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New Market Entry: how to decide which market based on size and competition?

Aditya asked on Jul 25, 2017 - 2 answers
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In cases where the client is considering entering a new market and needs to decide which market to enter, what are the key considerations? If I have a list of potential markets with their size and competitive landscape, how do I find the most suitable one to enter?

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Francesco updated his answer on Jul 25, 2017
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Hi Aditya,

having to decide which market to enter, this is what I would consider:

1) Goal clarification. It is always good to start with the end in mind – thus what is the specific reason why you want to enter the market? Is it revenues, profits or specific synergies?

2) Industry. There are two macrovariables here.

  • Key industry numbers/facts. This includes
    • Growth
    • Size
    • Barriers to entry
  • Key industry players. This includes:
    • Customers
    • Competition
    • Occasionally for some cases: suppliers and substitutes.

Here you should compare the different industries and understand which is the one fitting more with your goal. Eg, if your goal were to increase revenues, then an industry with high growth and size with low competition would be your target. If your goal is to generate synergies with your current product, customer fit would be more important. You could then eliminate those industries that clearly would not fit with your client objective and move with the remaining to the next step.

3) Company - Target objective feasibility. Here you want to check the fit between the client and the selected industries.

  • Can our specific client reach its objective in the selected market (this includes understanding its capabilities)?
  • Are there positive or negative synergies in such industry?

Here you want to test the feasibility for our client to achieve a specific target in an industry. Say that in your final selection you have Industry A with size of 10 and growth rate of 5% and Industry B with size of 8 and growth rate of 4% - all the rest being the same - and your goal is to maximize revenues. If your specific client has enough synergies in Industry B, it could find better to enter such an industry, as the synergies could prove to be superior to the higher growth and size of Industry A; of course, that should be verified, ideally with quantification of the relevant numbers.

Hope this helps,

Francesco

(edited)

So our client is a $100M clothing company that makes clothes for hunters. It is now wants to enter new market and has three options to choose. Which one should it go for: (1) Military Uniforms( size=$300M, Total 40 players with top 4 having 67% of market share). (2) Boots (Market Size= $200M. Total 30 players with top 4 having 65% market share). (3) Bagpacks(Market Size- $100M, 15 players with top 5 having 72% market share). — Aditya on Jul 26, 2017

Vlad replied on Jul 25, 2017
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Hi Aditya,

Let me add more details. I would look at the following things across these markets (sorted by priority):

Market

  • Size
  • Growth rates
  • Profitability
  • Segments
  • Distribution channels
  • Bereers (mainly regulation)

Competition

  • Market shares of competitors and their segments (see the next point)
  • Concentration / fragmentation (Fragmented market with lots of small players is less mature and easier to enter fom a scratch. Concentrated market is hard to enter but has potential acquisition targets)
  • Unit econmics of the players (Margins, relative cost position)
  • Key capabilities of the players (e.g. suppliers, assets, IP, etc)
  • Previos / projected entrants

Company

  • Unit economics (Margins, costs) in current or target markets
  • Brand
  • Product mix
  • Key capabilities

Opportunities to enter - a bucket sumarizing:

  • Time to enter
  • Branding (Do we keep an existing brand / do sub brand if it is the new segment or create a new brand?)
  • Existance of acquisition / liscencing / JV targets if relevant
  • Cost and benefits

Good luck!

thanks — Aditya on Jul 26, 2017 (edited)

So our client is a $100M clothing company that makes clothes for hunters. It is now wants to enter new market and has three options to choose. Which one should it go for: (1) Military Uniforms( size=$300M, Total 40 players with top 4 having 67% of market share). (2) Boots (Market Size= $200M. Total 30 players with top 4 having 65% market share). (3) Bagpacks(Market Size- $100M, 15 players with top 5 having 72% market share). — Aditya on Jul 26, 2017

Hi Aditya, I have answered in your separate topic — Vlad on Jul 27, 2017

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