Market Development

Market development implies seeking out new buyer groups as potential customers for a firm's existing products and services. These customers may be currently served by competitors or may not currently consume such offerings. For example, a firm that successfully makes and sells coffee to the retail market in Italy may try to reach into demographic segments (e.g., young or old people) that they currently do not reach; or they may market a similar product to Italian commercial coffee channels (like restaurants, hotel chains, or vending machines); or they may enter the Swiss market. This term excludes significant changes to the product—generally called product development—or efforts aimed at increasing market share among current customer groups—generally called market penetration. Also, strategies to make significant changes to market as well as product are called diversification.

Developing new market segments is a strategy close to the market penetration concept—both aim to increase sales close to the core product-market focus. Developing new market segments (or niches) involves conducting a segmentation analysis, defining those market segments in which the firm currently is not strong, and conducting evaluations of the attractiveness of these unserved markets. The firm may consider demographic, lifestyle, or psychographic variables to define segments. Russell Winer uses the examples of Kodak and Fuji aiming to attract children to the photography market by developing products to help with school projects, and the National Football League trying to attract more women to its TV broadcasts.

Developing new geographic markets is a key option for firms wanting to grow from their traditional markets, whether to new regions of the home country or perhaps to new international markets. The simplest form would be to move into markets that are close geographically and culturally—like a firm moving from one midwestern state of the United States to another, and then to Ontario, Canada; or an Austrian firm expanding to Germany. Entering geographic markets that entail complex supply chains and cultural adaptation is far more complicated—and several issues involved in entering foreign markets will be discussed below; for example, as Henry Mintzberg, Richard Pascale, and colleagues describe Hondas entrance into the United States, completely misjudging their products' suitability for local tastes.

A firm with a promising product, service, and/or brand can try to market a similar offering via different channels of distribution. For example, Starbucks, having done well selling coffee in its chain of coffee shops, began to market packaged coffee through retail outlets. Often new channels go along with new segments and/or geographic markets. For example, diapers for babies are generally sold retail, while diapers for adults can be sold via wholesale (or industrial) channels to hospitals and facilities for the aged; similarly, The Home Depot, Inc., uses alternate channels—like internet and specialty outlets—when developing commercial and governmental markets.

International Market Development

The internationalizing firm has several added strategic dimensions to consider when developing foreign markets, such as entry mode, national culture, international legal issues, organizational structural adaptation, and opportunities provided by regional integration. A significant body of research has considered the options and behavior of firms as they commit to foreign markets. Authors like Harry Barkema and [Page 1075]Rian Drogendijk, Tamer Cavusgil, and Jan Johanson and Jan-Erik Vahlne have emphasized the gradual and sequential nature of the decision-making process whereby the firm is assumed to build a stable domestic position before starting international activities-beginning with sporadic exports and then building overseas operations incrementally. Over time the exports generally lead to the creation of an export department. The next stage in this evolutionary process is the transfer of certain value-adding activities abroad. These firms then also increase the number of subsidiaries abroad, starting with countries close geographically and culturally to the home country, moving to more distant locations and countries less similar to the home country. The reason for this behavior is postulated to be a result of risk aversion. As explained by Yair Aharoni, risk declines as international experience accumulates. A different and more rationalistic explanation was proposed by John Dunning by which internationalization will occur only if firms with sufficient ownership advantages to compensate for the liability of foreignness in one country can transfer these advantages to exploit location advantage in another country.

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