Expanding into parallel markets can be a complete gamechanger or an absolute disaster for any acquirer. The business landscape is littered with infamous M&A forays which have sunk the acquirer, and transformational success stories to rejuvenate established incumbents.
The main reasons for examining the wider world more closely is to increase or diversify customer base, to find the ‘next big thing’ if your core market is in decline, or to dilute risk by building new revenue streams.
The different approaches to entering new markets ranges from direct exports to franchising and joint ventures. It all depends how big you want to go and how quickly you want to get there.
Whether you are serious or not about diversifying revenue, or starting a new division, it pays to spend a strategy day working out where you go next, if only to protect you from being bounced into distraction projects too far removed from your company vision, business model and strategic objectives.
Here’s what you’ll need to map out before you get to discussing what companies to acquire.
Market Research and Analysis
Deep-dive market research is essential to identify parallel markets that align with your company’s strengths, resources, and expertise. Analyse customer lifestyles, buying habits, market size, growth potential, competition, and market dynamics – then prioritise them for further study.
Understand the unique needs and preferences of customers in these markets to determine the likely demand parameters for your products or services.
Evaluate Synergies and Capabilities
Assess your company’s existing capabilities, resources, and core competencies to determine how they can be leveraged in selected parallel markets. Identify synergies between your current market and the target parallel markets, such as shared distribution channels, similar customer segments, or transferable technologies.
For example, if you are a dull but reliable industrial brand, you are less likely to cut through in the B2C market.
TIP: Sometimes it’s not just about your capabilities. UK savoury spread Marmite has partnered with dozens of food brands to grow revenue and reach new generations. Is it worth teaming up with a partner manufacturer/reseller/retailer/influencer to launch in a new market together?
Evaluate any necessary adaptations or enhancements required to align your offerings with the needs of the parallel markets.
Develop a Market Entry Strategy
Based on your market research and capabilities assessment, develop a market entry strategy tailored to the parallel markets. Consider factors such as pricing, distribution channels, marketing strategies, and customer acquisition tactics specific to the target markets.
This is where you must choose your entry mode – organic growth, partnerships, acquisitions, franchises, licensing agreements etc. Define clear goals, timelines, and milestones to guide your expansion efforts.
TIP: Acquiring another business to enter a new market is an entry strategy in itself. However, you will need to be sensitive to rebranding, staff retention, and capex levels, to ensure you don’t kill the golden goose.
Adapt and Customise Offerings
Understand that entering parallel markets may require adapting your products or services to meet the unique needs and preferences of customers in those markets.
Tailor your offerings to the specific pain-points and requirements of your parallel market target customers while leveraging your existing core competencies. Ensure that the value proposition resonates with some market testing, and check up on competitors to gather clues how they will respond to you putting your tanks on their lawn.
Develop Marketing and Branding Strategies
Craft targeted marketing and branding strategies to effectively reach and engage customers in the parallel markets. Develop compelling messaging that highlights the benefits and value of your offerings in the context of the parallel markets. Utilize market-specific channels, digital marketing tactics, social media platforms, and partnerships with influencers or industry experts to increase visibility and awareness in the parallel markets.
TIP: Cost this carefully so you don’t burn cash quickly on the wrong things. If in doubt, get an agency or expert in who knows the market inside-out.
Establish Distribution Channels
Evaluate and establish appropriate distribution channels to reach customers in the parallel markets. Identify potential partners, distributors, or retailers with existing networks and market expertise in the parallel markets. Collaborate with these partners to expand your reach and effectively distribute your products or services. Consider any necessary modifications to your supply chain – leadtimes, delivery, credit terms, inventory, to accommodate the expansion into parallel markets.
Monitor KPIs and tweak your masterplan
Regularly monitor and assess the performance of your expansion efforts in the parallel markets. Track key performance indicators (KPIs), customer feedback, and market trends to evaluate the success of your strategy. Be prepared to make adjustments and adaptations based on market dynamics, customer preferences, and competitive landscape in the parallel markets. Stay agile and responsive to ensure ongoing growth and success in the new markets.
Expanding into parallel markets can provide significant growth opportunities for businesses. By conducting thorough market research, leveraging existing capabilities, developing tailored strategies, and continuously monitoring and adapting, you can successfully enter and thrive in parallel markets.
The key lies in understanding the unique dynamics of each market and aligning your offerings with the needs and preferences of customers in those markets.
This is how UK grocery retailer Tesco moved upstream, spending time studying the grocery wholesale market before acquiring #1 wholesaler Booker in 2018.
It’s also why Microsoft bought Linkedin – new product to same customers – bundling the social network for business into its enterprise suite. Customer retention is key here – offering Linkedin alongside other everyday work apps makes it just that bit more difficult and annoying for users to migrate to rivals.
With careful planning and execution, parallel market expansion can drive long-term success and diversification for your business.