Overview

The decision to expand your business into additional markets can be both exciting and daunting. On the one hand, you're hoping for sales and profit growth. On the other hand, however, you're faced with uncertainty about the effort and cost of expansion. This tool will provide a road map for the expansion process. It will help you sort through your options when looking at expansion and set realistic targets for growth. Use this tool to research possible market opportunities, develop your expansion plan, and initiate action. By following the steps outlined here, your business will have a better chance of succeeding in a new market.

Outline

1. Choosing an Expansion Mode
2. Expanding Geographically
3. Expanding With New Target Customers
4. Identify Potential Markets
5. Do Your Research
6. Niche Markets
7. Begin With Limited Offerings
8. Ramp Up to Full Offerings
9. Expanding Promotions
10. Monitoring Success
11. Resources

I. Choosing an Expansion Mode

Market expansion sounds wonderful, but it does not come risk-free. You may be successful in your current market, but that's because you are already familiar with it: You have researched it, worked in it, and are comfortable in it. Once you move into different markets, it's a whole new ball game. You're the new kid on the block, having to prove yourself all over again. You're also running your business on a much larger scale. You'll have more employees to manage, new customers to service, and new competitors to fend off. So, when considering market expansion, it is generally a good idea to approach it enthusiastically, but also with caution.

That's not to say that you don't have a few aces up your sleeve. After all, you've already succeeded in a least one market, so you have a good idea of what it takes to win. Also, you already have a product or service line, and manufacturing and distribution channels in place, so you aren't starting from scratch, which gives you a huge advantage. You will now have to figure out how to do more of the same, only on a much larger scale.

Think of yourself standing at a fork in the road. One route has a sign that reads "Geographic Expansion"; the other route has a sign that reads "New Target Market Expansion." How do you know which road to go down? A good way to begin making your decision is to list the pros and cons of each. For instance, branching out geographically has many advantages. You have a leg up because you already understand your customers, even taking into account regional differences. And, you can continue to do business as you always have, just on a much greater level.

However, there are times, especially when you venture into new countries, when you may have to alter things a little in order to meet some very specific customer needs. Are you prepared to do this? If not, you may want to take the other route and expand by targeting new customers. In going down this road, you need to carefully examine your product and see if there is a group of customers out there that you have paid little attention to in the past. Then, list some different ways you could possibly attract them.

Once you have successfully targeted one market with your product or service, and you have the staff, processes and implementation strategies in place, it may be time to consider expanding your target market. Ask yourself if your service or product could be altered slightly to reach a different market without needing to change the entire operations of your business. For example, a health club provides high-impact aerobic classes to its high-energy clientele. But with so many insurance companies now reimbursing senior citizens for exercise programs, the health club could offer a low-impact seniors class that would attract an entirely new market without having to make major adjustments other than designing a new class and hiring a qualified instructor to reach the market.

Remember, in choosing which path to follow, there is no definitive right or wrong answer. It's all about what works best for you.

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II. Expanding Geographically

Perhaps the most common way to expand into new markets is geographically. Cape Cod Potato Chips is a perfect example. The company started in Massachusetts and expanded west — all the way to California. Today, this once-small business has its product in 42 states and five countries. How were its managers able to accomplish this? Simple. They had an overall understanding of what their product was and a clearly defined business strategy for geographic expansion.

While your goal may be to take your company immediately to a national level, it is important to exercise some restraint. Cape Cod Potato Chips didn't take on the world overnight. Instead, they started slowly, venturing into their immediate backyard, which happened to be New England. Once successful in New England, the next obvious move for them — or so they thought — was Manhattan. If they could make it there, they could make it anywhere, right? Perhaps, but they suffered a setback. They couldn't find a distributor in Manhattan and, for a while, they thought it was over. New England would be as far as they would go. It was then that they went back to their original marketing strategy.

