Market expansion is a growth strategy that aims to make a product or service available in new markets when existing ones get saturated. A market expansion strategy starts with analyzing existing and future channels of distribution and concludes with adopting measures to increase reach and sales in the markets of interest.
To help you generate a market expansion strategy that works for your business, this guide will take you through the concept in detail, provide actionable steps and tips to get started, and give you examples to inspire you.
Contents
There are many approaches to market expansion
Both domestic and international markets offer expansion opportunities. Expansion happens when existing markets reach their peak and you need to identify new markets.
As a result, market expansion should lead to a growth in the consumer base for the business. This, in turn, can lead to an increase in revenues and profits for the company.
Market expansion can take three forms:
Adding a product or service to the portfolio
If client or user feedback is good, the existing offer can be expanded to capture more revenue from the existing and potentially new audiences. Adding related products or value-adding products or services can serve as a viable growth strategy.
Launching existing products or services internationally
If the product or service has been widely adopted in the current markets, it indicates that the quality, usability, and necessity are proven. As a result, introducing the product or service into foreign markets globally can serve as a reliable growth strategy.
Adapting existing products or services for wider application
If client or user feedback generates requests for specific features, functionalities, integrations, or added value, it is an indicator that adding new features and capabilities should grow market reach. Products and services can also be expanded by finding new demographic segments or use cases for the products.
Planning market expansion
A plan for market expansion needs to consider the potential of new markets, the company’s ability to enter those markets, and what it would take to be successful.
Research
Market expansion starts with research. There might already exist indicators for growth in new markets based on client or partner feedback. This can be of essential help in narrowing the scope of research. If there is no feedback to start with, then general market research—using surveys, focus groups, or narrow launch tests—offers a good starting point.
The research includes the analysis of potential new sectors, as well as geographic or economic regions that might embrace the product or service. This evaluation of beneficial factors and possible cross-sector application of the product or service will lead to a clear picture of the biggest growth potential.
Evaluation
The analysis would also include a SWOT (strength, weakness, opportunity, and threats) analysis with competitors in the new markets of interest. This analysis helps identify risk-benefit ratios for investment and logistical planning.
When deciding which markets are fit for expansion, an analysis of existing markets can serve as a benchmark. This would bring insights into the why and how peaks or near peaks have been reached in the existing market. Based on these insights, businesses can take measures to ensure the growth of the present consumer base is sustainable and successful.
Forecasting
With the results from analyzing the existing and potential new markets, cost-benefit, risk-benefit, and growth forecasting should take place as well. These final calculations, as well as the simulation of possible outcomes, offer an overview of how big an investment the preferred market expansion would require and how to optimize ROI.
The results should clearly outline if market expansion can be achieved by branching out into different geographic regions, or if the portfolio needs to be extended or adapted. With this information, a strategy for market expansion is built and a decision to move forward (or not) can be made.
Tactical considerations
After researching new markets, analyzing existing markets, and deciding on a suitable market expansion strategy, a diligent look at the tactical requirements for the planned expansion becomes necessary. Here is a list of questions that can help you recognize risk areas, growth curves, and timelines to take into account before putting the plan into action:
- Is the business well established in the current markets?
- Is there demand in other markets or sectors that you could cover?
- Does the planned expansion require taking on debt?
- What are the biggest risks of failing in the new market?
- Has there been steady continuous growth with the existing products and services?
- Are you ready for slower growth curves with stable revenue promises?
- Which existing partnerships could support your expansion efforts?
- Which legal frameworks and business practices need to be taken into consideration for the market in question?
- Are new hires required?
- What is the long-term cost-benefit ratio?
The answers to these tactical questions will provide a detailed plan for entering a new market.
Choosing and implementing a winning market expansion strategy
The above insights and ideas for businesses that want to expand globally are just a starting point. Before taking the plunge, it’s essential to have a smart and solid strategy in place that will help reduce costs, mitigate risks, and tap into new business opportunities.
What is a market expansion strategy?
A market expansion strategy is a detailed plan—it can take the form of a document, spreadsheet, or even a presentation—that outlines a business’s goals and objectives for entering new markets. It can also include a financial plan, team planning, and detailed market research.
The main benefit of creating a market expansion strategy is that it helps businesses make informed decisions about which markets to enter, when to enter them, and how to go about doing so. However, there are other benefits too, which span from financial to operational.
Benefits of a market expansion strategy
Going headfirst into a new market can quickly turn a lucrative opportunity into an expensive defeat. A market expansion strategy can help mitigate these risks by minimizing the costs of entry, taking into account potential threats and obstacles, and planning for any possible setbacks.
Cost reductions
The first and most obvious benefit of a market expansion strategy is that it can reduce the costs of pursuing new markets. By planning ahead, businesses can avoid expensive mistakes, wasted resources, and missed opportunities.
If a business offers several products or services, a market expansion strategy will help it focus on ones that are most likely to be successful in the markets it is targeting. This can save on research and development costs, marketing expenses, and other overhead costs.
Risk mitigation
Another benefit of a market expansion strategy is that it can help businesses prevent unnecessary mistakes. By taking the time to plan carefully, businesses can circumvent potential pitfalls, unforeseen obstacles, and risky decisions that could lead to costly failures.
The sunk-cost fallacy is a prime example of how not having a market expansion strategy can lead to poor decision-making. This fallacy is a natural human tendency to invest more in something once we’ve put money into it, out of the mistaken belief that if you have invested time, money, or resources into something, you are more likely to see it through to success, regardless of whether or not it is actually working.
