Great business success comes from capturing new markets that have opened up for goods and services. But consultant Stephen Wunker says the traditional business strategy from established fields doesn't work to capture new markets.
"Tools such as those for tracking market share, competitive offerings, and profit-margin trends accomplish little when the customer, competitive products, and the extent of competition are all mostly unknown," he writes in Ivey Business Journal.
Instead, he urges you to:
Generate demand before vanquishing competitors
The real struggle in new markets is not against another firm joining you in the market but against customer inertia. "It does not matter who is the dominant player in a marketplace that barely exists," Mr. Wunker notes. Your immediate goal is to jump-start demand for the new offering, and your competitors can actually be allies in this conversion process, helping to educate consumers and drawing attention to the new category.
Time your market entry
The belief is that you must be first into a new market to ultimately become dominant, but that isn't necessarily true. Early movers entrench themselves if they can create entry barriers, avoid locking in to inappropriate business approaches, and have minimal upfront costs. Otherwise, you can succeed by being a fast follower.
Options include seeking a well-defined market, as Facebook did when focusing on university students to overtake Friendster. Or you could ride a different platform, as Excel did by being the first spreadsheet to run on Microsoft's Windows, allowing it to beat previously more popular VisiCalc and Lotus 1-2-3. Or you could leverage the power of a network, as Bank of America did by licensing its card operations to banks in other locations, surpassing Diners Club.
Sell to customers directly
Sales channels are the superhighways to customers but they only work, Mr. Wunker says, when traffic is moving predictably to well-known destinations. If the market is just forming, and the marketplace requires education about its needs, or if the buyer's identity is initially unclear, try the equivalent of a country road: Sell directly to customers. The country road can provide more flexibility for markets in rapid change and allow you time to find the right formula for success before you accelerate growth.
Win in targeted footholds
The quickest path to becoming big in a market can be to aim small. "By creating a proposition that is good enough only for a particular type of buyer in a foothold market, firms avoid the time and expense required to satisfy broad swaths of customers. The company then has a narrow target for its sales efforts," he writes.
"It also can attain scale within the niche, such that early customers can serve as useful positive references even if their experiences would be meaningless to people outside the foothold," he notes. Example: Research In Motion, which initially targeted corporate managers and IT staff for its BlackBerry smartphone, later expanded from that niche.
In established industries, it is important to establish scale and leverage fixed costs. But in new markets, companies need to be nimble, experimenting easily. "It does no good to take the cost-efficient route to the wrong destination," Mr. Wunker says. He cites the example of Quebec's Joseph-Armand Bombardier, who kept his company lean and flexible, sourcing engines from third-party supplier until he determined the best markets for his tracked snowmobile bus – forerunner of the snowmobile.