One of the first steps while expanding to a new market is undoubtedly a market research. "The aim of marketing is to know and understand the customer so well, the product or service sells itself." - Peter Drucker.
Even though studying the market you want to penetrate seems obvious, too many companies still skip this step or neglect it thinking they are saving time and money. We explain why this can be prejudicial to your business:
1. The targeted market study allows you to know if your brand will meet a demand.
First and foremost, you need to conduct an audit of your company by asking yourself the right questions: What are your strengths, your weaknesses, your products? What are your opportunities and threats?
In order to assess the viability of your product or service, you should study the characteristics of the demand in the target country: age range, gender, socio-professional category, interests and the evolution of the latter over time. You should be interested in their consumption mode as going international, you will meet a culture different from yours and this should not to be neglected.
Once the target has been defined, you should find the most efficient channel to reach out to them, but above all, you should know how to develop their loyalty.
Afterwards, you may have to modulate your offer. For example, McDonald’s has modified its offer in India, they offer vegetarian options on their menu, because most of the population neither eat beef nor pork. Beware, sometimes it's not the product itself that raises issues... but the product name. Make sure your name does not have a negative meaning in your target market. Facing the constraints of new markets encourages creativity, which is itself driven by the need to adapt. New products or services can thus be created from this "voluntary imbalance," and even serve to enhance the market in your country of origin.
2. Market research allows business angels to understand the potential of your expansion plan.
Briefly, investors want to see what your chances of success are before making the decision to invest in your project. A complete and well-conducted market study will allow you to gather in a single document the answers to all the questions of your potential investors: who are your target customers? Who are your competitors? Are you meeting the demand in this new market?
Put yourself in the position of future investors, you should reassure them about your project if you want to raise funds because remember, equity investors receive their share of each dividend paid by the company and can realize a capital gain when they resell their shares in the event of a sale or listing of the company.
However, there is no guarantee that the company will be able to pay dividends or that their shares will be worth more than their purchase price if they are resold. And, in the event of bankruptcy, they are the last ones getting nothing back.
7Mountains helps you from the market research to the fundraising step in order to succeed in your international expansion.
3. Market research prevents you from making mistakes that could be costly.
Three examples of large groups that did not conduct extensive market researches before expanding their business:
In 2008, Starbucks had to close more than 2/3 of their stores in Australia. It was simply too difficult for the brand to establish themselves in the country where the coffee culture was already established. Results: $143M in losses and 61 stores closed.
In 1999, Sephora, a company specialized in the distribution of perfume and cosmetics, decided to establish themselves in Japan. However, Japanese people hardly use perfume... Sephora closed their 7 stores 2 years later.
The British grocery chain Tesco, failed to win over the U.S. market. In fact, a few years earlier, the brand might have been successful, but Tesco's Fresh & Easy opened in 2007, on the edge of a recessionary cliff, as U.S. consumers' appetite for food spending went down. 5 years later, in 2012, Tesco announced it was giving up the U.S. market and closing its nearly 200 West Coast stores. The failure cost nearly $1.5B to the British chain.
See? Market research is essential when you want to conquer a new market.
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By Lena Baudo – Marketing Mentor at 7Mountains