New Markets and Building Blocks

It always amazes me how kids can take a product (e.g. building block) expressly designed for a particular purpose and use it very successfully in an entirely unintended fashion (street hockey puck). This approach should readily expand the size of the markets for many kids' products. Similarly it seems to make sense that you could easily expand the market for your current products by simply selling them to new types of customers.

Indeed taking products to new market segments is a very effective way to grow and is utilized by many companies. It has a lot of appeal since R&D costs are usually low, time to market is relatively quick, and getting additional revenue from a sunk investment yields a very nice return. The appeal is pretty overwhelming. However, capitalizing on this opportunity is not a downhill ride; there are some hills to climb along the way. In order to effectively win business in the new segment there are a few areas that must be carefully analyzed and understood.

It is likely that your customers are far more discerning than the kids who are quite happy with the square hockey puck. Not unlike embarking on a new product development program, going to a new segment requires a similar amount of market analysis to be sure that the customers' problems will be well served by the product. Ultimately it comes down to answering two simple questions [with not necessarily simple answers]: who will buy the product and why?

Another important question is, of course, are there enough customers to justify my effort and investment. This is a pretty straight forward exercise with the exception of determining whether or not they will buy.

Given the compelling reasons to move to the new market, you must be careful to avoid the forced-fit approach. It is well worth the time to be sure the product really solves an important problem.

A major consideration in getting to the new segment is the amount of product change and weighing this against building a whole new product. This is often a challenging area since incremental changes to the current product will often garner some customers in the new segment. However, these are often customers more comfortable with newer technology, and do not represent the bulk of the opportunity. Just like the forensic analyzer sold to the FBI is a different beast than the same instrument used for basic research at UCLA, there are almost always some product modifications needed.

The final area to consider is how well the new market fits with the current sales and distribution processes of the company. FAO Schwarz is quite good at selling building blocks to the parents of toddlers, but would be hard-pressed to sell street hockey equipment to teenagers. If the new segment is adjacent to the current markets, and shares many of the same attributes, customer types, and influence centers, then the organization should be able to be successful there. If, however, the new segment has a different culture, new players, and unique influencers then the risk is significantly higher and it will require more time to succeed.

Whether your current product is a slam dunk into the new segment, or you are wresting with whether the stretch is too far, taking current products to new segment is a very valuable growth strategy. Given a good dose of discipline the right choices can be made, and a whole new channel of sales can be developed quickly and with minimal investment.