GEOStrategy

Insights

Discovering New Market Opportunities 
A key part of growing a business is expanding into new markets. Not surprisingly, a large part of our practice at Geo Strategy Partners is performing market opportunity studies for our clients. Typically, our clients want to expand into new market sectors or new geographies. Other times, it is about introducing a new product into existing markets and customers. In fact, the following matrix indicates that the options are really a simple combination of new markets and new products:

 

If the objective is to determine which markets offer the best opportunities for a given set of products or services, there is a fundamental and systematic way of conducting market opportunity studies. First, start with a market attractiveness model. This model is typically a matrix with the vertical axis being a weighted list of company strengths, and the horizontal axis representing a weighted list of market characteristics that would constitute a promising opportunity. Generically, these almost always include the size of the market and how fast it is growing. Other criteria get more specific with respect to the specific application, the competitive situation, barriers to entry, customer needs, etc. The following chart provides an example of a basic opportunity model:

When the analysis is complete, you can rank the market opportunities by given products and services. When a market opportunity is ranked high and lines up well with product or service strengths, you likely have a market that should be pursued aggressively. We undertook this type of study recently for a food products manufacturer viewing markets worldwide. The following table illustrates an opportunity ranking as a result of the market attractiveness model analysis:

At the point in which a market has been selected, there remains the task of further exploring that market to determine the specific opportunity and the overall viability. This process typically involves intensive primary research with customers, competitors, channel partners, and thought leaders and influencers. It can also involve an application-level evaluation of the value-proposition itself over and above products or services currently being purchased. Barriers to entry, the strength of competitors and competing products, customers wants and needs, all have to be taken into consideration.

With respect to assessing the market opportunity itself, there are basically three levels of investigation to determine the likely success a new product or service will have in the market. First, it is important to determine the overall market size and how fast it is growing. This assessment is generally covered at the market attractiveness stage of research and analysis and can be referred to as the “potential” market opportunity. It represents the total market applicable to an application of the product or service without due consideration to either the value proposition or the competitive environment. It may also represent segments are the market that can theoretically be addressed if certain investments are made that are not part of the current business.

Next, it is important to assess which part of this market is “viable.” Essentially, this requires evaluating the value-added proposition of the product or services against the current and potential applications to determine where there is true fit between use and need and the value being offered. There also must be an assessment of the willingness or need to shift to a new product or service offering, and the barriers to change or entry into the market. Finally, there must be an assessment of the potential for additional value-added which also can provide directional pricing guidance. For a metals coating company, we had to determine what the value-added outcomes would be in various cutting applications if the metal was coated with their proprietary product, over and above the state of the art products which may utilize different means to reduce friction.

Finally, we have to assess the “likely” market share that can be captured in a reasonable period of time, typically 2-3 years. This requires an evaluation of all the factors already analyzed against competitor positions and buying behavior. This final filter should produce a realistic assessment of the true market opportunity and can be part of the equation of determining the potential overall return on investment. If it is basically the percent of market you expect to capture. The following illustration depicts these three levels of analysis:

In some cases this part of the investigation can start with a fourth level. Very often we first must measure the size and rate of growth for the end-use industry before we can assess the size and opportunity for our product or service application within that industry. For example, in developing a market model for a roller bearing company investigating the pulp and paper industry, we first had to determine the size and rate of growth for the various segments of the pulp and paper industry by geographic market and then build in the analysis to extrapolate down to the demand for roller bearings.

At the end of the analysis, the goal is to determine how attractive the market opportunity is. Attractiveness is a product of size, rate of growth, ease of entry, and overall potential for profitability. Ultimately it comes down to market share that can be expected at a given level of investment. This is not analysis that should be produced by an educated guess or by a superficial sizing of an overall market. It requires levels of detain and degrees of analysis to be accurate. Once the opportunity has been determined to be attractive, the next step is to develop a go-to-market strategy.