In a recent blog post we covered aspects to take into account when expanding to new markets. This time we will focus on how to choose the right market. A good starting point when choosing a new market, is comparing it with the current market. Similarities to the home market make it easier to adapt to a new location. These aspects can include language, culture, legislation, and customers. On the other hand, a common pitfall is assuming that the new market is similar. Therefore, we recommend using coherent analysis frameworks where one market is compared to the other.
CAGE analysis and PESTEL analysis examine the external factors
The CAGE analysis focuses on identifying Cultural, Administrative, Geographic and Economic differences between the chosen market locations.
Cultural aspects, which include language & cultural norms, can be useful in determining how similar or varied the new market is going to be to your home market. For example: cultural norms within the Nordic countries (such as Finland and Sweden) are similar, but the languages differ a lot.
Administrative distance can help you determine how close or far the new market is in terms of currency, political regime etc. As an example using the same countries, Finland and Sweden have a different currency, which can bring more challenges into business expansion.
Geographically the locations are compared by physical distance, time zones, land border between the locations, and differences in climate. Lastly, economic distance compares the financial and human resources of the locations as well as infrastructure, natural resources, and knowledge.
CAGE analysis is an excellent framework in determining the attractiveness of a new market. However, it needs to be supported by other frameworks that take into consideration the internal talent and resources of the business.
Another useful framework in deciding your target market, is PESTEL analysis. The acronym stands for Political, Economic, Social, Technological, Environmental, and Legal factors. PESTEL analysis is a great tool especially for risk management planning and recognising trends. However, it only focuses on the external factors, which is why it works best combined with other frameworks.
Evaluating the size of the target market helps in justifying the expansion.
TAM SAM SOM market evaluation framework allows you to discover the size of the target market. The three parts of the acronym refer to the total market size, the size of the market your product could reach at the moment, and the portion of SAM that could realistically be obtained currently. TAM represents the potential, whereas SAM and SOM are more down-to-earth. Getting the most accurate numbers, rather than the biggest numbers, is key to using this framework. TAM SAM SOM is an excellent tool in assessing investment opportunities.
- TAM: Total Addressable Market
- SAM: Serviceable Available Market
- SOM: Serviceable Obtainable Market
Creating a customer persona
The better you know your target audience, the easier it will be to adapt to the new market. Therefore, creating a customer persona that accurately represents your audience, will allow you to better understand your customers. Basic demographics are a good starting point when creating buyer personas, but details about the customer’s motivations and challenges will take you further.
Always include an exit plan in the market expansion strategy.
When you create the strategy for market expansion, remember to also include an exit plan. In case everything does not go as per plan with the chosen target market, you can either switch markets, or change your approach. This way you do not need to start from ground zero, even if the first plan does not work out.
A structured and analytical approach creates readiness
Thorough planning and use of the different frameworks gives you a wide understanding of what you need to do in order to successfully launch your business in the new market. When the plan is thought through, there is no space for unpleasant surprises, and all choices are justified by existing information and data.
Bell Rock has extensive experience in taking digital businesses to new markets. Contact us to discuss your business expansion, we will lead you through the journey.