand their market reach and increase sales by targeting new customer segments or untapped geographical regions. It involves introducing existing products or services to new markets or market segments with the goal of increasing revenue and market share. It is one of the four primary growth strategies outlined in the Ansoff Matrix, along with Market Penetration, Product Development, and Diversification.
Key Objectives
– The primary objectives of Market Development are to: 1. Identify new markets or market segments that have potential demand for the product or service. 2. Adapt marketing and distribution strategies to suit the characteristics and preferences of the new target audience. 3. Increase sales by successfully entering and capturing market share in the new market.
Approaches
– Businesses can undertake Market Development through several approaches: 1. Geographic Expansion: Entering new regions, countries, or cities. 2. Demographic Expansion: Targeting different demographic groups, such as age, gender, income levels, or lifestyle. 3. Psychographic Expansion: Focusing on consumers’ psychographic traits, like values, beliefs, and interests. 4. Behavioral Expansion: Targeting customers based on their buying behavior and preferences. 5. Product Adaptation: Modifying the product to suit the preferences and needs of the new market.
Risks and Challenges
– Market Development carries inherent risks and challenges, including: 1. Market Entry Costs: Expanding into new markets can be costly, involving expenses related to marketing, distribution, and market research. 2. Competition: New markets may already have established competitors. 3. Cultural Differences: Understanding and adapting to cultural nuances is essential for success. 4. Regulatory and Legal Hurdles: Complying with local laws and regulations is crucial. 5. Economic Conditions: Economic stability and consumer purchasing power can vary widely across markets.
Market Research
– Successful Market Development relies on thorough market research to assess the potential of the new market. This research includes studying market size, demand trends, competition, regulatory environment, consumer behavior, and cultural factors. An in-depth understanding of the target market is vital for making informed strategic decisions.
Marketing and Promotion
– Marketing strategies must be tailored to the characteristics and preferences of the new market. This may involve localized advertising, language customization, cultural sensitivity, and distribution channel adjustments. Effective promotion and communication are key to building brand awareness and attracting customers in the new market.
Entry Modes
– Businesses can choose from various market entry modes, such as exporting, licensing, franchising, joint ventures, or establishing wholly-owned subsidiaries. The choice of entry mode depends on factors like market conditions, risk tolerance, and available resources. A well-planned entry strategy is essential for successful Market Development.
Evaluating Success
– To measure the success of Market Development efforts, businesses assess various key performance indicators (KPIs), including sales growth, market share, customer acquisition cost, return on investment (ROI), and customer feedback. Regular evaluation and adjustment of strategies are necessary to ensure sustainable growth and market expansion.
Examples
– Notable examples of Market Development include companies like Apple, which expanded its iPhone sales by entering new countries and regions, and Starbucks, which successfully introduced its coffee shops into various international markets. These companies effectively adapted their products and marketing strategies to appeal to diverse consumer bases.
Sustainability
– Market Development, when done thoughtfully, can contribute to long-term sustainability. Expanding into new markets can provide diversification and reduce dependency on a single market. Additionally, it can lead to increased revenues, which can be reinvested in innovation, sustainability initiatives, and corporate social responsibility efforts.
In essence, the purpose of market development is to expand into untapped markets which may or may not be served by established competitors.
Market development starts with a segmentation analysis of the market in which the business currently sells.
To find a new target market segment, the company may consider different customer needs, preferences, interests, or even demographics.
It can also consider geographical areas, product-benefit factors, or psychographic factors such as values or lifestyle.
The company should then shortlist a list of potential market segments before deciding which to pursue.
Once a market has been identified, it is time to devise a promotional strategy tailored to that segment.
In markets with competition, many marketers opt for an aggressive, priced-based strategy to undercut other products and rapidly establish market share.
Market development considerations
Market development may seem simple on paper, but there are several important questions to consider before time and resources are allocated to expansion:
Is there a specific target audience that has been overlooked, ignored, or otherwise underserved? Would this audience benefit from the product in question? What would they be willing to pay?
Will the resources required to reach this market be worth the investment from an ROI perspective? It’s also important to consider the talent acquisition strategy and other costs related to establishing in a new market.
