Market Entry Strategy Business Plan: Barriers to Market Entry
If it’s hard to penetrate a new market, the market entry strategy should be one of the most important business plan components. If the only thing you’re bringing to the market is a very low price, you could become the victim of a price war very quickly, losing to an opponent with greater capital. Consider carefully whether will be able to cope with or distinguish yourself from a particular competitor.
This is especially true for IT startups: innovations can produce competitive products quickly. Although there are perhaps currently no direct competitors, some other companies may eventually start offering a similar product thanks to your distribution network or the know-how that is necessary. Your analysis should include at least the most immediate competitors to show your potential investors that you have the resolve to compete in this market despite the potential barriers.
Such barriers to entry should be part of your market entry strategy. They may constitute, for example, market saturation, high costs associated with the development of a distribution system, the switching costs for potential customers or high advertising costs in order to obtain market recognition. Patents, certifications / licenses, staff shortage and many other factors can be counted as potential barriers. It is important that you identify these barriers as fully as possible. It may also be difficult for your business if you are dependent on one or more major clients. You may often be compelled to take unpleasant pricing decisions.
Market Entry Strategy: Marketing and Distribution
The essential task of marketing is to identify customer needs and provide a suitable offer. Marketing goes so much further than pure advertising. Marketing can be defined as any and all measures aimed at attracting the attention of the target groups to the company’s product or service so they ultimately buy it.
Marketing, sales and production are often closely linked. The chapter on Marketing and Distribution is essential for your overall business plan and a key part of how to make a market entry strategy. There is more creative freedom here. Select from the range of possible marketing tools and remember that what you mention in this area should also be reflected in the financial plan.
Market Entry Strategy: Market Tools
Basically, each market has its own features that are more or less fixed structures, such as preferred communication channels, advertising partnerships, etc. Regardless of whether your market entry entails simply penetrating the market or altering its structures on the whole, it is necessary to make great efforts in terms of external communication. You show how you plan to incorporate your business, your product or service into the market and how you want to establish yourself through your market entry strategy.
Since each company has its own success factors, you need to think carefully what strategy is suitable for your market entry. Take the time to read case studies and relevant literature on the topic. The market entry strategy is a business plan component which is perceived relatively accurately by investors.
Here are some examples of the different conditions which require different strategies:
A) A broad-based advertising campaign can help a mass manufacturer quickly gain a lot of customers as production cost advantages can be used.
B) With specialized products, a large single customer is certainly important and this can be achieved without expensive advertising, but just with cold calls. You can find other clients through this one later on.
C) Existing long term supply relationships or customer habits can be developed through special offers and promotions. Alternatively, there is the opportunity to offer additional services in order to convince the customer of yourself and your company.
Your advertisement will be different at the time of your market entry to that in the future. The first step is to attract new clients, while later you will invest more in customer loyalty and be recommended to a wider circle of potential clients.
Market Entry Strategy: Marketing Strategy and Pricing
Your marketing strategy defines the long-term direction of your services. The results of your market and competitive analysis form the basis of the strategy and market entry business plan. The central question in your marketing strategy should be: How can I get the price I need? The price must be competitive to attract customers, but also cover all costs and allow a profit margin.
Among the costs that must be covered are payable wages to employees and especially your own management earnings. This is often neglected when doing the calculations.
There are various strategies, such as determining the “best value”. The following brief overview of possible price policy approaches is designed to give you the opportunity to choose the right strategy for you, or to adapt them to your individual situation.
a) High price strategy – justifies the significantly above-market average price by a special quality or image.
b) Low price strategy – a small margin is compensated by very high turnover.
c) Price differentiation – a product is offered at different prices, and thore are discounts, especially for corporate clients. The demand is generated and capacity is fully utilized.
d) The company starts with a high launch price, which is then gradually reduced. The aim is to take advantage of willingness to pay a high price for innovative products.
Conversely to the d) penetration strategy, the company will start with a low price to quickly gain a lot of customers and to penetrate the market. Later, the price is increased slowly.
