Assessing a New Market for Viability

Many successful businesses look for ways to expand into a new market. It's important to weigh the cost of entering a new market (especially if it's an export market) with the potential returns. The easiest potential for growth is to take the successful business model you have developed and duplicate it in another area.

A new market can be a new customer type you've never targeted before in your current region or the same type of customer in a new region.

Determining viability

It's important to determine if you should invest time and resources in trying to obtain a share of a new market. Assessing growth potential in new markets requires some common sense, critical thinking and analysis.

Review:

• Market demands, such as the size and potential growth of the market; the target audience, their needs and purchasing power; and the overall industry landscape. Consider whether there's a demand for your product or service or if there's a gap your business can fill.
• Financial feasibility, which will determine whether it's worth it financially for you to enter the new market. You'll need to explore the cost of market entry, any necessary investments in infrastructure and the costs of marketing and distribution. Compare that with your projected sales and profits to determine whether it's financially reasonable to enter the market.
• Distribution channels to determine whether there are potential partnerships, suppliers or networks to support your business as it enters the market. These may make it easier for you to expand into the market and may save you money.
• Competitors and how they will affect your success. Be clear on your points of differentiation. Evaluate their strengths, weaknesses, pricing strategies, customer base and market share. Determine whether there's room for your business to compete.

Once you've determined that there's a demand and you can make a profit from the new market after any expenses are deducted, you can move ahead with the next steps.

Examining market potential

One of the main factors to consider is what kind of potential the market has for continued growth. You could be entering a market on a short-term basis to take advantage of a certain demand within a specific time frame, but it's often better to seek longevity for sustainable business growth.

You'll want to understand:

• Whether there's a temporary, urgent demand now or whether the need for your product or service will exist in the future.
• If you're occupying a specific niche and, if so, whether your niche can easily be adapted to market changes.
• How quickly and efficiently you can bring your product or service to the market and earn a profit.
• Whether your good or service is one that customers will need to buy repeatedly or whether you will continuously need to generate new business through marketing initiatives.

If your business is responding to a temporary, urgent need, you'll be more sustainable if you have the capacity to adapt your goods or services to changes in the market. You'll also be more sustainable if you can generate repeat business.

Testing the market

It's always a good idea to test your products or services in a new market before investing time and money committing to it.

You can do this by:

• Exhibiting at relevant trade shows. You'll not only get an idea of demand, but you can collect customer feedback and use that to amend your product or service for the new market.
• Visiting customers in the new market. Find out what prospective customers are looking for in your industry and how you can best help them.
• Conducting a trial or pilot by starting small and start trading in the new market. Limit your risk through short-term leases and small production runs, offering only a few products or services. Once demand is proven, you can scale up.
• Selling online first to test demand before opening locations in the new market.

Testing the market will tell you whether your hunches are correct and people are willing to pay you for your goods or services. Positive responses indicate your business can be successful and sustainable. Feedback will give you valuable information on how you can adjust to increase your chances of success.

Planning for the future

Future consumer, economic and societal trends and situations can have significant impacts on businesses of every size, and change can happen quickly. Pay particular attention to any economic, social and industrial trends that could impact your business.

Before breaking into a new market, read local, national and international news and subscribe to news sources for your industry to get a sense of upcoming trends and historic shifts. Follow thought leaders and experts to deepen your understanding of the business environment.

A great example of how things can change is how today's greater "global awareness" has prompted a growing market of people and organizations that make buying decisions based on social, political or environmental factors. Concerns about climate change mean more consumers are looking for eco-friendly solutions. It's important to know about these trends so you can determine whether they will limit or expand the growth potential of your business.

Next steps

Each industry and market has a lifecycle, so it pays to understand the state of your specific industry and market and the factors that can influence your business.

Determine the viability of your new market by getting to know the market and its needs well; examining the market potential; testing the market if possible; and understanding how economic, social and industrial trends affect your business.