Leaving home: how can insight inform market entry strategies?
Regional concepts often encounter difficulties when expanding beyond their home markets – that’s perfectly natural. A brand’s home market is familiar – decision making starts with lots of ‘knowns’ – from the customer loyalty built over years of operation to competitors you understand. The pace of network expansion is often slower and more calculated. These factors help executives and real estate teams evaluate new site opportunities with a high degree of comfort and confidence.
Eventually, the number of viable home market opportunities will decrease and the need to consider new, ‘greenfield’ market opportunities will arise. Increased capital investment often drives an ambitious growth strategy, which inherently leads to elevated risk and uncertainty around decision-making. There are no silver bullet answers which can guarantee success, but a well-planned, data-driven site evaluation process accompanied by the interrogation of a variety of data sources can provide insight to help mitigate the risk associated with market expansion.
Kalibrate works with a diverse range of retail concepts, operating at all levels of maturity, in markets globally. For those in expansion mode, understanding performance disparities between home markets and locations is challenging. This could be across countries, state lines, or within more granular geographies.
Regardless of the context, the questions we hear can be summarized as follows:
- How do maturity rates differ between greenfield markets and existing/infill markets?
- How can I leverage my customer profile to identify the highest priority sites/trade areas in a new market?
- How have our competitors approached new market expansion – coverage and rate of growth?
- How can I best anticipate the strength of specific competitors from market-to-market?
Let’s consider a scenario. A restaurant concept enjoyed strong performance in its home markets reaching a few hundred locations. With significant capital investment, executives were tasked with driving expansion in markets of greatest potential at a rate of 50 per year.
New openings are resource intensive, and failures are expensive. The step-up in velocity will stretch even the most competent real estate teams. So how can they de-risk decisions or gain a performance benchmark of peers to manage expectations?
The hypothesis behind analyzing cross patronage with competitors is developing an understanding of how your brand may take lessons from a lookalike operator. When Kalibrate deploys this analysis using mobility data, we may look at several competitors and take those with high levels of cross patronage for closer interrogation. Comparisons will bear in mind the peers’ relative saturation, volume potential, and associated regional strength to help add context to the insights to be gained.
These findings can be instructive in a couple of directions.
Firstly, decision makers will usually have an idea who they share the higher amounts of customers with, but seeing that quantified helps them understand where competitive pressures exist more intensely than previously estimated.
Depending on the concept and the competitive dynamic, the impact of competitors with higher cross-patronage can be factored into the site selection process when considering co-tenancies. These types of insight are instructive to executives when identifying a strategy appropriate for their risk appetite.
Adding customer profiling
A cross-patronage analysis involves drawing unique geofences around peer locations to facilitate a customer profile analysis which leverages segmentation data is a natural next step. Comparing the results of the peers’ customer profile will provide a qualitative understanding of similarities and differences associated with the patrons of that competitor relative to your own.
Concepts that share similar customer profiles and exhibit higher levels of cross-patronage can be used as benchmarks for comparing expansion strategies. Did they skip or avoid particular markets? Which markets had the fastest or slower rates of expansion? Did they enter a market conservatively or aggressively – in terms of initial unit openings? Ultimately, they’re able to look at a competitor’s decision making to glean insight into where they went first, the velocity of openings, and how that compared to their home market. The concept may want to emulate a strategy, avoid it, or learn from specific tactics to inform an approach of their own.
For concepts that have scaled quickly in their home markets, expansion beyond can be daunting. The familiarity of a market you know well is replaced by a new customer, new competitor, and new dynamics.
A cross patronage or customer profile analysis alone will not define an expansion strategy, however, they provide supporting data points which may identify unforeseen market risks or add confidence to the overall decision-making process.
Analysis of competitors gives a more complete picture to inform expansion strategies. Knowing how comparable brands approached their expansion – where they went and how quickly they scaled – helps to set expectations around priorities and velocity.
Where the risk of failure is higher and capital investment is greater, any insight that helps to de-risk and add confidence to decisions is vital as you set your sights on the next opportunity.
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