When and How to Move to a New Market?

Published in LaZOOZ - Strategy, Marketing and Innovation Newsletter, Issue 54, By Ari Manor, CEO, ZOOZ

If the industry you are currently in, meaning the market in which you are competing, is too competitive and crowded, and you don’t foresee any significant growth there for you, the time may have arrived for you to look for other industries in which you can grow. Before you go about doing so however, take into account that even if the grass on the other side seems greener, it’s not always that way. Therefore, before deciding to expand to a new industry and market, you have to thoroughly examine the new market - its growth rate, the competitors, the degree of profitability, the entrance obstacles that you must overcome, and to what extent the new industry leverages your abilities.

Here are several options and related remarks for entering a new market: 

• Expanding to new territories: Expanding to new geographical regions or market segments and niches in your industry is not considered entering a new industry, but you should definitely consider this before you set your sights on other industries. The experience and knowledge that you have gained in your current industry will serve you well if you expand to new territories and grow within them. For example – a company that does business in Israel needs to consider whether it will be easier and/or financially worthwhile if it expands to Europe, rather than starting to do business in new industries in Israel.
• Marketing new solutions in the current industry: Offering new solutions that you have not offered to date, to customers in your industry. For example – products at a different price and quality than what you have offered to date. This option is also not considered entering a new industry, but it is important to examine it before you think about other markets. This option may increase your growth, and strengthen your presence in your current industry. For example, according to the Pincers Strategy, you offer goods and services at two price tiers – premium (prestigious) and basic (popular), thereby attacking your competitors from two directions – above and below. Moreover, if you manage to combine advantages of both groups of competitors from your industry in one solution, you have joined the highway that will lead you straight to a Blue Ocean with no competition. For example – the first FOX stores combined two types of sales points – a market stall and a branch of a retail fashion chain, and succeeded in selling cotton shirts to all of Israel in tiny stores (various sized stalls) with branding and integration and location in the shopping malls (like fashion chains). A more detailed description of this appears in the first part of this article.
• Entering an industry that provides complementary goods and services: For example, a car manufacturer or importer can expand and offer car financing services, and/or car rentals, and/or leasing, and/or parking lots. When you implement this option, it’s important to take into account how the competitors in the complementary industry will react, and whether theyת may invade your base industry in response (such as starting to provide cars), or withhold services from your customers (such as refusing to fuel their cars). On the other hand, if you offer a wise and attractive combination of your solutions and complementary services, you may have joined the highway to a Blue Ocean – that competitors in your industry and in the complementary industry will not be able to compete with. An example is Bagir, which developed a technology making it possible to launder a tailored suit in a regular washing machine. The competitors in Bagir’s industry (textile manufacturers) cannot imitate Bagir because their technology is patent-protected, and the competitors in the complementary industry (dry cleaning services) are not set up for manufacturing suits. A more detailed description of this appears in the second part of the same article.
• Entering alternative industries: In the transportation industry, for example, a car manufacturer can enter industries that offer alternative transportation solutions: motorcycles, bicycles, busses, trains, etc. In such a case, it’s important to first acquire the required complementary skills in order to succeed in the alternative industry, since the standardization, production processes, target population, marketing emphases and marketing and distribution channels may differ. The safest and most convenient way to penetrate an alternative market is by acquiring a company that is already active in the alternative industry, and using that company as a bridgehead to penetrate the alternative industry.
• Entering an entirely new industry: Start offering solutions that have no connection to the solutions that you have offered to date. Here you will find it difficult to leverage the abilities and knowledge that you acquired in your industry. Therefore, the best way is to manage it like an investment portfolio – carefully examine business opportunities, refuse the majority, and acquire suitable companies with technologies you understand that operate in a growing and attractive market (profitable, not too competitive). For example, when Noga Engineering, which manufactures industrial work tools using a chip processing technology, acquired the dental implant company MIS, it very wisely acquired a company that also manufactures using chip processing technology, which operates in a huge global and rapidly growing market (20% + annually).

In summary: Before you penetrate a new industry, you should examine other opportunities in your current industry. If none exist, and you’ve identified another attractive industry – acquire a suitable company that will be a bridgehead for you into the new industry.