Definition
A market development strategy is a business plan focusing on reaching new markets or expanding existing markets for an existing product or service. The aim is to increase market share, diversify the customer base, and generate additional revenue. This can be achieved through various tactics such as geographic expansion, targeting new demographic segments, or promoting new uses for the product.
Key Takeaways
- Market Development Strategy refers to the business growth strategy where a company attempts to identify and develop new market segments for its existing products and services. It is under the corporate level business strategy Ansoff’s matrix.
- This strategy is a valuable tool when a company’s existing markets are saturated, competition is intense, or the company possesses good distribution and production capabilities. It targets non-buying customers in currently targeted segments and new customers in new segments with existing products.
- Market Development Strategy requires businesses to take on certain risks such as cultural differences, legal issues and logistics when entering new geographical markets. Alternatively, the strategy also carries the risks of market unpredictability and competition when targeting new customer segments.
Importance
Market Development Strategy is a crucial concept in finance as it outlines a company’s plan to increase its market share by either selling existing products to new demographics or geographic regions or introducing new products in the market.
It aids in expanding business growth, enhancing brand recognition, and providing competitive advantage.
A well-executed market development strategy can result in significant revenue increase and profitability by attracting new customers and thus expanding the customer base.
It not only signifies potential business expansion but also presents an analysis of risk and return on investment, offering sound financial decision-making.
Explanation
The primary purpose of a Market Development Strategy is to expand the customer base and capture a larger share of the market. Companies employ this strategy when they seek to sell their existing products or services to new markets or demographic segments within their existing market.
This could involve targeting a new geographical region, a different age group, entering an international market, or even presenting the product to a previously untapped sector. This particular strategy forms part of the Ansoff Matrix, a business tool that assists organizations to devise strategies for future growth.
Deploying a Market Development Strategy is commonly used when businesses need to sustain growth, primarily when saturation has been reached in the current market. The strategy becomes beneficial by providing companies with opportunities to leverage their existing offerings and enhance profitability.
With this, companies can leverage their competitive advantages more efficiently and even reduce the overall risk by diversifying their portfolio. Therefore, the market development strategy isn’t just about expansion, but also plays a vital role in risk management and long-term sustainability of firms.
Examples of Market Development Strategy
Spotify’s Expansion to India: One example of a real world market development strategy is when Spotify, a well-known global audio streaming platform, entered the Indian market in
Despite existing competitors like Apple Music and Gaana, Spotify identified potential growth opportunities within India due to its vast population, increasing internet penetration, and rising smartphone usage.
Netflix’s Global Surge: Netflix, the streaming giant, has employed a market development strategy by constantly expanding its services into new geographic regions. After establishing itself in the American market, Netflix began offering its streaming services internationally, for example in the European and Asian markets. Now, it operates in over 190 countries and constantly localizes content to better cater to each new market.
Ikea’s Expansion into China: Ikea’s foray into the Chinese market showcases effective market development strategy. The company modified its offerings based on Chinese consumer preferences, by offering offerings such as bamboo made furniture or rice cookers, which catered specifically to Chinese culture and taste. It also adjusted its store layout and shopping experience to be more enjoyable for Chinese consumers.
FAQs on Market Development Strategy
What is a Market Development Strategy?
A market development strategy involves the selling of existing goods or services into new market areas to expand customer base. This can be achieved by multiple techniques such as geographical expansion, new distribution channels, or modified marketing messaging.
What are the benefits of a Market Development Strategy?
A Market Development Strategy helps organizations to grow by discovering and leveraging new potential markets. It can also lead to discovering underserved or untapped markets where competition may be less intense or nonexistent.
What are the risks involved in a Market Development Strategy?
While market development strategy offers many opportunities, it comes with its own risks. These may include increased competition, failure to understand the new market’s demands and expectations, cultural differences, regulatory challenges, and tactics that worked in the existing market might not work in the new market.
How do businesses implement a Market Development Strategy?
Businesses implement a market development strategy by first conducting a thorough analysis of the new market to understand its size, growth rate, customer behavior, competition, etc. Once the potential market is identified and understood, a tailored marketing mix is developed to meet the specific needs and preferences of the new target market.
What is the difference between Market Development and Market Penetration?
Market Development and Market Penetration are two different growth strategies. Market Development focuses on selling existing products in new markets or to new segments, while Market Penetration is about increasing the market share of existing products in their current markets by using tactics like promotional campaigns or price drops.
Related Entrepreneurship Terms
- Target Market Segmentation
- Product Differentiation
- Pricing Strategy
- Promotion and Advertising
- Distribution Channels
Sources for More Information
- Investopedia: A comprehensive online resource dedicated to investing and personal finance education.
- Harvard Business Publishing: An affiliate of Harvard Business School, provides a wealth of knowledge and practical business insights.
- Entrepreneur: Offers advice, insight, profiles and guides for established and aspiring entrepreneurs worldwide.
- Forbes: A global media company, focusing on business, investing, technology, entrepreneurship, leadership, and lifestyle.
