So which market will I focus on…

In my last avatar as a consultant, I have done typical market entry strategy studies for industries as varied as diamond jewellery, motor cycles, auto components and trucking. One question which you would invariably grapple with and try to answer was should I enter this product/service market, if so which geography/customer segment and in what order….

Assuming that the answer to the first question was a yes, the next was to answer the geography/segment and that used to be the toughest in my mind. Markets invariably tend to follow the pareto principle, where a few large clusters (either geographical or customers) will aggregate to most of the demand. So the normal response is to hit the largest market first. I used to look at this and wonder is it the right strategy, since in my mind it always used to be the most competitive also. So my question was, when you are entering a market where rapid growth can allow you a good toehold, should you get into a headon fight? The obvious answers entrepreneurs would throw at me was, dude we will get in, wean away some share from every player or from the weakest player and voila - I have got sales since a small share in a large market might still be in absolute numbers large. I had two problems with this

• If you are so good and have a marketing team which can pull off this approach, why not go to the second rung markets and develop them and improve your hold? Why get into a competitive war, which invariably leads to pressure on margins – higher ad budgets, higher discounts…
• Execution – its very easy to say I will gain market share, but rarely do we see huge swings in market shares, how viable is it to glean away marketshare from players in a stealth mode? If it is so easy, why the heck are you not exposed to it also?

I never could convince the managements that they need to look at the second set of cities/ markets ( Salem, Nagpur, vizag…) instead of heading into Mumbai, Delhi, Kolkata, Bangalore by default…Very rarely can you come up with strategies which can make use of longtail based strategies with a low cost delivery model, or a bottom of pyramid strategy which then makes it geography independent in a country like India since the proportion of urban and rural poor is a huge number.

Yes, I heard the same stories, small town customers shop from larger towns, disposable incomes are low, market size low, people are not aware, I am a luxury/ top rung product/brand blah blah blah…but I have come to believe it’s the failure of the operational machinery and the marketing machinery which might truly not know how to work with these markets.

The reason why I got thinking about this is also very interesting in my mind. Indian IT companies are going through a trying period – slow down in the largest market, currency appreciation, cost inflation, benign tax structure change etc. And I was looking at our arm chair business analysts writing about the shift towards Europe to create headroom. Interesting today most of the large IT companies have similar sales mix – 60% US, 25-30% Europe, 10-15% Japan/Rest of Asia /Australia. I said hey, I have seen this before, the pattern is the same, domestic/ export doesn’t matter managements finally always move to the largest market, will follow herd strategy and move in the same cycle, very few take the other path to grow.

So I ask myself for the IT companies– isn’t there a market in the gulf countries? Why isn’t anyone focusing on South America? What about the African countries? Why not Vietnam? I agree these markets will not be ready to accept the Indian tag, might be lower on realization, might be difficult terrain to operate due to language issues – but did large competitive organizations get built following a standard recipe?

Doing this needs a different enabler structure in the organization – a HR which can manage issues which will arise, an operations team which can manage widely different operating models, a front end which sells very differently, a strategy setup which can identify these opportunities and can build sustainable advantage around such ‘discovered markets’. Competing on price, incremental changes are far easier and failure on building the eco system forces to follow the set path.

Maybe, I should run this test and see if investors reward different behavior ? and what time the market takes to accept a company is different and the results are sustainable….