Many businesses enjoy the glamour of trying to penetrate new markets. However, as the framework in this article shows, the lowest-risk and highest-return strategy is to continue to serve your current, receptive markets.
To prove this case, let’s cover the four possible scenarios for growing a business, based on current or new products, and current or new markets:
First, a business might introduce new products to new markets. This option is clearly expensive and risky. You have to come up with new solutions to the problems of a market you don’t know well, and that also doesn’t know you. Odds of success are not high, and the costs to reach this new market and develop new products will be high.
Second, a business might continue to focus on its current products to its current customers. In this case, there are no additional product development costs, except perhaps to improve existing offerings. The market knows you, and you already have a solid foundation with prospects and customers. While this is not the most exciting option, it is the least risky and – so long as the market is growing and you have room to grow within it – has high potential.
Third, you might introduce your current products to a new market. While exciting, this option can be costly and risky. You have to reach into a market that doesn’t know you, and this can take time and money. Also, you may have to change your products to fit the specific needs of the new market. If you pursue this strategy, it is important to test slowly and at low cost to establish whether demand exists or not.
Fourth, you might introduce a new product to your current customers. This option ends up being less risky and expensive than introducing your current products to new markets. That’s because your market knows you, and so you have a ready list of current customers and prospects that are open to hearing about your new solution and that should be easy to reach. In this option your main risk is in the costs of testing and developing a new product.
To rank order your risk/return, businesses have the most potential with current products offered to current markets, followed by introducing new products to current markets. Reaching out to new markets, whether with existing products or completely new solutions, is the most risky with high costs and no guarantee of returns. Careful, low-cost testing is the smartest way to approach these latter strategies – assuming the business owner wants the distraction and potential loss of focus on current customers.