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 on the nature of the market and existing competition. It is difficult to obtain any foothold in static markets but a growing market can offer some opportunities.
Entrenched competition will often be at the top of the experience curve having learned from their mistakes over many years. Any new entrant must accept that it will take time to generate any meaningful results and gain traction.
Potential Market Penetration Strategies to Employ
Two potential, relatively low risk strategies, to try are to only attack a small market niche and once established grow out from there and/or to collaborate with an intermediary with an existing foothold in the target market.
There is no doubt penetrating new markets is tough (and potentially expensive). It is important to pick a fight carefully. Perhaps the greatest opportunity exists if the target market has an entrenched competitor that is either complacent or in a weak position.
A poor financial position, mismanagement or loss of key people can all offer an opportunity. 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.
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. 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.
They were the dominant player in their market niche but were starting to lose focus for a 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. There was no real product innovation.
The new entrant was USA based but already had some exposure to the market. They were a minor supplier to the target customer base with a different product range.
They chose a niche distributor to take the UK based business forward, offering them excellent support and training. The chosen distributor had excellent relationships with the target customer base.
Focusing their efforts on specific projects the new market entrant copied and manufactured a limited range of the most successful product lines of the UK business. This they did on a sampling basis without customer orders at a considerable cost.
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. They dismissed the initial level of their orders as insignificant. Crucially, they failed to recognise the importance of the foothold secured by the new entrant and their ability to capitalise and build upon initial relationships.
Three years later with the UK business had lost most of its business on several key product lines to the new entrant. They eventually declined to the point they sold out to a competitor.
Although blessed with excellent support from senior management and the backup of operations the drive behind the new entrant entry into the marketplace was effectively one individual who spotted the opportunity and drove it through.
The new entrant executed a market penetration strategy perfectly. They had a foothold and established relationships. They identified a weak competitor and an excellent intermediary. They started with a niche, gained a foothold and built from there. They took a calculated risk and invested heavily.
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.