Is the company (or the marketing team) willing and able to conduct an exhaustive market development strategy and then implement the findings? The market development strategy checklist (MDSC) is a good baseline.
Can the company build a competitive advantage in the new market? In foreign countries, in particular, domestic companies with local knowledge and existing infrastructure may be difficult to outcompete.
Market development strategies
Geographic expansion
Geographic expansion is one of the more obvious ways to expand the market for a product or service.
For example, an eCommerce company serving the Saudi Arabian market may choose to expand into other wealthy Arab states such as Qatar, UAE, Kuwait, and Bahrain.
Product development
Product management has become a key role within most organizations and startups as it combines product development with experimentation to create a successful product in the market. Product management requires a combination of strategic thinking, problem-solving skills, and a relentless focus on customer needs and delivering the right product at the right time. Top product managers use a customer obsession approach to build and launch successful products.
When a company discovers new uses for an existing product, it can also expand into new markets and appeal to new buyers.
To that end, businesses can take advantage of the discrepancy between how it thinks customers use their products and how they actually use them.
Example
Slack is a company that obsesses over user behavior and has turned product refinement into an art form.
By listening to how customers used its platform, the company was able to differentiate itself from competitors who offered products with similar features.
Today, Slack is far more than an instant messaging platform.
Slack follows a freemium model, offering a free version, and users can convert into paying customers if they want more usage or advanced functionalities. Slack combines the free model with a direct sales force to acquire enterprise customers with yearly recurring revenue of over 100K. Those customers were 575 in 2019, and they accounted for 40% of its revenues. In 2021 in a $27.7 billion deal, Slack was acquired by Salesforce. By early 2023, Slack had generated $1.5 billion in yearly revenue.
The company instead sells organizational transformation which, according to customers, means a reduction in communication costs, knowledge management with zero effort, and “75% less email”, among many other benefits.
Distribution
Distribution represents the set of tactics, deals, and strategies that enable a company to make a product and service easily reachable and reached by its potential customers. It also serves as the bridge between product and marketing to create a controlled journey of how potential customers perceive a product before buying it.
The vast majority of brick-and-mortar businesses have used this strategy to take advantage of the boom in eCommerce.
Increasingly, however, online retailers have moved in the opposite direction and have opened physical stores to bolster revenue.
Examples include Amazon, Warby Parker, and Bonobos.
Warby Parker is a prescription and sunglasses retail company, which focuses on vertical integration to enhance the customer experience by owning the optical laboratories where lenses are developed, and by owning both physical and online stores to enable customers to choose from a variety of products. Warby Parker leverages programs like the Home-Try-On program and the “Buy a Pair, Give a Pair” to lower up long-term customer acquisition costs, incentivize recurring purchases and referrals from existing customers.
Key takeaways
Market development is a growth-centric strategy that businesses use to identify or develop new market segments for existing products.
Market development starts with a segmentation analysis of the market in which the business currently sells. The company can consider different customer needs, preferences, interests, psychographics, or even demographics to discover a new market segment to enter.
Three market development strategies include those based on geographic expansion, product development, and distribution.
Key Highlights
Market Development Strategy:
Market development is a growth-focused strategy that involves identifying or creating new market segments for existing products or services.
This strategy aims to expand into previously untapped markets, whether or not they are currently served by competitors.
A critical aspect of market development is to analyze the current market where the business operates.
Identifying New Markets:
Businesses need to analyze potential new target market segments.
Factors to consider include customer needs, preferences, interests, demographics, psychographics, and geographical areas.
Shortlisting potential market segments is a crucial step before selecting the ones to pursue.
Promotional Strategy:
After identifying a potential new market segment, a tailored promotional strategy should be developed.
In competitive markets, aggressive pricing strategies may be used to establish market share quickly.
Considerations for Market Development:
It’s important to determine whether an underserved or overlooked target audience could benefit from the product or service.
Resources required for market expansion should be evaluated in terms of return on investment (ROI) and costs.
The company’s willingness and capability to execute a comprehensive market development strategy should be assessed.
Competitive Advantage:
A key consideration is whether the company can establish a competitive advantage in the new market.
In some cases, local knowledge and existing infrastructure of domestic companies might make them difficult to outcompete, particularly in foreign markets.
