Content
Content
The PEST analysis has to be supported by a detailed piece of analysis which will enable you to start to design a market entry strategy to penetrate the target market successfully. PEST analysis, as I have already stressed, is a starting point for your analysis and does not give you an indication of how the business will function in reality when faced with the pressures of the target market. The question that needs to be answered is how you fill the gaps in information that are required by the business.
The information gaps will include several areas of company activity.
Sales information
The sales forecasts for the target market are a crucial indicator of market potential and these will form the basis of a series of sales targets for the marketing function of the business. The sales structure cannot be designed without having a clear understanding of the sales potential of the market and how this is likely to improve in the future. The structure of the sales effort of the company will provide you with an indication of the sales methods that are most appropriate for the target market.
Market share
The potential market share for your organization is an important piece of information and can only be discovered by detailed analysis of the target market. The competitive analysis will give you an indication of who the key players are in your target market and of the methods that can be used to break up their share of the marketplace. Once you have a share of the market you will require an understanding of how to defend your position against the threat of new competition or substitute products or services.
Demand forecasting
Demand forecasting is probably the most important element of your market analysis because unless a clear level of demand has been identified for your product you will have difficulty in surviving in the marketplace. Continuity of demand is important and any changes in the nature of demand need to be addressed by the marketing team as soon as possible. The influences on demand have to be identified by your company before you enter the new market and these have to be monitored to recognize any changes that could affect the market position of the company.
Operating costs
Understanding the nature of the operational costs involved in running the business in the target market is important because the cash flow of the new venture can be dramatically affected by inaccurate forecasting. It is important to estimate the setting-up costs and this process can often be too subjective if left to the discretion of managers who have a vested interest in the success or failure of the new project. The operational and on-going costs have to be realistic to withstand the rigor of independent and objective analysis. The basic factors of production must be considered at this point, including the cost of capital, land and people.
Level of assets deployed
An estimate must be made of how much capital is needed to start penetration of the target market. The organization will need to calculate how an increase in assets is to be managed, whether it is required and how the increase will be financed. The level of assets to be deployed in a new venture may increase by an amount significant enough to warrant a joint venture or a partnership of vested interests to secure a higher level of investment in the target market.
Profitability levels
The expected profitability levels for the new venture have to be forecast and a comparison can be made between the target-market and industry-sector average rates of profitability of previously entered markets. The pricing strategy chosen by the company has to reflect the profitability forecasts of the marketing and strategic planning functions of the business. Flexibility in profitability targets may be required by the management team as they initially try to secure a foothold in the market and build market share.
International risk factors
Each company will have some idea of the level of risk it is prepared to contemplate in entering a new market. The level of risk may be guided by previous investments or by advice taken from the investors supporting the company strategy. Risk factors may change, but it is quite difficult to manage uncertainty and many companies will be attempting to-manage the unexpected when entering new markets. The response of the competition in the target market will have a profound effect on the success of your entry strategy or analysis of the market and, besides the obvious response of a price war, can be very difficult to predict.
Degree of flexibility
The degree of flexibility in responding to the changing needs of specific customer groups can be a fundamental part of your analysis of a market. The response of companies to the feedback they receive from customers, in terms of changing levels of service or altering the product, can play an important role in building competitive advantage. The flexibility that can be added to the operational capability of your company can enable you to respond more quickly to changes in the marketplace. Technological innovations can provide you with an advantage in a new market because the competition may find it difficult to respond to the needs of the marketplace if they have dated operational systems or technology.
Management
The availability of effective management skills is essential if you are to manage the entry into a new market successfully and take advantage of the element of surprise. The standard of management thinking has to be very high and management must develop a creative approach to entering new markets. General management skills are required and these have to encompass an understanding of new venture management, marketing, financial systems and business transformation. This knowledge and these skills have to be reinforced by a comprehensive system of management development across the company.
Exit strategies
The analysis of a new market is a complex task and must be accompanied by a detailed entry strategy. The entry strategy must be supported by an exit strategy which can enable the international business to manage its time in the target market successfully. The company may be asked to rationalize operations or restructure the organization in a cost-cutting exercise and it cannot afford to be hampered by the arrangements it has made whilst entering the market. These arrangements might focus on long-term contracts for the supply of raw materials, exclusive access to a distribution network or the negotiation of government contracts or entry conditions. A long-term approach which has built-in contingency plans for the future of the business must be considered by international businesses.
Continue at: Market Analysis and Segmentation
Post a Comment