Cape Cod Potato Chips had decided two important things up front. First, they weren't going to try and be a chip that was all things to all people. They were a high-end potato chip, which cost more but tasted better. Second, their goal was to build a loyal customer base; to accomplish this, they knew they had to get their product into the hands of as many potential customers as they could. But how was this little mom-and-pop company going to do this? Well, they may not have had a lot of money, but they were extremely rich in creativity, and it paid off. They began to hand out samples — not just random samples, but calculated ones. For example, they got their product on airlines so that people all over the country would have the chance to try them. These potential customers would already be aware of the great-tasting chips when the company entered their geographic region. They also partnered with other businesses, such as beer companies, as an inexpensive way to get their product out to new regions. In states with beaches, they hired interns to pound the sand and hand out their product. In short, they created a buzz, and soon, they were on the shelves in Florida. From there they took off to other geographic regions, including their dream market: Manhattan.

As you attempt to expand geographically, think of Cape Cod Potato Chips, and don't try to take on too much territory at once. It is better to expand slowly from region to region than to attempt too much at once. Also, when setbacks happen, don't automatically give up. Just because one region says "no thanks" doesn't mean other regions will do the same. If Cape Cod Potato Chips had stopped at the New York border, they would not be half the company they are today. While your goal may be to go national immediately, it is important to exercise some restraint.

When thinking in terms of geographic expansion, remember the world can be your oyster. While it is definitely easier to expand across America, don't feel compelled to stop at the U.S. border if you truly believe there is a global need for your product or service. Depending on what you are offering, you may feel there is a greater need for it in a city like London vs. a city like Lincoln, Nebraska. For obvious reasons, expanding internationally can be a lot more complicated, but if done correctly, it can also be quite lucrative. For more information, see How to Expand Your Business Globally.

Self-Assessment:

The following questions are designed to help you determine if you are ready to expand geographically. Ask yourself:

1. Does my business operate with strict processes, guidelines and standards that are easily reproduced in different locations?
2. What changes will I have to make to my business to successfully expand into a new market?
3. Staffing?
   Budget?
   Operations?
   Resources?
   Marketing Program?
   Marketing Materials?
   Sales Staff?
   Sales Materials?
   Capabilities?
4. Do you need to have a physical presence in the location you are considering? Or could establishing an Internet presence or mail-order process eliminate the need to physically move into a new market? If yes, what will that mean to your business?
5. How is the geographic market different from the one you are in now?
6. Can your operations to expand financially support additional office space, new staff, equipment, etc.?
7. Is it feasible to compete with existing establishments in the geographic region you are considering?

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III. Expanding With New Target Customers

Believe it or not, it is also possible to expand into new markets without ever leaving your own backyard. How? Market expansion can also occur when you identify new groups of target customers in your current region. To begin identifying these potential markets, look at who is currently buying your product or service. Ask yourself why they are buying. What need are you filling? Now do some brainstorming. Ask yourself what other groups might benefit from your product or service. Get creative and dig deep. Are there changes you could make in packaging your product or service that might appeal to different customer groups? For example, if you own a dry-cleaning business, what services could you add to make yourself more appealing and attract a different clientele? You could offer same-day service, for example, that would be extremely attractive to busy executives who are always racing around doing things at the last minute. Or you could add a tailoring service. Or how about a weekly discount to attract a less affluent clientele? Do you see a theme emerging here? The trick is to attract new customers while at the same time keeping existing ones.

McDonald's is a perfect example of a company that expanded by targeting new customers. When you think of this fast-food restaurant chain, what images come to mind? A family restaurant with lots of screaming kids running around? Ronald McDonald, the company clown, Happy Meals and playgrounds in the parking lot? The truth is, at first McDonald's target customers were children. But research showed that even though they had been hugely successful with this campaign, they were in fact missing a much larger customer base: adults. Research proved that adults consume more burgers than children do, so McDonald's decided to go after two new groups of target customers: teenagers and adults. They unveiled new ad campaigns that were much slicker and sophisticated than previous ones, while at the same time promising potential new customers a burger for adults called an "Arch Deluxe." But look carefully and you will see, despite the new name, what changed here was not so much the burger, but rather to whom the burger was being sold.

A word of caution: When looking to expand into different markets by generating new customers, it is important to thoroughly think about what adding new benefits or features would mean to you. Same-day service seems like a great idea on the surface, but providing that service may be much more difficult than it sounds. Ask yourself how you will logistically provide a same-day service. Will you farm out the task to a larger firm and simply take a percentage, or will you have to add equipment and manpower to your current operation? In contrast, adding a tailor a couple of days a week or offering discounts seems much easier.

