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Which product or solution to offer first in a foreign market


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Which product or solution to offer first in a foreign market

  1. 1. Asselin Bannon Strategic Management Consultants Division of La Société de gestion et de formation GEXIMTM Inc. (This text is the sole property of Ronald Bannon – All rights reserved © 2015) Globalizing your business Which product or solution to offer first in a foreign market? By Ronald Bannon MBA, C. Adm., FCMC Quebec, Canada, July 3rd 2015 In this series of articles on international market development, we have clarified the factors motivating the selection of a first international target in the previous chapter. The language or culture are often used to justify the decision to go to this or that market. However, this approach is not that to promote. According to our observations, you should rather address the market opportunities that offer growth potential in the long term with products or solutions that can be exported and eventually be produced locally in order to reduce the impact of transport costs on the selling price and therefore increase the profit margin on the value transferred to the end user. In our practice, we generally find two types of products or solutions that are seen abroad as introductory products or solutions: the ones growing strongly called Stars or others that are at the beginning of the sales cycle describe as Questions marks in reference to the BCG matrix. Let's review briefly what says this theory from the Boston Consulting Group (BCG): Products Relative Market Share Market Growth Rate Profitability Stars High High Low Cash cows High Low High Question marks Low High Doubtful Dogs Low Low Negative It is tempting for a company to push into new markets its products or solutions with a high growth rate (Stars or Question marks) on foreign markets because entrepreneurs are hoping for a quick return on their investment of time and money. The reality is quite different. In a new market, the game is far from over, especially when it comes to introduce a product or solution that is unknown. Generally, according to our observations, sales expectations are too high and the product / solution introduced is often not the good one. Take for example a product / solution that has a promising future because of its potential sales but generates a lower profit margin because its reputation is not yet established (definition of a Star product) versus a product Ronald Bannon is a Certified Management Consultant (CMC) since 1997 and involved in international sales & marketing of innovative products and solutions since 1984. He carries out a long experience on how doing business abroad and promoting your latest innovation in markets where often Canadians have never showed up. In 2014, he was appointed Fellow for its contribution to promote the CMC designation and his excellent reputation.
  2. 2. Asselin Bannon Strategic Management Consultants Division of La Société de gestion et de formation GEXIMTM Inc. (This text is the sole property of Ronald Bannon – All rights reserved © 2015) that has made his mark, however with low long-term potential, but offer a higher profit margin (definition of a Cash cow product). Which of the two will you promote to prospective buyers in an expansion strategy? Given the choice seems obvious to us, we believe it will be better to enter a new market with a product / solution defined as a "Cash cow" according to the BCG matrix. As this is a product that offers superior economic returns, it will be easier to adapt to the market with a pertaining marketing strategy because of the greater profit margin available. If you are in a country where the currency is stronger than yours in your own country, you will get above an additional margin. As the market share increase of a "cash cow" product is by definition low or stagnant, the fact of introducing it a new market is a good decision to give to it a new life cycle. In summary, it will be easier to create demand with a new product or solution that has already proven itself without risking of burning Stars products that may ensure a good portion of sales in the future. For Question marks products, it is possible that an introduction into another market may have a beneficial effect. It's a question of how the product will answer the needs. We have already encountered this situation for professional services with a technical solution. Here are some advices on adapting "Cash cows" products/solutions into a new foreign market: 1. Start with a perception test in the targeted market, at trade shows or during visits planned to, to see other enterprises to measure interested consumer reaction; 2. Identify the discriminating factors or elements which potential customers respond favorably to eventually be able to develop a suitable offer; 3. Remove the items that bother your future customers (concept of irritants) that might affect the distribution or sale (packaging format, languages, colors, non-compliance standards); 4. Test the price elasticity to determine how the end user is willing to pay. In our experience, the selling price is often too low to cover all the expenses incurred to obtain a good yield. If you choose to deal through a distributor, the establishment of the sales price will be even an important factor because of the additional cost that will add an intermediary between you and your future customer; 5. Look at the presentation of other companies and see how the message is formulated to targeted customer in order to adjust yours accordingly. Your marketing materials should reflect your ability to adapt to the same reality. Make your final product/solution tested by focus groups before. The BCG theory does not apply to companies that want to expand geographically when the domestic market is not yet mature enough or non-existent. This is the case of ICT businesses where some applications may have low demand locally but more sustained foreign sales. We have seen this phenomenon from a video game company where demand in Canada was negligible but more intense in Japan, in the US and in the UK. Next subject: What type of distribution to choose when starting in a foreign market? Asselin Bannon Strategic Management Consultants is a firm of professionals dedicated to the sales and the promotion of innovative products, solutions or processes issued from applied R&D into multi cross channels. We provide services to entrepreneurs locally and abroad in a way to help them identify business opportunities, building added value offers and business models and constructing their commercial plan. In certain cases, we also provide assistance to facilitate adequate funding required for commercial expansion. To date, we estimate our involvement in near 1,000 commercial projects. Asselin Bannon brings you into new markets where nobody has ever gone before.