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.
Understanding market development
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 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.
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.
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.
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.
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.
- 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.
- 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 Market Development Frameworks
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