Creating A Strong Profit And Loss Performance Within New Industries
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Successful expansion is often seen as a matter of scaling up what has already worked, in order to capture opportunities, yet this approach can lead to some costly errors.
Expanding into a new industry or geographical region is actually not dissimilar from starting an entirely new business. It poses similar risks that a startup company faces, yet even with this in mind, the expansion efforts are often approached in the wrong way in an attempt to mitigate risk.
Larger companies are particular susceptible to what I call the ‘numbers fixation’ –the assumption that: “if we have a strong profit and loss (P&L) performance within our present industries/regions, making sales and profit in the newly targeted industries or regions is simply a numbers game– we just need to scale-up what’s already working and ensure we have enough sales team members on the ground to win new customers, so the numbers work.”
Seeing expansion into new industries or regions as a numbers game like above greatly oversimplifies the situation, and doesn’t sufficiently factor in fundamental marketing challenges associated with successfully entering a new industry or region.
Customers in one industry or region will often have entirely different perceptions of value, when compared to customers within other industries or regions.
A customer’s perception of value is a tricky part of marketing that many businesses (and marketers for that matter) still struggle to grasp. When a business looks at what value it actually provides to customers, it always approaches this question from its own perspective as the business, not the customer.
Let’s look at an example of one company who actually pioneered correctly identifying what their customer’s perception of value was- Gillette. If we ask ‘what does the customer buy from Gillette?’ the obvious answer might be a razor, when in fact that’s not what the customer is buying at all. From the customer’s perspective, they’re buying a shave. The razor is merely a means to an end. You’ll notice on nearly all of Gillette’s product labels and marketing materials that the word ‘shave’ is used much more than the word ‘razor’– this is because they have properly identified what their customer’s actually want, which is a shave (not a razor) This is a subtle distinction which illustrates an important fact: The customer is only interested in a product or service’s utility, meaning its ability to give them what they want and not what the provider of the product/service thinks they want.
Another common area where many companies fail when expanding into new industries or regions is communicating a clear marketing message that resonates with potential customers within that new industry or region. Often the business gets too caught up in the technical features and benefits of their own product or service.
We’ve all seen this situation- when we’re delivering a presentation to a lucrative potential customer who is interested to work with us, things are going along nicely until we start talking about features and benefits starts. You notice the prospect’s eyes slowly glaze over, eye contact is lost as you or your poor business development manager plough on presenting even more features and benefits, and you don’t fully recapture their attention until the word ‘pricing’ snaps them out of their slumber at the end of the presentation.
Why does this happen? Because we are speaking to potential customers in the language of a product/service provider which is something, I would say, nearly all of us have been guilty of at some point. We are primarily concerned with the features and benefits of our product/service which will not doubt add value to the customer, however, what we are communicating is not resonating with the customer.
Successfully expanding into a new industry or region -where the risks and costs of the expansion are ultimately to be overcome through strong P&L performance from that industry or region- requires addressing two fundamental marketing challenges:
1) Understanding the customer’s perception of value (the value they see from their perspective, not ours) within the newly targeted industries or regions.
2) Communicating a clear and concise sales message that resonates with potential customers within the newly targeted industries or regions.
Companies may have been successful in both of the above, within their presently targeted industries or regions, however, simply scaling the marketing efforts from these existing industries or regions into the newly target ones, is the root cause of why many expansion efforts don’t go to plan.
Expanding into new industries and regions needs to be approached from an entrepreneurial perspective. It is essentially a calculated risk to capture a new opportunity and create customers in previously untapped industries or regions. This will require re-examining the customer’s perception of value within the new industries or regions, and it will require reworking your businesses sales message to make sure it resonates with potential customers within the new industries or regions.
Ultimately, expanding a business’s operations into new industries or regions should be approached as starting a brand new business. Attempting to replicate the previous successes of yesterday (with the aim of mitigating risks) is unlikely to achieve the P&L results necessary to justify a profitable expansion into new industries or regions.