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Tuesday, June 24, 2014

Reconstructing Market Boundaries - How to Develop a New Market

Whenever I discuss marketing as a subject with a few friends or lecture about marketing principles, I always get questions about the pressure of emerging media. Specifically digital concepts and how it affects their existing strategies. Then there is this debate if digital marketing is another form of "market penetration" or "market development" strategy.

Some marketers view digital marketing as a penetration strategy entering an existing market with existing products. They believe that  they are marketing to the same group of people (using digital marketing concepts) with existing product positioning will reap higher results.

While this might be true to some brands or products, what I have observed so far after countless experiments in a live e-commerce platform is far from just penetrating a market.

What I have observed in several digital campaigns being integrated in an entire existing strategy replicates the primary elements of a market development approach strategy. So you might ask what are those elements. Simply put, what I have observed shows the very primary elements of market development - new market, existing products.

Some argues that my definition of "new market" does not apply to the digital realm. Their argument is rooted on the fact that these are same markets but only equipped with gadgets that are able to transact and receive marketing messages.

But as I explore this new media and acquire data-tested results, I firmly believe that market development strategies would work far more better than penetration strategies. My hypothesis for this claim is based on my definition of a "new market" which is:

New Market in the digital space is  based on digital behavior rather than the general demographic profile.

This way, I can increase further our earnings through a more detailed targeting criteria with higher potential of customer conversion.

So the next question is, how do I develop a new market? There's no simple way of doing this but I have used a few frameworks out there that helped me developed profitable market segments. Here are some suggestions that you can test out on your own and see if it works!

The first time I heard this phrase was during my master's program where one of my professors said that "strategy" is being the best in your category. It doesn't mean you have to settle for 2nd best but the takeaway for this part is to know what space you are competing and being the best in that category.

In order to recreate your market boundaries, you have to start at a product category that is already acceptable. For example: luxury cars, hand soap, instant noodles, etc. These are existing acceptable categories. Before competing directly with accepted categories, understand first how your product will stand out from the rest based on an existing buyer group.

Before enhancing your target market, focus first on the existing buyer groups of the product category you are trying to win.  You can select from the following: it can be the purchaser (i.e. moms buying hotdogs), the user (i.e. kids who loves hotdogs) or the influencer (i.e. best friends of the mom who needs a suggestion for quick bites for her kids).

This is where research comes in. After deciding which buyer group you will focus on, create a list of direct competitors and define their scope of products and services offered. Some questions that will help you identify these elements:

  1. Are there other variants of these products?
  2. What is their product positioning? Who are they targeting and how are they communicating it?
  3. What value added service do they offer?
  4. How often they create promotions?
  5. Is there something intangible that customers considers valuable from the product?
  6. How long is the sales cycle?
  7. How many people buys it from the shelf? Frequency and Recency?

You can even make a matrix of the 4 P's to complete this section. List down the product info in one column, list down the place that it is distributed (include if it has shipping involved), list down how many promotions they did, and what type (i.e. discount, buy one get one, gift with purchase, etc), list down the prices in different channels of distribution.

Once you've identified all the elements in the previous step. It's now time to generate you key takeaways as to how the entire industry looks like and accept its functional and emotional orientation.

Here's an example: Product category: Luxury Cars
Functional truth - these cars are the same with other economical cars because it can take one person from point A to point B. However, the luxury car category boasts of sophisticated design, slightly expensive materials, customized  interiors, state-of-the-art electronics, 24 hours concierge/hotline, free cleaning for one month, and other features like imported leather seats.

Emotional truth - two people will buy this. People who are financially capable and demands them to put on an image of luxury and finesse. These people would most likely be CEOs and business owners. The other is a group of people who aspires to be one of the people described above. That they will do anything to come up with the money to buy the luxury car. But these two groups feels the same emotional orientation, they want to feel special and be acknowledged as a high spender radiating an image of sophistication, class and financial stability.

To reconstruct market boundaries and developed a whole new market, you can use the following strategy canvas developed by W. Chan Kim and Renee Mauborgne in their book - Blue Ocean Strategy. I find this tool very effective in developing a new market.

What you do is to have a functional vs emotional grid outlining the key functions of the product category in the X-axis. Outline all the functions as listed in the previous steps. On your Y-axis, have two  criteria - High Value or Low value. This will serve as the emotional meter. You will mark this based on the offering. Mark it high if its being offered and low if its not.

Here's an example following the Luxury Car product:

You can see immediately which functions you have and you don't have as benchmarked against your direct competitors. 

After mapping out your competitor's functional and emotional positioning, you then layer your own on top of it. From there you will use the RRC framework:

Reduce - decrease or completely eliminate from your product features or offerings
Raise - increase the value of the functions you want to highlight to develop a new market
Create - functions and features you know you can fulfill for the customer that adds value

Taking the example above, you decided to reduce a few features that are not important to the current user base. You raise the features that are important. and create new features that are not yet available to your competitors. Hence, you decided to do the following:

From this graph alone, you can already see your key differentiators and how you can make your competitors irrelevant by focusing on functions that has high emotional value to your target market. 

After setting on what you will reduce, raise and create in your strategy canvas, this will then help you fill in the rest of your marketing strategy in terms of promotion, communication, distribution and positioning.

Following that will help you target the market you want to attract and therefore help you define the characteristics of this new market.