What are market entry strategies?

Discussions About Market Entry Strategies

Daniel Spulber’s book The Market Makers: How Leading Companies Create and Win Markets helped us understand the importance of this subject. To quote him: Entry strategies take advantage of the company’s ability to create and manage markets.

This opens up a wide range of strategic alternatives and allows the company to develop its market relationships and profit from its unique knowledge. Success comes from insight about the markets, insight about the opportunity, and an ability to execute. Market entry is a strategic challenge and cannot solved with brute corporate force.

The value web, composed of many integrated value chains, represents a significant industry-wide commitment to a large number of players in the particular markets and the customer connections they serve. Normally, it takes many years for an industry to build an established value web; it is not easily changed, because building one involves great sums of capital investments. Woven in among all these players is an extensive set of long-term relationships, a commitment to an established set of policies, industry norms, standards, regulations, and other particular practices.

Facing these facts, some questions pose an immediate concern:
 - What is your proposed entry strategy?
 - What is the best way to move a new product into a market?
 - How can you get immediate traction?
 - Will you have problems with your technology, if it is too disruptive, to overcome the cultural/organizational dynamics of the industry norms?
 - Are you facing any particular seasonalities unique to your industry?
 - What about “must-attend” trade shows, and when are they?
 - Do you have to make alliances for suppliers or marketing channels?
 - Are there any governmental hurdles, barriers, or approvals to go through?
 - What about special regulations, like third-party spec’ing and testing?

Choosing A Market Entry Strategy
Choosing one of the following market entry strategies depends on the ecosystem that you are going into, the positioning that you seek, and the product portfolio of the existing organisms in the space. Once you select a market entry strategy, it begins to drive everything else. This includes your business strategy, your business model, how you recruit and build your venture team, the resources you will need, your marketing and sales strategy; it even drives how much money you will need and your leads on potential investors. Good luck!

1. Trailblazers and Creative Disrupters
In his book Winning In High-Tech Markets: The Role of General Management, Joseph Malone presents the case for the pioneering trailblazer: If the firm that pioneers a market is capable of continuing to pioneer new generations of technology, it is almost impossible to catch. It develops a learning-curve advantage, which is constantly reinforced as long as the pioneer continues to press ahead with ever-newer technology.

The trailblazers and pioneers should go after nonconsumers, where the alternative is nothing at all. HP provides us a great example, as they, according to David Packard, “single-handedly created the revolution in color printing” when they introduced the Deskjet 500C in 1991.

Christensen once stated that “Sony was history’s most successful disrupter.” In an average year Sony introduces 1,000 new or updated products, or an average of four every working day. Typically, about 200 of these products are aimed at creating entirely new markets.8 Between 1950 and 1980 Sony introduced twelve disruptive technologies that created exciting new markets and ultimately dethroned industry leaders, everything from the first transistor radios to televisions to VCRs and the Walkman.

2. Fast Followers
Despite the supposed existence of “first-mover” advantages, first-to-market innovators and trailblazers do not always win. In Schumpeter’s view, life is easy for the fast followers because all they need to do is to follow in the footsteps of the pioneering entrepreneurs who have led the way and established a dominant design or product platform, and whose earlier activities have resolved all the major uncertainties. Such fast followers can also leapfrog the pioneers.

There is perhaps no better fast follower than Microsoft. In 1985 Microsoft’s Excel followed Lotus’s 1982 release of 1–2-3, which in turn followed VisiCalc’s 1979 release. Richard Belluzzo, a former Microsoft president who oversaw MSN and the XBox games division, commented on their online strategy as they pursued AOL: “It’s typical Microsoft. It takes them a while to find their groove, but once they do, all they have to do is execute.” And in the early days of the PC industry, IBM’s penetration of the corporate market was so successful that the company could not satisfy demand for approximately eighteen months. This created an opportunity for many start-ups to develop IBM-compatible machines, or “clones” that followed IBM’s footsteps.

3. Innovators and Enablers
Much like how the stirrup changed riding horses, weaponry, and warfare, and even the entire feudal system, history has shown us that one simple idea, or a cluster of innovations, often enabled the emergence of entirely new industries. In more modern times, electrification (the enabler) and the rise of supermarkets (the innovators) in the late 1930s led a boom in refrigerator sales and introduced food marketing. And like the stirrup, the Internet enabled Amazon.com to trigger a fundamental change in the balance of power between buyers and sellers. Think of the first time you went online and actually purchased a book from Amazon, and then thought, “Why can’t every bookseller conduct business like this?” Well, the innovator looks at Amazon.com and thinks, “Why can’t all business be conducted this way?”

At Ducati they did just that. In early 2000, the sixty-year-old Italian motorcycle company sold about three years’ worth of their $26,000 limited edition 996R street bikes in less than one month online, one day selling 350 units. But these innovators and enablers of a “miniature revolution” do not have to be leading a technology-based product or service. As Dave Thomas, founder of Columbus, Ohio-based Wendy’s, once said, “We did not invent the salad bar or the stuffed baked potato, but we were the first ones to put them into a national chain of quick-service restaurants.”

4. Evolutionary Components
We discussed how Carnegie’s fortune was amassed during America’s period of “railroadization,” when his steel replaced wooden bridges and trestles, and when existing rails were replaced with his stronger and cheaper rails. Evolutionary components are incremental innovations, the replacement spikes and ties of any industry that is experiencing a technological change or a period of accelerated growth. According to Les Vadasz from Intel Capital, “The infrastructure that will be defined as the Internet is going to be developed over the next ten or fifteen years, and it’s going to change. It’s going to require a new generation of communications and computing infrastructure and applications that will run on it.”

Early stage ventures can “supply the suppliers” or enter through a gap they see in a particular ecosystem. Typically, there are small gaps between the evolutionary waves and the market leaders, either because of poor insight, weak defensive measures, or just poor management. Also the market leaders can “miss a shift” during a lap in the race, and competitors will blow right by them. For example, IBM lost 64 percent of its market share in the disk-drive business between 2000 and 2002 to Hitachi of Japan, because in 1999 IBM experienced internal delays in relocating its manufacturing operations overseas.

5. Substitutes and Alternative Solutions
“Paper or plastic?” is seldom heard at the grocery market anymore, but plastic bags were a substitute that overturned the paper grocery bag industry. Porter also provides an example of how high-fructose corn syrup replaced sugar for soda drink-makers. Substitute products and services offer a viable alternative to what is already being offered in the space and “perform the same function as the product of the industry.” Once a symbol of software’s counterculture, Linux technology has become a mainstream technology and is now a serious substitute for UNIX technology-based servers. Said one corporate user, “Linux unshackles us from a proprietary world.”

The market is ripe for substitutes when a huge macroenvironmental change surfaces, such as when there is a change in the economics of the industry, or a technological change. Like a fast follower, substitutes are viable once the market has been broken open, and once customers are trained and comfortable at buying in the segment. But unlike fast followers, substitutes make a play on pricing. Opportunities for substitutes come from price-reduction demands, increases in the cost of supplies or capital, and increased regulatory pressures.