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How to Expand Your Business Through New Market Development


“How to Expand Your Business Through New Market Development”

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.

A systematic approach is the best way to find a new market. Without it, you can waste a lot of precious resources — something a small business does not have an excess of. The following steps will effectively and efficiently guide you through the new market development process:

  • Define Your New Target Market(s)
  • Do Your Market Research
  • Decide To Enter This Market Or Look For Another
  • Enter The Target Market

HOW YOU SHOULD DO IT [top]

In the business world, change may be inevitable, but growth is not. Business growth always depends on the strategies and the actions that you take to make it happen. The degree to which you implement a market growth strategy depends on your own business goals and objectives. You may plan to grow your business slowly so that you can maintain a small but manageable market share. Or, you may develop an aggressive growth strategy that causes you to establish a more flexible organizational structure that can adapt to new markets and rapid growth. Regardless of the degree of market growth required to meet your particular business goals and objectives, the need for growth and a plan to accomplish it is fundamental to a successful business venture. Without it, you will leave your business vulnerable to market pressures such as increased competition or regional economic downswings.

Planning and achieving market growth, whether aggressive or conservative, requires the application of some fundamental marketing activities and techniques. These activities and techniques are incorporated in the following four steps needed to expand your business through new market development:

  • 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

Since your products, services and customers are unique, you will need to adapt these steps to your own needs when you apply them to your market expansion efforts.

Step 1: Define Your New Target Market(s)

The first thing you will need to do as you begin your market expansion effort is to determine the demographics and the geographic location of the new target market. Determine which of the following categories characterizes your expansion efforts:

  • Same Target Group, New Geographic Area
  • New Target Group, Same Geographic Area
  • New Target Group, New Geographic Area

If you plan to sell to the same target group, then you should already have a detailed profile of the customers in that group. If you are targeting a new group, you will need to develop a basic profile of the new customers. The more you know about your target customers, the easier it is to develop a marketing strategy that will reach them. For more information on target markets and a customer profile, please refer to the Business Builder How to Identify a Target Market and Prepare a Customer Profile.

WHO IS YOUR CUSTOMER?

Individual CustomersAge:

Gender:

Marital Status:

Parental Status:

Financial Profile:

Income:

Investments:

Debts:

Profession:

Business CustomersType of Business:

# Of Years in Business:

# Of Employees:

Annual Revenue:

Products or Services:

Organizational Structure:

WHAT ARE YOUR CUSTOMER’S NEEDS?

Individual CustomersBuying Habits:

Interests:

What is Important to Him/Her:

Lifestyle:

Other Needs:

Business CustomersSpecial Needs:

Purchase Decision-Makers:

Other Needs:

HOW CAN YOU MEET THOSE NEEDS?

Reasons the new customer will buy your product:

How your product differs from your competitor’s:

After you have defined your target customers and described how you can meet their needs, then you need to define the approximate geographic boundaries of your new target market. Select an area where you feel the target customer population is large enough to support your market expansion efforts.

For Example: The owner of the Pedal Power bicycle shop decided to expand its market by developing a mail order catalog for his products. The following is a portion of his customer profile

AGE: 25 to 60 years old

GENDER: Men

MARITAL STATUS: Single or Divorced

Parental Status: No Children or Grown Children

Financial Profile:

  • Income: $30,000 to $100,000 per year
  • Investment: Company 401K
  • Debts: $100,000 mortgage; $20,000 car; $2,000 credit cards

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).

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:

Interest in your product or service

  • 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?

Current population trends of your targeted customers

  • Expanding, shrinking or stable?

How to get your product/service to your customers

  • What do your customers prefer?
  • What are your competitors doing?
  • What is the most economical?
  • Can you establish a competitive advantage?

The number and strength of competitors in the target area.

  • 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?

Your 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:

  • 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.

• Your library is likely to have other resources that can be used to profile the local competitors and potential business customers. Ask the librarian about state and city manufacturer and service directories, the various directories produced by Dun & Bradstreet, Ward’s Business Directory of U.S. Private and Public Companies (Gale Research, annual), and theThomas Register (Thomas Publishing, annual).

• For local information, contact the chamber of commerce. The staff should be able to provide you with information on regional growth trends and competitors.

• Local newspapers will provide you with information on competitors, the local economy, growth areas, business stability, etc.