Self-Assessment:

The following questions are designed to help you understand if you are ready to venture into new markets. Ask yourself:

1. How well is my product or service doing in its current market? If your business is going as planned, what are the contributing factors? Will these factors be present if targeting a new market? If your business is not going as planned, what are the barriers prohibiting growth? Will these barriers be present in targeting a new market? Will there be new barriers that arise when targeting a new market?
2. How is the target market you wish to enter different than the one you are in now? What are the positives? What are the negatives?
3. What changes will I have to make to my business to successfully expand into a new market?

Staffing?
Budget?
Operations?
Resources?
Marketing Program?
Marketing Materials?
Sales Staff?
Sales Materials?
Capabilities?
 

4. Have I completely researched my new customers? What will they expect from my business?
5. Have I thoroughly investigated my new competitors?

For additional information, see Conducting A Market Analysis, Analyze Your Competition and Identify Your Target Market.

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IV. Identify Potential Markets

The first step to identifying potential markets is to first determine precisely who the market is. To whom do you wish to sell your product or service? What are the demographics? Male or female? Wealthy or middle class? What is the age range? Are you selling to housewives or women who work outside the home? Do they live in a particular geographic location? Does the market have seasonal or annual needs? You will need to have answers to all of these questions before you can begin to move forward.

Once you have established a potential new market, you will need to determine their needs and desires. You must not only discover what your prospects want, but why they want it. Then — and this is crucial — you will want find out if your product or service meets those wants and needs.

Market Assessment:

Does your company and your potential new market have a perfect fit? The following questions should help you discover if the potential in the markets you are pursuing really exists.

1. What are consumers in this new market looking for?
2. Why are they looking for it?
3. How does my product or service meet their needs and desires?
4. Do I consider my product or service to be a perfect fit with what I know about this new market? Why or why not?
5. Now take out a piece of paper and list the specific reasons that your product or service fills the need of that particular market. If the paper is more than half blank, you should probably consider other options.

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V. Do Your Research

Assuming you were able to list many reasons, it is safe to say that a potential market may very well exist for you. How will you know for sure? You can't ever be 100 percent certain, though you can greatly increase your chances of successful expansion by researching your new potential market. If you are unsure how to research a new market, think back and ask yourself how you evaluated the potential of your existing market. Even if you used a nonscientific method, chances are you did some sort of informal research to determine that people would want to buy your product or service.

It is important to remember that while you are indeed venturing into new waters, you are not an inexperienced swimmer. You have already been successful in a least one market. Don't be afraid to fall back on that experience and knowledge as you forge ahead. Some common ways to research a new market include the Internet, industry publications and trade shows. If possible, go out and talk to target customers. They are the ones who can give it to you straight. And don't forget when you research your potential market to make sure you check out your competitors. If you fail to determine who you are going up against, the results could be devastating.

Once you have established a potential new market, the time has come to pay the piper. You must approach target customers and see if they are as excited about your product or service as you are. Is your company the answer to their prayers? Some easy ways to get potential customer reaction is through focus groups, and telephone or direct-mail surveys. If you want to get creative, you could go to an event or location where you know you will find your target customers. For instance, if you are targeting young-to-middle-aged men, a sporting event or a golf course might be a good place to talk to them. On the other hand, if your target customers are teenagers, check out pizza parlors, video stores and record stores. If applicable, bring along product samples or brochures that describe your services and ask if it is something that interests them.

And be sure to listen to all feedback, even if it's not what you want to hear. The biggest mistake you can make is to forge ahead in a market if everyone is holding up "not interested" signs. If you think you are disappointed now, wait until you've spent blood, sweat and tears introducing your product or service only to find out the market doesn't want it, based on everything you were already told ahead of time.

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VI. Niche Markets

Quite simply defined, niche markets are small, definable groups of people that have a shared set of demographic characteristics. Think of the niche market as a specialty market of like-minded individuals that can be a valuable and profitable customer pool for your products or services.

If you own a small bed and breakfast in New England, for example, your customers probably tend to be both travelers on annual vacations as well as those who just happen upon you looking for a place to spend the night. In other words, your market is any and all travelers. By adding a few simple services, you may be able to expand into a niche market. What if you hired a driver and chauffeured guests to and from airports in style? What if you added a gourmet chef and expanded your meal service to include quiet romantic dinners? Or hired a masseuse and really spoiled your guests?

