Entering a new market - framework

Question 1

Question: Your client manufactures hair products. The company is thinking about entering the sunscreen market. Is this a good idea?

How would you approach this problem?

Answer 1

1. Determine why. What’s our goal? What’s our objective? Does it fit into our overall strategy?
2. Determine the state of the current and future market
3. Investigate the market to determine whether entry would make good business sense.
4. If we decide to enter the market, we need to figure out the best way to become a player.

Question 2

[ New Market ] How do you determine the state of the current and future market? (6)

Answer 2

1. What is the size of the market?
2. What is the growth rate?
3. Where is the company in its life cycle? (State of development - emerging? mature? decline?)
4. Who are the customers and how are they segmented?
5. What role does technology play in the industry and how quickly does it change?
6. How will the competition respond?

Question 3

[ New Market ] How do you investigate the market to determine whether entry would make good business sense?

Answer 3

1. Who is our competition and what size market share does each competitor have?
2. How do their products and services differ from ours?
3. How will we price our products / services?
4. Are there substitutions available?
5. Are there any barriers to entry? (ex. capital requirements, access to distribution channels, proprietary products tech, gov. policy)
6. Are there any barriers to exit? How do we exit if this market sours?
7. What are the risks? (e.g., market regulation or technology)

Question 4

[ New Market ] What are the three major ways to enter a market?

Answer 4

1. Start from scratch (see Starting a New Business)
2. Acquire an existing player within the desired industry
3. Form a joint venture/ strategic alliance with another player with similar interests

Analyze using cost-benefit analysis.