To set the best price for the product, you need to consider what your potential customers willing to pay for your product or service. You can ask what prices your competitors charge for comparable services. Find which trade margins and mark-ups are common in your industry. Evaluate how many more benefits you can offer your clients and what price you can charge for them.
When you synchronize your pricing approach with the planned marketing strategy, you can see whether it is feasible. If you get the opportunity to test the price, take advantage of it. If you have already developed a strategy, always check the effect on your financial planning, the potential product supply to quality ratio at this price as well as the operative marketing specified in the marketing mix. Despite all the hype, you have to remain realistic.
Unreachable marketing plans entail high costs and probably won’t get you any new clients. Many companies in the New Economy have provided sad examples of this not too long ago. Good ideas and unusual approaches are always more important than money. When a client is in doubt, their best bet is usually on the established companies on the market.
Market Entry Strategy: Distribution Approach
Pure sales are one thing, but you must also ensure that customers have access to and are able to receive your products. This point of your business plan is not to be underestimated, especially in financial terms. It must be made clear how you will deliver your products or services to the customer. The sales process and distribution must be as clear as the organization, the number and qualification of your staff.
The distribution channel is of immense importance as a business plan component. Depending on which field you’re in, you may find yourself incurring high costs, for example if you hire a sales representative. The advantages are that there will be direct access to the customers and quick response and feedback options. This is why many companies choose this approach.
Since the establishment of a distribution channel is a long-term decision, you should think it over really well. The various distribution options offer advantages and disadvantages depending on company orientation.
The Internet plays an enormous role in the distribution. However, if your product or service requires a lot of explanation, the Internet is not a viable option. You will have to invest a lot in the content, possibly also video content on your site.
Representatives are sometimes the best choice for the most effective sales. Since they usually work with commission fees, your fixed costs will be stable. Salespeople are worth considering if you are offering very specific products. However, the fixed costs increase if you want to create your own sales team. This costly affair should be well considered in advance.
In wholesale or retail, the products can quickly reach a wide audience. However, the entry can be challenging because the dealer only extremely salable products to include in its own product line and can check prices with their market power.
In franchising the entire business system and the distribution methods are leased to partners for a license fee. They then run them independently on the basis of specific indicators. You can achieve rapid growth with a low investment as the distribution is greatly facilitated through the marketing activities of the chain.
Direct marketing, multi level marketing or catalog sales are among the more traditional methods, which are increasingly being replaced by opportunities in e-commerce or are changing extremely fast.
Opening your own private shop is the most expensive option. If the shopping experience is important, or you want direct access to customers, this is the only way. However, the client traffic must be viable and the monthly recurring fixed costs must not get out of hand.
Market Entry Strategy Business plan: Advertising
Advertising could be one of the most entertaining activities for you as founder. Your personal traits are crucial to the success of your business. Without advertising, hardly anyone will find out about your product or services. Of course, the advertising strategy should be aligned with the target group.
A mass product is certainly suitable for e-commerce, perhaps you should consider TV and radio spots and seek partnership with local media and PR agencies. Essentially, advertising is divided into the following categories:
• Traditional advertising such as print ads in newspapers and magazines, TV or radio commercials
• Sales promotion through advertising at potential points of product sale, like at fairs and exhibitions, displays, product sampling, and information events
• Public relations in order to achieve positive mention in the media through continuously providing information about the company and its products
• Personal Sales: selling to clients directly by means of advertising such as brochures and presentations
Always think of this issue: Who (Your company) says what (advertising message) to whom (target group) via which channel (media) with what success (advertising effectiveness)? The goal of your advertising must be to illustrate the unique benefits of your product to the target audience. Creativity is called for, especially if you want to achieve the greatest possible impact with limited resources.
Pay particular care that the advertising doesn’t target too wide a group. On the other hand, do not underestimate the effectiveness of advertising. Although the costs are initially high, targeted advertising pays off enormously. Plan this aspect very carefully in your budget – it is one of the most crucial business plan components.
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