• Read the yellow pages for the targeted area to help you determine how many competitors are in the area.

• Take a sales representative or wholesaler to lunch. These people make it their business to know what’s going on in their industry and community.

• Observe your competition in person. Pretend you’re a customer and shop in their store or analyze their products or services to determine what is good or bad about their operation.

• Contact your prospective customers directly. Through personal or telephone interviews, surveys, or focus groups you’ll be able to gather valuable information on your target market.

Now list the sources you are going to use to get the market research information that you need.

Key Questions to Answer

Your research should help you decide whether or not it will be profitable for you to enter into the new target market. Refer to your customer profile as you do your analysis to help you stay focused on your customers and their needs. If you need help in conducting a market analysis, refer to the Business BuilderHow to Prepare a Market Analysis.Generally, the results of your analysis should help you to answer these basic questions:

  • 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?

After you have completed your market research, analyze the information you have gathered to determine whether market expansion into this particular market is the right decision.

The owner of Pedal Power bicycle shop decided to target a tri-state area. This area contained several large cities. Since readily available demographic information about bicyclists is limited, the owner decided to purchase a mailing list for the targeted area from a marketing research firm. The mailing list consisted of people who subscribe to magazines that deal with bicycling, running or other outdoor activities. The market research company was also able to provide the owner with information on growth trends for bicyclists in the target area. The information indicated that the increasing popularity of bicycling was resulting in a steady growth in bicycle-related sales. The number of bicyclists in the target area was also growing at a healthy rate. To determine the number of competitors in the target area, the owner contacted the chambers of commerce for each of the major cities. He discovered that there were 17 bicycle shops in the tri-state area. None of these shops offered a mail-order service.

Step 3: Decide to Enter this Market or Look for Another Target Market

After you complete your analysis, you should have a good sense of the growth potential for your products or services and whether it is a sound financial decision. Your market analysis will help you make a “go/no go” decision, but don’t be afraid to rely on your instincts. You may see something about the market that isn’t easily identified with research data. Remember that the market analysis can only help you make a well-informed decision. There is always some degree of risk in any business decision you make. Taking well informed risks is an essential part of being a successful business owner.

Don’t be discouraged if you decide not to enter this market. Look for another one. There are plenty of opportunities out there. You will eventually find the market with the right growth potential for your products or services.

Step 4: Enter the Target Market

After you have made the decision to enter a new market, your next step is to develop and implement a good strategic plan for promoting and delivering your products or services to that market. This plan should focus on three key areas:

  • 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?

NEXT STEPS [top]

Finally, measure your success by applying standard business measures to your expansion venture. You should be tracking your sales, market share, profit and loss, and all other key measures that apply to your business. Use this information along with customer and employee feedback to design and implement better ways of doing business. Learn from your expansion efforts so that as you continue to grow your business by establishing new markets, you can translate what you have learned into good business decisions. As mentioned earlier in this Business Builder, markets constantly change. If you are aware of this, and you structure your business to be dynamic, adaptable, and growth-oriented, then you will be successful.

ASSESSMENTS [top]

When you have completed this Business Builder, you should have a general understanding of the following key elements:

  • 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.

RESOURCES [top]

Books

Strategic Market Management, 7th edition, by David A. Aaker. (Wiley, 2004). See especially Chapter 12, “Growth Strategies.”

Market-Based Management, 3rd edition, by Roger J. Best. (Prentice Hall, 2002).

Internet Sites

Sample Marketing Plan: AMT. MoreBusiness.com.

Research: Worth the Investment,” by Del Williams. Promo 6:11 (October, 2003).

Grandma Got Run Over by Bad Research,” by Phaedra Hise. Inc. 20:1 (January 1998), 27.

Competing on a National Scale,” by Janice Bryant-Howroyd. Entrepreneur.com, 2002.

Know Your Competition,” by Carolyn Z. Lawrence. Business Start-Ups(April 1997). Entrepreneur.com.

“Mapping the Growth of Older America: Seniors and Boomers in the Early 21st Century,” by William H. Frey. The Brookings Institution, Living Cities Census Series. May 2007.

About the writer — Glen Greene is a freelance writer based in Wilmington, Delaware. He has over ten years experience developing a variety of publications for large and small businesses. His list of clients includes DuPont, Hewlett-Packard, and ICI.

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher.

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