Space C: The leap into unknown customer groups
There are some cases of companies managing to address completely new customer groups with unaltered products. This requires a product which carries an unidentified benefit. It doesn't happen often, but these cases contain enormous economic potential. Can you recall the early days of mobile telephony? Huge, heavy and expensive devices. Target customers: top business people. Devices became smaller, but calls themselves remained expensive. By using text messaging - actually only invented for service reasons - a completely new sector of customers became acquainted with a cheap mode of mobile communication. A multi-billion dollar market was born.
More often, new customer groups react to digital enhancements of products and services. Recent years have witnessed a dramatic change in the printing industry through digitization of the whole printing process. Nowadays, many people are able to produce master documents of highly acceptable quality. Online printing agencies provide sophisticated online ordering systems. Therefore, they can enter into direct commercial contact with customers who never would have done profitable business prior to digitalization. The ongoing digitalization of businesses, offices, homes and new communication channels change markets radically.
Advantages of space C strategies
Hardly any other strategy provides so many possibilities for economies of scale as opening up new customer groups. When companies manage successfully to sell established products and services to new clients in new markets profitability will be increased directly. This is true especially for digital products where marginal costs tend to zero. The effort regarding product development or adaption is marginal but marketing might encounter some significant challenges.
Risks of space C strategies:
It is even more difficult to estimate customer needs and market chances for completely new segments than in space B. Therefore customer orientation and tests are inevitable.
Entering a new market is always risky, not only regarding the question of whether the product will be accepted. Reactions of competitors, channels of communication, sales processes, the way customers are used to being treated and other aspects can differ dramatically from what companies are accustomed to in their home markets. That might require fast and profound adaptions in the organization. The extension of the cell phone market, for instance, which once was a mere b2b-business, to a broad customer market required not only opening new subsidiaries but also a forced expansion of network equipment that caused significant costs.
Besides all that entering a new market is always as well a question of brand management. Can the brand withstand a new segment? Is there a risk that it might lose strength or become diluted for existing customers? These questions need to be discussed. Sometimes it can be wise to create a new brand or even to establish a new company or joint venture.
Success factors in space C
Deep knowledge of the new market, customer insights and tests are essential. When a company tries to capture a new market it is always wise to hire one or more people who know this market from the inside. If that isn’t possible a consulting firm specializing in this market segment can help. But besides all that it will be crucial to explore the everyday world and perception of future customers. Interviews and participant observation are useful methods. And customers should be confronted with prototypes as soon as possible to get qualified feedback.
From the economic point of view, companies should be aware that it can be expensive. If changing from a b2b to a b2c market, for instance, processes must be adapted and the marketing budget will rise to an amount which can be quite unfamiliar for the company.
Overview: digitalization strategies
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published: April 22, 2021, © Uwe Weinreich