Market entry could be a possible solution that may not be obvious in the beginning of a case
Market entry problems have two variations, according to the Ansoff Matrix
- Introduction of an existing product in a new market (market development)
- Introduction of a new product in a new market (diversification)
Use the following five steps to approach a market entry case
1. Paraphrase and clarify the objective in the beginning (same as all other cases)
As usual, take good notes! Start with paraphrasing the problem and clarify all questions to make sure you understand the problem. Take a minute to structure your thoughts and decide the questions you want to ask based on the structure. In short, in order to have market entry strategy, you need to:
- Understand the company and its current market, and also the new market the company wants to enter
- Evaluate the financial aspects
- Evaluate the economic implications of entering the market. If it makes sense, decide how: Through organic (independently) or inorganic (inter-dependently) ? If inorganic, then would it be through a Joint Venture or M&A?
Frameworks such as Porter's Five Forces can help you structure thoughts and systematically uncover key information. But, in an interview, avoid saying that you are using Porter's Five Forces or any other standard framework as you run the risk of portraying yourself as force-fitting a framework.
2. Understand the client's company
Understand why the client wants to enter the new market and identify the key issue. Knowing this piece of information will be important making the final recommendation.
Other important information:
- What are current revenue streams?
- What are the client's key strengths and weaknesses? (SWOT)
- What is the product mix? How many and what types of product lines, brands, variations of products does the company have? What's the lifecycle of each product? Also, how closely related are the current products?
- Who are current customers and how are they segmented?
- What are the current distribution channels?
- What is the client's current financial situation?
3. Understand the market of interest
Understand the market the client wants to enter and evaluate its attractiveness. Start by estimating the market size if that information is available (it is implied that you would first need to estimate market size in such cases).
- What is its growth rate?
- At what stage of the lifecycle is it? Emerging, Mature, Declining?
- What are the customer segments and what are their respective needs?
- Is there a key technology involved? If so, how quickly is it likely to change?
- What are current trends in the industry?
- Who are the key players in the market? What is their market share? What are their differentiating factors?
- What is their response to the determined key trends?
- Are there substitute products?
4. Evaluate the financial aspects
- Costs: What are barriers to entry (i.e. investment costs)?
- Costs: What are expected fixed and variable costs?
- Revenues: What is the expected price of the product for and how many units are expected to be sold?
- After how many years will the client break-even and what is the rate of return (understand that money has a different value over time)?
5. Evaluate the economic implications of entering the market
Remember you do not need to investigate all these questions but you do need to evaluate and understand what questions are important by considering the reasons the client wants to enter the market.
If you decide that entering a new market is a good idea, it would make sense to recommend the client how to do it.
Entering a new market can be generally done in three key ways:
- Start from scratch
- Through a Joint Venture
- Through M&A
Based on the data, if you decide that the venture is not a good idea, recommend an alternative plan (product differentiation, cost cutting, international presence etc.). Since you now know the company structure, the “old” and the "new" market, make sure to structure your recommendation.
- Competitive advantage: Can you apply the same business strategy as in your current market or do you have to adapt the product, marketing or even sales channels to reach customers?
- Timing: Can you lever a first mover advantage or would you rather let the competitors try their luck first?
- Speed of entry: Define whether you want to test a single store or region or whether you want to cover the entire market at once
- Entry mode: How much commitment are you looking at? Would it be a simple export strategy, where you can exit easily but have less control OR a wholly owned subsidy, where investment costs are high but you also have more control
- Organizational structure of the new branch: Do you want to decide centrally or leave lots of freedom to the individual manager of the country
Once you have all your answers, synthesize them to give a recommendation based on the facts you collected. Don't forget to take another minute to structure your answer but make sure to provide your answer first and then reasons! Check out our article about the pyramid principle for more details regarding communication.
Key takeaways and further reading for market entry cases
- Market entry cases are often hidden in other case types such as cases involving increasing revenues of a company
- Look for the most critical success factors for the client
- When developing a market entry strategy, focus on how the new market fulfils the success factors sought by the client.
- Make sure to layout several different market entry strategies and evaluate those against each other
- Further reading from McKinsey