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.
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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
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, where a free version is offered, and users can convert in 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.
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.
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.
