As the founder of a startup, you will undoubtedly find yourself forced to make countless important decisions that, collectively, will determine the overall success of your company.
These decisions may feel small when they involve things like who to hire and when, but they will almost certainly feel more consequential when they involve things like optimizing sales models, pricing models, and high-impact growth strategies.
If your startup is ready to take its growth to the next level, you’ll be weighing up the different avenues you can use to get there. Will you create a new product? Improve your existing product? Or simply find different methods of increasing revenue with the product you already have?
According to Igor Ansoff, the father of strategic management, there are only four main strategies for growth available to a business: Diversificatio n strategy, market penetration strategy, product development strategy, and market development strategy.
We’ve taken an in-depth look at diversification and market penetration strategies. Today we’ll review market development strategy, identify a clear definition and look at some practical examples.
What is a market development strategy?
Ansoff proposed that the four basic growth alternatives he identified could be defined using a 2×2 matrix (known as the Ansoff Matrix) made up of new and existing products on one axis and new and existing markets on the other.
Looking at the image above, we can see that a market development strategy is a business growth strategy that involves adding existing products to new markets. In other words, a market development strategy helps businesses in a growth phase identify and develop new opportunities to sell their current line of products in previously unexplored markets.
Market development vs. market penetration
Assuming your company is happy with your current products/services, the logical and lowest risk strategies for expanding your customer base and increasing revenue are either:
- Target new customers in your existing market (market penetration); or
- Seek to sell into new markets (market development)
While market penetration is the lowest risk growth strategy, market development is a close second because — unlike product development and diversification — these two strategies don’t include the extremely high risk nature of developing and selling a new product.
Implementing a market penetration strategy
Because market penetration strategy has the lowest risk involved, most companies start here and try to find ways to promote growth without the inherent risk of entering into new markets. For example, before implementing a market development strategy, you might want to:
1. Make your product more appealing to gain more market share from your competitors’ customers
Competition is fierce, no matter which business you’re in. Finding ways to differentiate yourself from other companies in your space — such as offering better support, more competitive pricing, or extra features that are in demand and not offered by your competitors, can entice customers to switch over to your product.
2. Attract non-buyers in your current market
Free trials, targeted content marketing, advertising, and experimenting with pricing strategies can be a useful part of your marketing development strategy, as they can encourage non-users in your existing market to become customers.
Market penetration is a great strategy to start with, but it can only get you so far on its own — at some point, you may need to consider a higher risk, higher reward strategy to continue steady growth. This is where market development comes in as a beneficial strategy.
Implementing a market development strategy
The ideal methods of a market development strategy will look different for every business, so you should think about this type of strategy in a way that best suits your operations and type of product or service. Here are two examples to consider:
1. Suggest new uses for your existing product
Discovering new uses for your product enables you to promote to new customers and expand into new markets. Humans are curious creatures that are exceptional at being creative and improvising with tools to get the job done, so how you think your product is being used may not be entirely correct. Surveying and interviewing your customers and your team can reveal innovative ways people use your product to solve their problems. In turn, this can give you fresh ideas about how to market and who to market to.
2. Geographic expansion
If your product has started small, expansion into new national or international areas might be the next phase of your market development.
If identifying and developing new market segments is your preferred strategy, careful consideration should be made around:
- Whether you have enough resources to expand into a new market
- Whether your product will be ultimately successful in this new market
- Whether the market is going to be valuable enough to put the resources, budget, and effort into expanding in this direction
- Whether the potential new market is already too saturated, or whether you can gain market share and stay competitive
Market development strategy examples
Slack began life as an internal company tool. Part of Slack’s market development strategy includes obsessing over user behavior to increase its usage and grow revenue from its existing product. As they’ve evolved, Slack got a feel for how its customers used the tool. This allowed them to articulate the value of their software better.
This differentiation in the market has set them apart from other products with very similar features. No longer was their tool just another group messaging platform, it was for businesses who wanted to streamline and save costs with “75% less email,” “zero effort knowledge management,” and team communication that’s “instantly searchable and available wherever you go.”
By listening to what its customers want, Slack has been able to make minor changes within its app to attract new users in new markets. It now also integrates with many other popular SaaS products such as Dropbox, Zendesk, and Zapier to ensure ongoing growth and user adoption.
Similar to Slack, Facebook started out as a small, localized tool. It enabled college students to compare headshots and choose who was “hot” or not. As the software became the Facebook we know today, it became increasingly important to reach new users and markets in order to expand.
As a tool that’s free for anyone to use, it was important for the Facebook team to maintain a keen focus on user behavior. By keeping as many people in the app as long as possible, they can drive more revenue through advertising to these users.
With a central focus on how people use the app and what they are trying to accomplish while they do so, Facebook can constantly develop new market strategies to drive growth, all within their core product.
The infamous ride service app, Uber, has seen significant growth in the last decade through a unique combination of diversification strategy (i.e. food delivery, bikes, scooters, etc.), market development strategy (i.e. ride-sharing, luxury upgrades, etc.), and product development strategy. Developed in 2009, and initially introduced to a small San Francisco market in 2010, Uber’s aggressive market development strategy has landed them in over 700 cities worldwide as of 2020.
The NBA has always dominated the relatively large and lucrative market for professional basketball here in the United States, but the league also had the foresight to recognize how much more lucrative business could be if they successfully brought their product to international markets. The NBA invested significant resources and years of negotiations to lay the foundation for bringing the NBA to China, and in 2008 their hard work paid off. By implementing a market development strategy, the NBA brought televised games to China, where just a decade later, it’s become the most popular sports league in the country and worth more than $4 billion.
For additional examples of market development strategy outside of SaaS, we can look to athletic brands such as Adidas and Nike, who continue to expand their global reach and attract new demographics of customers with their existing footwear products.
Simply put, a market development strategy can be an excellent choice for business growth.
Using your existing product to grow means that your team can save the time and resources it would take to build entirely new products or attempt to diversify its offerings and concentrate on leveraging what you already have at hand to increase your revenue.
MD strategy is an important piece of the puzzle for any company looking to grow. If you’re not currently using this approach, it may be time to consider how market development can help your business expand. For more information on Market Development and other marketing strategies, check out our blog. We have a wide variety of articles that can help you take your business to the next level. Thanks for reading!