Why put emphasis on market selection?
“From that market, we know someone we met at a trade fair who said our product is awesome.”
“We have an employee who speaks the language.”
These are just a few examples of nonessential and irrelevant rationalization that guides market selection, says Salla Hänninen, CEO of Palava Global. Many startups and SMEs make the same mistake: choose a market with vague reasoning, and only then do market research. Instead, the starting point should be product-market-fit and the circumstances that the ideal market should offer.
“For instance, at the moment, roughly 50% of companies embarking on international markets would say Sweden is their first go-to-market. They would conduct a market analysis there without knowing if there were some other markets that would be more favorable for the product”, Salla describes. The challenge lies often in the lack of comparable data – a reason why Palava Global has developed a data tool – the Market Scanner to offer comparable market research analysis.
“So far, 90 percent of our Market Scanners have pointed to a different market to what the founders thought it would.”
Salla Hänninen, CEO, Palava Global
What kind of data should one use to select a market?
As the golden rule, the best possible market is where you can acquire and keep as many customers as possible at the lowest possible cost. The factors that should be considered in the market analysis depend on the company, the sector, and the product. Some typical parameters are:
| Costs (e.g. sales and marketing costs, costs of localization) | Competition (positive and negative competition) | Circumstances (other) |
| A market with high potential may also have high sales and marketing costs: For instance, digital marketing in the US and other English-speaking markets costs x10 compared to Spanish-speaking markets. Localizing: Do you need to hire a language-specific customer service team? Do you need to change something in the product to fit the local legal requirements? | Positive competition usually entails companies with similar but in some key way inferior products or very limited marketing and sales budgets or capabilities. These kinds of competitors indicate market need but can usually be beaten with a reasonable budget. Negative competition, on the other hand, occurs when there are competitors with a similar or superior product or have an endless marketing budget. | E.g. customer behavior in a specific market, law and bureaucracy, and the ease of doing business. |
When is the right time to conduct market research?
The best time was yesterday, and the second-best is today. “In the ideal situation, market selection begins already in the product development phase: we define the problem that we’re solving, ask where the problem is the biggest, and then pilot the product in the target market. There’s no use to pilot the product in Finland if you are planning to reach Mexico”, Salla says.
“Our Market Scanner data tool has been welcomed with gratitude by investors: internalization strategy and market selection don’t need to be based on guesswork anymore. So far, 90 percent of our Market Scanners have pointed to a different market to what the founders thought it would.”
Download Palava’s Guide to Market Selection
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Palava Global is one of FiBAN Partners providing diverse services on internalization. Palava makes sure that all international growth endeavors are strategically sound and profitable. They wish to never see another vague internationalization plan or budgets wasted on the wrong market. Market agnostic and serving all industries, they can help you in all matters international. Read more about Palava’s services for FiBAN investor members here.
More information:
Salla Hänninen
CEO, Palava Global
salla@palava.global
+358 45 6040830
Tuuli Saukkonen
Communications Strategist, FiBAN
tuuli@fiban.org