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Utilizing Market Research in Geographic Expansion

November 14th, 2017

International expansion is a key growth objective for many companies. Expanding to new geographies is not easy with companies making costly mistakes and not understanding why their expansion plan did not work. To identify attractive markets and successfully expand, companies must undergo a thorough research process to make strategic decisions.

Case study: National Beauty

To illustrate how market research provides key data and analysis allowing for informed decision making, we will use a fictitious company called “National Beauty.” The company is based in Chile and is currently the market leader for skin care products in the country. The board wants to expand manufacturing capacity, setting a target of doubling production and sales in the next five years. Chile has the second highest per capita expenditure in Latin America, reaching US$25.35 in 2016. However, forecasted growth is only 2.1% CAGR in the 2016-2021 period. Based on this information, the National Beauty Expansion Director needs to determine the best markets outside of Chile that will help meet their growth target.

The financial risks a company undertakes when exporting can be devastating if not done right. National Beauty´s Expansion Director needs to have data that provides an in depth picture of possible target markets to decide which countries are a good fit.

Euromonitor has identified six key areas providing a strong overview of possible target markets.

Industry Context

One of the first things National Beauty needs to learn is market size, identifying which categories are expected to have the highest growth rates in terms of value and volume. Key questions National Beauty needs to ask include:

  • Which countries have a higher per capita forecast expenditure?
  • Which product category is expected to have the highest growth in the forecast period?
  • How much is the market expected to grow in volume terms?

By using market research data to answer these questions, National Beauty would see that skin care products in Brazil and Colombia are expected to grow 3.6 and 3.3% CAGR respectively in value terms in USD through 2021. Compared to Chile, these countries present an interesting opportunity for the company.

Competitive Landscape

Understanding local competition is crucial when deciding where to expand. A concentrated market will be almost impossible to penetrate without making high investments in marketing and sales. Diversified industry competition makes entering the market smoother and may require less investment. Questions that market research can help answer are:

  • How fragmented is the market?
  • Who are the competitors and what are their strengths and weaknesses?
  • Are the majority of the products sold in this market imported or locally produced? Is there a high entry barrier?

Distribution Landscape

Distribution is key to understanding how a company can leverage their current business relations. National Beauty has vast experience in the modern retail channel, selling mostly in specialized beauty retailers and modern grocery retailers, thus would do better in a country where that channel has a large share of the market.

Here are some questions to help a company understand the distribution landscape:

  • What are the main distribution channels for my product in that country? How is this different from my local market?
  • Which channels are expected to grow in the forecast period and how much growth is expected?
  • How fragmented is the retailing industry?

National Beauty can see that skin care products in Colombia have a 44% penetration through direct selling, while in Brazil more than 80% of the market is divided between direct selling and health and beauty specialist retailers. National Beauty doesn’t have any direct selling experience, so if they want to enter these markets, what would they need to learn or what steps should they take to enter this market?

Product trends

By looking at product trends, National Beauty will understand what consumers are buying locally. Do they need to change their offerings for this new market? Are ingredient or packaging trends different in potential target markets?

Key questions would include:

  • What are the differences between the products sold in this market and the ones sold in Chile? Is there a difference in ingredients, for example?
  • What are the price bands for my products?
  • How do premium and mass products perform in the country?
  • What are the packaging trends for my product in the country?

Consumers Trends

So far we have focused on the industry and the product, but we cannot forget consumers. One of the key benefits of using market research for geographic expansion is that it allows for a holistic view of potential markets. National Beauty needs to know who their potential consumers are, their consumption drivers and how to best communicate with them.

Some questions that could help National Beauty understand their potential consumers are:

  • How much do consumers spend in Beauty and Personal Care products?
  • How important is digital marketing in that market?
  • What are the consumers’ preferences for my product?
  • How big is my potential target population?

Business Environment

National Beauty needs to know how much money and time they will need to invest to start their operations and need to look at the countries’ business dynamics. Some key questions helping visualize this are:

  • How easy is it to do business in this country?
  • What is the logistic landscape in this country?
  • What is the country´s productivity?

After answering these questions, National Beauty´s expansion team chose three potential countries that could meet their growth plan toward 2022. The Expansion Director defined which countries are the best fit and is ready to present recommendations to the board backed by quantitative and qualitative data.

Conclusion

There are three key benefits to using market research for geographic expansion.

  • Financial Risk – Companies that do not have the right information may find themselves over investing resources in a country that they later find out that was never a good fit.
  • Identifying Consumption Drivers – Understanding consumption drivers will help marketing and sales teams localize their strategies to generate value.
  • Holistic View of the Business – Understanding the local industry, consumer trends, business environment and key product trends helps companies better measure performance, growth potential and resource allocation.

Euromonitor International’s market research can help. With data and analysis on more than 30 industries in 100 countries globally, we help companies during their expansion process by getting comparable data and insights they need, to make an informed decision. Contact us or request a demonstration of Passport to learn more.

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Rodrigo Infante

Rodrigo Infante has been with Euromonitor International since 2014. He started as Business Development Executive for the corporates space in Argentina, Peru and Chile. After reaching Senior status as Business Development Executive, he transitioned to Client Consultant to develop ad-hoc projects to help companies answer market questions to support their objectives. Rodrigo is always enthusiastic to help clients get the most insights out of market information, giving them tools to make informed decisions for their current needs.

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