In B2B markets growth tends to be based on either new product introduction or attacking new markets. In this post we cover how to execute a new market penetration strategy with the aid of a case study.
Successful new market penetration depends primarily on the nature of the market and the existing competition. It is notoriously difficult to obtain any foothold in static markets but a growing market does offer some opportunities. Entrenched competition will often be at the top of the experience curve having learned from their mistakes over many years, whereas any new entrant must accept that it will take time to generate any meaningful results and gain traction.
Potential Marketing Strategies to Employ
Two potential, relatively low risk strategies, to employ are to only attack a small market niche and once established grow out from there and/or to collaborate (to the benefit of both parties) in some way with an intermediary with an existing foothold in the target market
Perhaps the greatest opportunity exists if the target market has an entrenched competitor that is either complacent or in a weak (financial, mismanagement, loss of key people) position. If a solid strategy can be put in place to deliver the highest levels of service at competitive pricing then a market presence may be established in a relatively short timescale by stealing market share
If attacking a new market is to succeed detailed market research is vital. An experienced and flexible sales and marketing team is also required and in many organisations this can be a real issue. The best sales teams tend to be focussed on the immediate future and marketing teams are often competent in their own market but stretched when it comes to addressing something new.
New Market Penetration – A Case Study
What follows is based on a two real businesses operating in a high technology B2B market. The market exhibited slow growth but did offer high margins. To preserve confidentiality the company names and details of the precise market have been excluded.
A U.K based business had built a strong presence in the marketplace growing from a small start up to a business with turnover exceeding £20m. The business owner was a technologist focussed on longer term market and product development who, after the first few years of growth, had employed a managing director to run the business on a day to day basis.
The business was the dominant player in its market niche but was starting to lose focus for a wide variety of reasons. Top level management was not exceptional and this was starting to be reflected in a slow decline in levels of customer service. The new product development process tended to be based on small revisions to existing concepts rather than any real product innovation.
The new entrant was USA based but already had some exposure to the market as they were a minor supplier to the target customer base with a different product range. They chose a niche distributor to take on the UK based business, offering them excellent support and training and higher margins on each sale than they could expect from their other lines. The chosen distributor had excellent relationships with the target customer base.
The new entrant copied and manufactured a limited range of the most successful product lines of the UK business without customer orders at a considerable cost and focussed their efforts on specific projects. With a higher level of quality, excellent delivery, good customer service and investment in low pricing (in the short term) they were able to take initial orders on a limited range of contracts.
The U.K business due to a mixture of complacency and poor management failed to identify the long term threat of the new entrant dismissing the initial level of their orders as insignificant. They failed to recognise the importance of the foothold secured by the new entrant and their ability to capitalise and build upon initial relationships.
Five years later with its business destroyed by a combination of mismanagement (and resulting financial pressures), bad luck and a loss of a major part of its business to the new entrant what remained of the U.K. business was sold to a competitor for a minimal sum. The new entrant built on their initial success by leveraging the relationships established to introduce a number of new product ranges.
Although blessed with excellent support from senior management and the backup of operations the drive behind the new entrant entry into the marketplace and their market penetration strategy was effectively one individual who spotted the opportunity and drove it through.
The new entrant executed a market penetration strategy perfectly. They identified a weak competitor and an excellent intermediary. They started with a niche, gained a foothold and built from there and they had a marketing and sales team (actually just one person initially) able to spot an opportunity and to build and execute a plan.
The amount of research carried out by the new entrant is unknown but it is not thought to have been extensive. This was a major risk given the amount of financial and other resources allocated to the project but in this case the strategy did pay off.