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VII. Begin With Limited Offerings

Once you have done the research and decided that you are going to expand into new markets, you must think about how you are going to introduce your products or services to your target customers. A common mistake in market expansion is the tendency to spread yourself too thin and try to do everything at once. One way to avoid this is by employing a gradual roll out, expanding region by region, market by market rather than trying to be everywhere at the same time.

This roll out strategy can be extremely successful for a number of reasons. First, you conserve your resources. Imagine the money you would need up front in advertising and promotion to enter 10 regions, as opposed to just one. And, by entering one market at a time, you should also be able to generate revenue that you can put back into the advertising pot for the next region.

By going slowly but surely, you will also insure that you are able to meet consumer demand. The last thing you want is to have eager customers who can't purchase your products or services because you can't keep pace with their needs. Of course, on the flip side, if the market proves unsuccessful, you also won't end up with a warehouse full of unusable product.

Additionally, a gradual roll-out allows you to cash in on word-of-mouth promotions. If one region gets excited about your product or service, the next region may be salivating, waiting for you to come down the road. A perfect example of this is a product called Clean Shower, developed by Automation Inc., which promises that you will never have to scrub your shower walls again. Of course, what human being wouldn't jump at the chance to stop cleaning shower walls? Clean Shower was introduced with a limited offering but word of mouth from state to state had customers anticipating its arrival.

An alternative to a regional roll-out is a roll-out to select distributors. For example, if you have created a special blend of herbal tea, you may want to look at certain types of restaurants or hotels where you think your product might do well. If your tea takes off, you can then expand not only to hotels and restaurants, but also to coffeehouses and gourmet specialty stores.

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VIII. Ramp Up to Full Offerings

Once your product takes off in the initial regions, you can graduate to a full offering. Again, a full offering can mean geographical regions, or it can mean scaling up to additional distribution channels. One entrepreneur recently invented a Bloody Mary Mix intended to put all previous Bloody Mary mixes to shame. He began by marketing his recipe to local restaurants. As the product took off, he was able to branch out to more restaurants; then he added hotels and liquor stores to his list of distributors. Now that he has proven success in his own backyard, he will be able to scale up and eventually graduate to a full offering. The key to this strategy is to think big, but start small.

So how do you know when it is time to graduate to a full offering? The following questions should help you understand if the time is right for you to move forward:

1. Have I been successful in the markets I have attempted? Why or why not?
2. Do I have the money to venture into new markets? If I need to obtain outside funding, how will I attempt to raise it?
3. Do I have a sufficient staff to enter new markets or do I need to hire?
4. Is my product or service heavily anticipated in other regions due to word of mouth from my current markets?
5. Is my product moving or do I have an overstocked warehouse?

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IX. Expanding Promotions

You will want to pay special attention to how you will promote your products and services in the new markets. Once again, you can fall back on your previous experience, but previous promotional methods may not be effective with a new geographic location or niche market. As you know, traditional promotional methods — such as TV, radio and billboard advertising — are costly, and in today's technologically advanced society, it is hard to capture prospects' attention at all, let alone hold it long enough to sell them a product. Therefore, you may want to consider some creative, nontraditional promotional methods to reach your new markets in new ways — and save on the costs as well.

Here is a sampling of ways to raise product awareness without spending an arm and a leg:

• Write and distribute a newsletter about your product or service. Make it humorous, eye-catching and full of useful information about the benefits offered by your product or service.
• Take out ads in church bulletins, yearbooks or community theater playbills. You will still reach a large group of prospects, but at a much lower cost.
• Sponsor a contest. Don't underestimate the number of people who get a thrill thinking about the possibility that they could win something. The prize you offer can be as simple as one free month of services or one free product, depending on what you can afford. In the end, all things considered, you will probably spend the same amount on a contest that your competitors will by handing out traditional coupons and rebates on their products or services — but you will get a much bigger bang for your buck with the buzz it creates. 
• Rent a booth in a prime location at your industry's annual trade show. The prospects you reach will be targeted and open to your sales message, and you will have the opportunity to talk one-on-one with potential customers to obtain valuable feedback on how you can improve your products and services. The key to making a trade show work for you is to give your booth pizzazz. Whether you plan an off-the-wall booth design, giveaways, music or food, you will need to give people a reason to stop by and talk to you. Also, bring staff along to man the booth while you walk around networking with attendees.
• Give away free samples. Most people love to get something for nothing. Free samples may seem like a hassle, but don't write them off. They are an excellent way to get prospective customers to try your product, and if they like it, they will surely come back for more.
• Be willing to go to extremes. If you have invented a super new deodorant, for example, set up a stand outside a ballpark in the dead of summer. When sweaty customers roll out of the stadium, let them compare your deodorant with that of your top competitors and see which they prefer.
• Go against the grain. If most of your competitors typically advertise in radio, go for TV or print. Come up with an ad campaign that instantly knocks people's socks off.

