Definition
A Market Entry Strategy is a devised plan of delivering goods or services to a new target market and distribution within that market. It is essentially a blueprint that companies use when expanding into new markets or industries. This strategy considers various factors such as market conditions, competition, pricing, and regulation.
Key Takeaways
- A Market Entry Strategy refers to the planned method of delivering goods or services to a new target market and distributing them there. It is crucial for getting your product, service, or business model in front of potential customers quickly and effectively.
- Some commonly used market entry strategies include exporting, franchising, licensing, partnerships, turnkey projects, and direct investment. The choice of strategy will depend on the business’s resources, capabilities, and the nature of the target market.
- The success of a Market Entry Strategy relies heavily on understanding the dynamics of the new market, including its competitive landscape, customer behaviors, legal and regulatory environment, and cultural nuances.
Importance
A Market Entry Strategy is a critical component in finance and business because it outlines the methodology and procedure a firm will adopt to deliver its product or service to a new target market.
It’s importance lies in its capacity to determine the success or failure of the business’s penetration into the new market.
It incorporates aspects such as market analysis, understanding competitor landscape, determining the right pricing, promotional and distribution strategies, among others.
A well-planned market entry strategy can help a company avoid potential financial losses, attain a competitive advantage, achieve sustainable growth and maximize its profitability in the new market.
Explanation
A market entry strategy is critically important for businesses considering expansion into new markets. It is the planned method of delivering a product or service to a new target market and distributing it there.
The purpose of creating these strategies is to expand the business’s reach and grow on an international level. Apart from expansion, the market entry strategy is also designed to stay competitive, understand the nuances of the local market, identify potential competitors, and align business strategies to local needs.
Market entry strategies are used for reducing the risks involved in entering uncharted territories. They help businesses understand market trends, consumer behavior, and existing competition in the new market.
Without an adequate strategy, the business may face several challenges like understanding customer preferences, unfamiliar laws and regulations, and unanticipated market forces. The right strategy can help a business navigate these issues and find its footing in the new market domain.
Examples of Market Entry Strategy
Uber’s Market Entry into India: Uber, the ride-hailing app, entered the Indian market in
They began with premium services in urban metros like Delhi and Mumbai, competing with existing cab services. However, recognizing the dominance of two-wheelers in Indian commuting habits, they diversified their offerings and introduced UberMoto, a bike-taxi service, making their service more affordable and accessible.
Starbucks in China: Starbucks entered the Chinese market in 1999, a market traditionally dominated by tea-drinking. Starbucks developed a market entry strategy that involved partnering with local players and adapting their stores and products to local tastes. For example, they offered Green Tea Frappuccino and Red Bean Scones. Today, China is Starbucks’ second-largest and fastest-growing market.
IKEA’s Market Entry into Russia: IKEA, the Swedish furniture retailer, entered the Russian market in
They conducted market research to understand Russian consumer behavior and adapted their products and pricing to fit local needs. Also, they opted for an area for their store where there is a high population density and it’s easily accessible for customers. The IKEA model provided cheaper, stylish, DIY (do-it-yourself) furniture alternatives, which was new to the Russian market and thus gained popularity.
FAQs on Market Entry Strategy
1. What is a Market Entry Strategy?
A Market Entry Strategy is a planned method of delivering goods or services to a target market and distributing them there. When planning a market entry strategy, businesses typically consider such factors as geography, demography, socio-economy, competitive landscape, and regulatory environment.
2. Why is a Market Entry Strategy important?
A well-prepared Market Entry Strategy enables companiesto enter into a new city, region, or country with predetermined objectives, targets, and processes, reducing risks and increasing chances of success in the new market. It’s part of an overall business growth and expansion strategy.
3. What are some common types of Market Entry Strategies?
Depending on the nature of the business and its specific circumstances, different companies can adopt various market entry strategies. Broadly these strategies can be classified into categories like Exportation, Joint Venture, Foreign Direct Investment, Licensing, Franchising, etc. Choice of the right market entry method is crucial for successful market penetration.
4. How does a company choose the right Market Entry Strategy?
Choosing the right Market Entry Strategy depends on an in-depth understanding of the target market including its cultural, administrative, geographical and economic backgrounds. The company’s size, international experience, and management’s risk propensity also play a significant role. Companies usually conduct feasibility studies, market analysis and cost-benefit analysis to choose the right strategy.
5. What challenges could businesses face when implementing a Market Entry Strategy?
Implementing a Market Entry Strategy could involve challenges like legal constraints, intense competition from established local players, economic instability, cultural nuances, unfamiliar business practices, difficulties in establishing a distribution network, and more. Proper planning and thorough analysis can help businesses overcome these hurdles.
Related Entrepreneurship Terms
- Competitive Analysis
- International Trade Regulations
- Market Penetration
- Market Diversification
- Joint Venture
Sources for More Information
- Investopedia: It is a leading source of financial content on the web, ranging from market news to retirement strategies, investing education to insights from advisors.
- McKinsey & Company: They provide reports and insights from hundreds of experts around the world, focusing on multiple areas including market entry strategies.
- Harvard Business Review: This resource offers a variety of articles and reports on business strategies, including market entry. Often you can find case studies from various industries to illustrate the strategies.
- Boston Consulting Group (BCG): They have a plethora of insights and publications on business and market strategies including market entry in different geographies and industries.