A market expansion strategy provides a clear roadmap for when to cut your losses and move on.
More business opportunities
A market expansion strategy can also help businesses identify hidden opportunities. By taking a comprehensive and systematic approach to market research, businesses can uncover new markets that they may have otherwise overlooked.
It’s better to find out about potential markets early on rather than after a business has invested time, money, and resources into them. A market expansion strategy can help businesses avoid this pitfall by revealing potential markets before they’re missed.
How to create a strong market expansion strategy
Now that we’ve gone over the benefits of a market expansion strategy, it’s time to discuss how to actually create one that will help you win a new market.
Define goals and objectives
The first step is to define your overall goals and objectives for entering new markets. Do you want to accelerate the company’s growth rate? Prevent competitors from capturing market share? Reduce costs by setting up in cheaper markets? Be specific—you need measurable success criteria.
Once you have a clear vision for what you want, the next step is to develop objectives for each of the goals you’ve outlined. How much market share do you want to capture? How much revenue do you need to bring in each month? The more specific you are, the easier it will be to track progress and make adjustments as needed.
Build a strong team
A market expansion strategy requires a team effort. Ideally, the team member responsible for creating the strategy should be someone in a cross-functional role who has strong relationships with leaders and is familiar enough with all parts of your business.
Getting buy-in from the executive team to then sell the idea throughout the company can be a challenge, but it’s essential for success. It’s also important to remember that some people may have doubts or concerns, and it’s your responsibility to address these head-on.
Conduct market research
The next step is to conduct market research. How much would customers be willing to pay? What cultural differences may influence consumer behavior? What messaging should be used in the new market? These are just a few of the many questions that need to be answered during market research.
The market research process acts as a localization discovery phase, helping you understand what matters to local consumers and how you can best connect with them. By gathering as much information as possible, you’ll be able to create a strategy that is tailored to the needs of the new market.
Create a financial plan
Once you have conducted your market research, it’s time to create a detailed financial plan. You can start by identifying all expenses. Some examples common for market expansion include:
- Staffing costs
- Market research
- Product development
- Marketing and advertising
- Sales and distribution
- Customer support
- Overhead costs (e.g., office space, equipment, tools)
Then, create a sales forecast for the first few years after expansion. This will help you determine how much revenue you can expect and when you can start to turn a profit.
Once you have all of this information, it’s time to create a budget. Make sure to include a buffer for unexpected costs and unforeseen challenges.
Learn from your competitors
The next step is to learn from your competitors. By understanding their strategies, you can better anticipate any obstacles or threats they may pose. Some things to investigate include:
- What market segments are they targeting?
- What messages are they using to attract customers?
- What feedback have they received from customers?
There’s no reason to make the same mistakes that others have made before you, so take the time to learn from the best (and the worst, too).
Integrate localization from the start
Last but not least, it’s important to integrate localization from the very beginning of your market entry process. Note that localization is not limited to the language of your products or services; it can also include cultural aspects, such as how products are designed or how customer support is delivered.
There are several types of localization that businesses should be aware of, including:
- Product localization, which doesn’t only involve translating software or website content, but also implementing localization-aware development practices.
- Marketing localization, which refers to the process of creating content that is relevant and engaging for local audiences.
- Sales localization, which involves not only making sure sales materials are translated, but also training sales staff on how to properly interact with local customers, etc.
By taking localization into account from the very beginning, businesses can avoid many common mistakes, such as using marketing materials that are not relevant to local audiences or delivering multilingual customer support in a way that is not culturally appropriate.
Example of a successful market expansion: Netflix
Netflix is a great example of a company that has successfully expanded into new markets. Founded in 1997, Netflix began its international expansion in 2010, and today it is available in over 190 countries.
In order to tap into these new markets, Netflix invested heavily in localization, translating its content into more than 60 languages. By carefully localizing its user interface and tailoring its marketing campaigns, Netflix was able to provide native-feeling user experience (UX) and quickly gain a foothold in these new markets.
Netflix also invested in original content that would appeal to local audiences. In India, for example, Netflix produced an original series called “Sacred Games,” which was a huge success. Moreover, some of Netflix’s local shows, such as Lupin (France), Money Heist (Spain), and Squid Game (Korea), became worldwide hits.
Of course, not every company has the range and resources of Netflix, but the company’s success highlights how important it is to have a strong market expansion strategy. With enough planning and preparation, any business can find rich, unexpected opportunities in new markets.
Measuring the success of a market expansion strategy
Once you have created a market expansion strategy, it’s important to measure its success. This can include tracking key performance indicators (KPIs), measuring customer satisfaction, and assessing financial results. KPIs should be specific and measurable, and they should be tied to the objectives of the market expansion strategy.
For example, you might measure how much revenue a new market is generating, or how many sales representatives have been hired in a new market. Likewise, customer satisfaction should be evaluated through surveys, interviews, or focus groups.
Whatever approach you choose, make sure to track and report on your progress regularly. This will help you assess the effectiveness of your market expansion strategy and make necessary adjustments as needed.
Go forth and expand
Expanding into new markets can be a daunting task, but with the right market expansion strategy, it can also be immensely rewarding.
By following the tips in this article—such as carefully researching and planning your expansion, building a solid team, and investing in localization from the start—you’re one step closer to taking your business global.
Last updated on November 4, 2022.
