Developing Partners and Value Propositions for Sustainable Revenue in Export Markets
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I recently came back from the Balkans where I was trying to help a company to export but unfortunately, their understanding of what it took to create sustainable exports, not just one off exports, was slightly naïve. They believed that price and availability was a good customer value proposition. Whilst on the surface being cheaper and offering the same quality of product sounds like a positive value proposition, however, basing your export strategy on being cheaper is not sustainable as there are a number of issues. Firstly, some company will try to undercut you, secondly, you need to prove to your customers that your quality is as good as your more expensive competitors, thirdly you have to build trust & credibility and this needs to be done by building a good relationship, through marketing and word of mouth. Secondly, they had no data to support that they were better than their competitors. Because they said that they were better, that meant that they were better.
Why do so many companies fail when they export? We generally hear of all the successes but even then we rarely hear about the profitability of the new market. Some companies, especially those that are smaller, do not know what are their real costs of exporting and developing that market.
Another problem that can happen is that companies will cut their price to get the deal, not understanding the potential consequences of going in low. Going in low should only be done, if the customer understands that it is an introductory offer and that the price is usually higher. However, by lowering the price, one should try and get commitments from your partner. I worked at one point with a start-up company and we had a launch client at a very low price but at the end of year one, they were unwilling to pay us for a second year as they knew, we could not be seen to lose our launch client as this would show badly on us.
Many companies, large and small do not do the market research before they decide to enter a market. They often feel that they have done the research but in reality, they have only touched the surface.
Only one company in four succeeds when it enters a new market. Why is moving into a new market so risky? I often hear SMEs talking about how they are in 23 countries but they fail to tell me whether they are successful in these countries or whether they are profitable. For many SMEs, they get an order every so often from a country and they add this to their list of export countries.
Often companies entering a new market either have the wrong value proposition for that market or don’t believe that a compelling value proposition is necessary. A value proposition for one market may not resonate in all markets. Understanding the culture and the competition is crucial to creating the correct value proposition for each new market. This may affect your pricing. If in your national market you are considered at the higher end of the market and your price reflects this positioning, the new market may feel that as an unknown brand your price is too high and you may need to market your brand so that they understand the value and accept the price.
Entering a new market for an SME with under 100 employees is quite different than a larger company entering a new market. A large company has the resource and finance to do different things in a new market. SMEs often want to go direct to the end–user as they do in their national market but they have failed to look at the size of the market and to budget for such a route to market.
The direct channel has many advantages but for a lot of companies, it is unrealistic. SMEs often believe that by going direct that their profit margins will be higher but they fail to really understand the cost of direct selling and either fail because their go to market strategy was incorrect or if they were to really analyse their costs, they would find that their profit margin was considerably less than projected and anticipated.
Finding the correct partner, takes time, resources and experience. Define what you consider to be the criteria for a partner and then go out to the market and find those partners that meet that criteria. There are many questions that you need to get answers to before you decide whether they are the right partner for you. Understand their culture, will it be able to work with your culture. Some of the questions that should be answered are the following: how do they sell, what is the average size of sale for them, what type of customers do they have, how is their sales team made up etc.
Once you have decided on your partner, you need to work with them and support them. The signing of a contract is only the start. Now the work really commences.
Route to market is key to the success of an export/new market entry project. Understanding what criteria you want in a partner is fundamental to success. Spending time vetting your potential partner, ensuring that you have a valid and compelling value proposition for that market is key to building a sustainable export market.