How should you determine your market entry strategy?
Venturing into a new market is more than just a new marketing channel. It should be subject to a sound decision-making process and decided by the person who makes all high-level investment decisions, such as the CEO or MD.
Decision-making: should a company expand internationally?
The basis for a market entry should be these steps described by Ronald W. Hilton in his interesting read Managerial Accounting – Creating Value in a Dynamic Business Environment:
Clarify the decision problem:
What problem or effect do you want to solve with going international? A possible motivation can be, for example, being less depended on the home market.
Specify the criterion:
What is the target in the new market? Increase market share, maximize profit, minimize costs? Define the framework here. Some of the targets will conflict with each other. Therefore it is important here to define the main target and add constraints. For example: the decision criterion is to gain market share, but the CPO cannot exceed € 50 or profitability needs to be achieved within x months.
Identify the alternatives:
How are we going to do it? Central or decentral? Assign a project team? Hire new people? Getting support from an agency?
Develop a decision model:
This is a simplified representation of the choice, the criterion and all the constraints. We call this the business case.
Collect the data:
This is the most important task of the marketing analyst: selecting the required data to make a decision model.
Select an alternative:
The investment decision can be evaluated properly against other opportunities.
After getting through these steps, you will have a quantitative decision-making process. Still there is another factor involved and that involves the qualitative considerations. Gathering data is analyzing what happened in the past. You need to add some experience to be able to look at the data and decide relevancy and accuracy of it for the future.
What goes into a market entry strategy?
Basically, a company needs to evaluate the benefits against the costs. For instance, the goal is a x% market share in a new market with the constraint that the company needs to be profitable after y amount of time. In this example, The market share is the size of the opportunity, while time and profitability are the constraints.
For a proper revenue calculation regarding your market entry strategy, you will need:
- a sales forecast;
- a conversion rate;
- quality localization;
- a sound reputation;
- an average order value (AOV);
- the buying behavior within the time constraint;
- expected traffic;
- the biggest cost drivers usually being:
- shipment costs;
- return costs;
- payment costs.
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