Market Development Strategy

Updated on April 12, 2024
Article byAswathi Jayachandran
Edited byAswathi Jayachandran
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Market Development Strategy?

A market development strategy is a strategic growth plan created t by businesses to introduce their products to the untapped segments in the market. It may involve expanding their present reach, using their current products in new ways, developing new marketing and distribution channels, or all of the above.

Market Development Strategy

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Establishing a market development strategy can assist companies in determining potential areas for expansion. It helps to increase the range of goods and services the business provides by investigating a new target market. It helps build a broader image and increases popularity, thus building a brand.

Key Takeaways

  • Market development strategy is taking existing products and locating and targeting new market segments.
  • It is one of the four primary growth strategies that a corporation can employ. The others are diversification, market penetration, and product development.
  • The strategy aids a company’s planned and structured expansion and client acquisition. Increased leads, sales, and revenue can be increased by reaching new audiences. However, dependence on a specific audience is risky since the business will collapse if it declines.
  • However, it involves several disadvantages, such as increased risk and expense.

Market Development Strategy Explained

Market development strategy is taking existing products and locating new markets by opening previously closed market segments. Companies are constantly seeking innovative ways to attract clients and boost sales. The market development strategy is one of the four primary growth strategies a corporation can employ, the other three being diversification, market penetration, and product development.

Market development is a strategic move made by a corporation to grow the current market rather than searching for a new market. The business seeks new customers to market the product to various consumer groups to boost sales. It involves the creation of new marketing and distribution channels and the penetration of new geographic markets. Business development may refer to capturing new markets, which may involve introducing new products to garner attention.

The development strategy’s success depends on its ability to compare its current performance with the future performance it hopes to achieve. Devising a plan to get there is the primary step toward it. Geography, consumer base, and products are the main focuses of the strategy. They assist organizations and businesses in strategically approaching potential clients. Expanding consumer base opens a lot of new potential for increased earnings, sales, and leads. However, thorough market research is necessary for the new market to be valuable.

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How To Implement It?

Market development is usually a two-step process that helps tap the market’s new segments (subgroups of larger groups). The first step is to do a segmentation analysis and segregate markets that show potential and are worth pursuing. Next, companies use existing products and services to attract new customers.

The primary goal is to increase sales by entering untapped markets. The segmentation could be based on demographics (age groups), geography, income levels, customer interests, preferences, lifestyle, etc. The company then chooses which segment to enter based on profitability and outlines an entry strategy. Promotional strategies may be through audio, visual, or social media to reach the desired audience.

The second stage would be pricing. Pricing is crucial in product placement; it can make or break a company’s entry into a market. Companies can either price appropriately or modify the existing product by adding different features to justify price increases. Competitive pricing strategies, on the other hand, such as penetration pricing, can be used to gain market share by lowering prices below competitor prices.

Examples

Check out these examples to get a better idea:

Example #1

Suppose Mr. Wolf’s clothing company focuses on winter wear and caters to adults. They have various types of winter clothing made of different materials and are making a good profit. However, Wolf wants to increase sales of his winter wear and decides to manufacture the same for babies. Since he is expanding his market strategy to a different demographic segment than his usual target demographic, it belongs to a new market development strategy.

Example #2

Facebook was an online directory that connected individuals through collegiate social networks (launched in 2004). Using it, people could find peers at school, discover who is in their classes, look up friends’ friends, and visualize the local network. Due to expanding broadband access and increased internet usage, it gradually started expanding.

The popularity of Facebook increased with a more diversified population, which meant that entire families could be part of the social network. Facebook began as a network exclusive to Harvard students, then progressively opened to other colleges, high schools, and businesses, all while requiring verified email addresses. This and its simple and neat public architecture helped it gain a reputation as a “safe environment” for networking.

The strategy here was to open the service to different categories of people. It started with only Harvard students and expanded to other colleges, schools, and age groups.

Advantages And Disadvantages

Advantages

The advantages of a market development strategy are as follows:

  • Improves product quality: Businesses look at how the product can be improved to acquire new users. This may involve the addition of new features.
  • Current users get upsold: Upselling is a sales strategy that pushes them to spend more money. By offering customers an improved or more expensive version of the product, they were initially planning to buy.
  • Helps develop new products: Companies may need to launch new products to attract a specific market segment. Therefore, a market development strategy focuses on gathering their attention and caters to their needs.
  • Increases revenue margins: Market development strategy focuses on creating new revenue. Increased consumer base and subsequent sales increase profit.
  • Helps to reduce unit production costs: When goods are produced in mass, the cost per production unit becomes lower. So, naturally, this also leads to more profit.

Disadvantages

The disadvantages of the market development strategy are as follows:

  • Requires capital investment: Usually, expansion involves financial investment. The entire exercise is useless if the investment in the new section doesn’t yield the intended results. Those resources could have been used to implement alternative plans. 
  • It is expensive: Market development is expensive, and the main obstacle businesses must overcome is their desire to engage in it. Therefore, a significant financial commitment is needed to maintain the project. 
  • Is risky: The company is testing new areas and market segments and is often trying out new ideas. These ideas have no guarantee that they work. There is always a chance of something going wrong.

Frequently Asked Questions (FAQs)

How to create a market development strategy?

A new market development strategy involves the following steps:
– Researching opportunities.
– Setting growth goals.
– Creating marketing plans.
– Testing the market by entering and analyzing results.

Why is market development strategy important?

Development strategy is important because it aids in a company’s planned and structured expansion and client acquisition. Increased leads, sales, and revenue can be increased by reaching new audiences. However, dependence on a specific audience is risky since the business will collapse if it declines.

What are the three key points of a market development strategy?

The market development strategy checklist includes three key items. They are a plan for talent acquisition and local guidance, local market information or knowledge on the competitive landscape, and sales and marketing structures.

What are the three types of market development strategies?

Geographic expansion, pricing, and distribution are the three types of market development strategies.

This article has been a guide to what is Market Development Strategy. We explain its examples, advantages, disadvantages, and how to implement it. You may also find some useful articles here –

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