Market Development Strategies:
Geographic Expansion: Expanding into new geographical areas is a common strategy to broaden the market for products or services.
Product Development: Discovering new uses for existing products can open up new markets and attract different buyers.
Distribution: Utilizing new distribution channels, such as moving from online to brick-and-mortar or vice versa, can tap into new customer segments.
Example: Slack’s Market Development:
Slack refined its product based on user behavior, differentiating itself from competitors by addressing unique needs.
Slack uses a freemium model with a direct sales force to acquire enterprise customers, offering additional functionalities.
The company’s value proposition includes cost reduction, efficient knowledge management, and decreased reliance on email.
Distribution Strategy:
Distribution involves tactics and strategies to make products and services easily accessible to potential customers.
Both online and brick-and-mortar retailers have explored different distribution channels to maximize reach and revenue.
Examples include Amazon, Warby Parker, and Bonobos, which have leveraged various distribution methods.
Related Concepts
Description
When to Apply
Market Development
Market Development is a strategic business process aimed at expanding the customer base and sales opportunities for existing products or services in new market segments or geographic areas. It involves identifying untapped market opportunities, understanding customer needs and preferences, and tailoring marketing strategies to penetrate new markets effectively. Market development strategies may include entering new geographical regions, targeting different demographic groups, or introducing existing products to new customer segments. By diversifying and expanding the market reach, organizations can achieve sustainable growth, increase revenue streams, and capitalize on emerging market trends. Market development requires market research, segmentation analysis, and strategic planning to identify viable growth opportunities and develop tailored marketing campaigns to attract and retain customers in new markets.
– When companies seek to expand their market reach, diversify revenue streams, or capitalize on untapped market opportunities.
Business Expansion
Business Expansion involves scaling operations, entering new markets, or diversifying product offerings to capture additional market share and drive growth. It may include opening new locations, launching new products or services, or targeting different customer segments to expand the customer base and increase revenue streams. Business expansion requires careful market analysis, strategic planning, and resource allocation to identify viable growth opportunities and mitigate risks associated with entering new markets or launching new ventures. Successful business expansion strategies enable companies to stay competitive, capitalize on emerging market trends, and achieve sustainable long-term growth.
– When companies are experiencing growth opportunities or seeking to increase market share, revenue, and profitability through expansion initiatives.
Market Segmentation
Market Segmentation is the process of dividing a heterogeneous market into distinct groups of consumers with similar characteristics, needs, or behaviors. It allows businesses to tailor their products, marketing messages, and distribution channels to specific target segments, enhancing customer satisfaction and competitive advantage. Market segmentation enables companies to identify high-potential customer segments, customize their offerings to meet unique needs, and allocate resources more efficiently to maximize return on investment. Effective market segmentation requires comprehensive market research, data analysis, and segmentation criteria based on demographics, psychographics, geographic location, or behavioral patterns. By understanding and targeting specific market segments, businesses can increase market share, boost customer loyalty, and drive profitability.
– When companies want to optimize their marketing efforts, improve customer engagement, and increase sales by targeting specific segments of the market more effectively.
Geographic Expansion
Geographic Expansion involves entering new geographical markets or expanding operations into different regions or countries to reach a broader customer base and capitalize on growth opportunities. It may include opening new branches, distribution centers, or retail outlets in untapped markets, leveraging existing infrastructure, and adapting products or services to local market preferences and regulations. Geographic expansion enables businesses to diversify their revenue streams, reduce dependency on a single market, and access new pools of customers. Successful geographic expansion requires market analysis, regulatory compliance, and cultural sensitivity to navigate the complexities of operating in diverse geographic regions.
– When companies want to expand their presence into new territories, regions, or countries to access new customers, increase market share, and drive revenue growth.
Market Penetration
Market Penetration is a growth strategy focused on increasing sales of existing products or services in current markets. It involves capturing a larger share of the market by persuading existing customers to buy more or attracting new customers through aggressive marketing tactics, pricing strategies, or product enhancements. Market penetration aims to drive revenue growth, enhance brand visibility, and strengthen market position by leveraging existing resources and capabilities. It requires companies to understand customer needs, competitor dynamics, and market trends to develop effective penetration strategies that resonate with target audiences and drive conversion. Successful market penetration strategies can lead to increased market share, brand loyalty, and profitability in competitive market environments.