Next Step: What other ideas can you think of to creatively promote your product and service in your new market(s)?

When venturing into new markets, many people are concerned that they won't be able to promote their product or service correctly simply by virtue of the fact that they don't live in the region. Thus, your temptation might be to hire a PR firm or contract a sales representative. Both of these options are extremely expensive, however, and these outsiders don't share your knowledge or emotional attachment to your product or service. The bottom line is, no one can promote your "baby" better than you can.

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X. Monitoring Success

Now that you are up and running in more than one market, you must continuously monitor your success and be willing to make changes based upon public reaction to your product or service. The best way to do this is by listening to your customers. How you respond to customer feedback can mean the difference between the success and failure of your product or service. Remember, customers are people, and they like to feel that they have been heard. Asking for comments about your product or service and then getting defensive is not going to serve any purpose, except perhaps to insure the death of your product or service.

Just because a product or service has done well in one market does not mean it will do as well in all markets. Different geographic regions often have different tastes and expectations. But don't sweat it. Even if you start out slowly in a market, you may be able to tailor your product or service to a particular region, providing you listen to what your customers tell you and you act upon what you hear.

How do you know what customers are thinking? It's very simple. You ask them. Obtaining customer feedback is not a difficult task, and there are many ways to do it. Including a survey within the packaging of your product or service is a common way to go. Be sure the questions you ask are direct and to the point. A survey that looks too time-consuming almost guarantees that most customers will toss it. You will also want to be sure that you include a section for comments.

Sample Survey Questions

The following are some typical questions you might consider including in your customer survey:

• How did you hear about the product or service?
• What did you like about the product or service?
• What did you not like about the product or service?
• What would you like to see changed about the product or service?
• Did you find the product or service to be fairly priced?
• Would you buy the product or service on a regular basis? Why or why not?
• Was the product or service easy for you to obtain? Why or why not?
• Would you recommend the product or service to a friend? Why or why not?

Other ways to obtain customer feedback include:

• A Web Page -- Include a feedback page that allows people to submit comments and suggestions. This is a relatively inexpensive process, and one that more and more people participate in.
• Warranty Cards -- A high number of customers will probably answer survey questions in this format because they are getting something out of the process.
• A Toll-Free Telephone Number -- You can establish a line that is manned by a customer service representative (CSR), if your budget allows, or one that links directly to your voice mail. If you can't afford to hire a CSR, ask customers to leave their telephone numbers with their message so you can contact them should you have further questions. If time permits, you may want to get back to people and thank them for their time while also reassuring them that their comments are extremely valuable to you.
• Personal Interviews -- Nothing beats the time-tested method of conversing with customers to ask them for their honest feedback. This method works best when you have a relationship based on trust with your clientele; if your customers don't think you care or won't do anything about their suggestions, they will only tell you what you want to hear.

The most important thing to remember as you continuously monitor your product is that it is a buyer's market. If consumers don't want to buy your product for whatever reason, it is up to you to change, not them.

For additional reading on this topic, see the following Interactive Business Tools: Conducting A Market Analysis, Analyze Your Competition, and Identify Your Target Market.

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XI. Resources

Books

Holly Edmunds, "Complete Guide to Marketing Research for a Small Business" (Ntc Business Books, 1996)

Lisa Shaw, "1001 Ways to Market Yourself and Your Small Business" (Perigee, 1997)

Sam Decker, "301 Do It Yourself Marketing Ideas From America's Most Innovative Small Companies" (Inc Pub., 1997)

Web Sites

American Demographics

American Marketing Association

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