– When companies seek to strengthen their presence in current markets, increase market share, and gain a competitive edge through aggressive marketing and sales tactics.
Product Diversification
Product Diversification is a strategy that involves expanding a company’s product portfolio by introducing new products or services to existing markets or entering entirely new market segments. It aims to spread risk, capture new revenue streams, and meet evolving customer needs by offering a broader range of products or solutions. Product diversification can take various forms, including line extensions, brand extensions, or launching entirely new product lines that complement existing offerings or target different customer segments. Successful product diversification requires market research, innovation, and strategic planning to identify opportunities, assess market demand, and develop products that align with the company’s core competencies and market objectives.
– When companies want to reduce dependency on a single product or market, mitigate risk, and capitalize on growth opportunities by diversifying their product portfolio.
Market Expansion
Market Expansion involves growing the market size or demand for a product or service by attracting new customers or increasing consumption among existing customers. It may involve creating awareness, generating interest, and stimulating demand through marketing campaigns, promotional activities, or strategic partnerships. Market expansion strategies aim to increase market penetration, drive sales growth, and establish a stronger foothold in the marketplace by expanding the customer base and addressing unmet needs or preferences. Market expansion requires a deep understanding of market dynamics, consumer behavior, and competitive forces to develop targeted strategies that resonate with the target audience and drive adoption.
– When companies aim to stimulate demand, attract new customers, or increase consumption among existing customers to expand market share and drive revenue growth.
Market Saturation
Market Saturation occurs when a product or service reaches its maximum potential in a given market, and further growth becomes challenging due to limited demand or intense competition. It may result from market maturity, changing consumer preferences, or the emergence of substitute products. Market saturation poses challenges for companies seeking to grow revenue and market share, requiring them to explore new markets, diversify products, or innovate to maintain competitiveness. Strategies to address market saturation may include targeting niche markets, introducing product variations, or expanding into adjacent markets to unlock new growth opportunities. Effective market saturation management requires continuous monitoring of market trends, customer feedback, and competitor strategies to adapt and evolve in response to changing market dynamics.
– When companies encounter limited growth opportunities or intense competition in existing markets and need to explore new avenues for revenue generation and expansion.
New Market Entry
New Market Entry involves entering previously untapped markets or industry segments to leverage growth opportunities, expand the customer base, and diversify revenue streams. It may include launching new products or services, targeting new customer segments, or expanding into new geographic regions or industry verticals. New market entry requires market research, competitive analysis, and strategic planning to assess market potential, identify entry barriers, and develop entry strategies that align with the company’s capabilities and objectives. Successful new market entry strategies enable companies to capitalize on emerging market trends, gain first-mover advantages, and establish a strong market presence in new territories or industry segments.
– When companies seek to explore new growth opportunities, expand market reach, or diversify revenue streams by entering new markets or industry segments.
A total addressable market or TAM is the available market for a product or service. That is a metric usually leveraged by startups to understand the business potential of an industry. Typically, a large addressable market is appealing to venture capitalists willing to back startups with extensive growth potential.
A microniche is a subset of potential customers within a niche. In the era of dominating digital super-platforms, identifying a microniche can kick off the strategy of digital businesses to prevent competition against large platforms. As the microniche becomes a niche, then a market, scale becomes an option.
In simple terms, market validation is the process of showing a concept to a prospective buyer and collecting feedback to determine whether it is worth persisting with. To that end, market validation requires the business to conduct multiple customer interviews before it has made a significant investment of time or money. A transitional business model is an example of market validation that helps the company secure the needed capital while having a market reality check. It helps shape the long-term vision and a scalable business model.
Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.
In a tech-driven business world, companies can move toward market expansion by creating options to scale via niches. Thus leveraging transitional business models to scale further and take advantage of non-linear competition, where today’s niches become tomorrow’s legacy players.
Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Developing a successful business strategy is about finding the proper niche, where to launch an initial version of your product to create a feedback loop and improve fast while making sure not to run out of money. And from there create options to scale to adjacent niches.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
