Do Business Well

The thing that we should have remembered is that expansion, whether it’s into new markets or new products, should never be undertaken just because the market is there or you can make the product. Just as you would never buy a stock just to build a portfolio without considering whether the investment was likely to be profitable, you should never go into a new market or introduce a new product without seriously stopping to consider how you are going create a profitable new business.

The first thing that you have to consider when you are thinking about entering a new market is whether there is willingness or need on the part of the consumers to buy your product. In other words, the question isn‘t how many people are in a particular market but how many people there are who might want your product and have the money to buy it.

Many years ago Coca-Cola was forced to get out of India because the Indian government asked the company for its formula and the company refused to give it to them. Eventually, through the hard work of many people, we were able to go back into India, and we rubbed our hands in glee at the potential of over a billion people buying our products in India. But then we realized that most of those billion people don’t have any money to buy soft drinks or much of anything else. Until more Indians have more disposable income, there isn‘t going to be much of a market in India for much of anything. The same was true in many parts of the former Communist Bloc. We weren’t prudent. We didn’t quantify the true potential and invest accordingly.

Over the years, entering new markets through distributive expansion has been an obvious and easy fallback for many companies seeking growth. However, if your goal is to maximize your return on investment, this often isn‘t the smartest way to go. What you need to do is to concentrate first on the markets that have the most potential—which are usually the markets that you are already in—and make sure that you are maximizing all of them. Only then should you think about trekking into other markets. You must never forget that to sell your products, you need willing consumers with money to spend. This is what I mean when I say: fish where the fish are.

When we at Coca-Cola were debating about whether we could continue to grow the business by going into new countries, Roberto Goizueta came up with a great line.

“Look,” he said, “every person in the world drinks about sixty-four ounces of liquid a day. Coca-Cola products account for only about two of those ounces today.” Previously, we had been looking at the potential market as two ounces multiplied by 5.6 billion people in the world. What Roberto was saying was that the more fruitful course would be not to think only of getting more people to drink our products, but also to think of getting the people who were already drinking our products to drink more of them, at the expense of other liquids. The implication was that there was still a huge market to be developed out there among the billions of customers that we already had.

My perspective has always been that existing markets tend to produce better results than new markets. That’s in part because you already have brand awareness, even among people who aren‘t consumers. You don’t have to spend the money to introduce and establish yourself all over again. But perhaps more importantly, it’s because you have a better chance of selling stuff to people who already want it.

Your hit rate with people who are already either frequent or infrequent customers is a lot greater than with people who aren‘t really interested in your product or have never even considered buying it. Think about it. If you are marketing sanitary napkins, are you going to sell more in a market of a hundred women or a market of a thousand men? The facts may be a little different here because men don’t have much physical use for sanitary napkins, but the concept and the math are the same. You have a better chance of selling your product to people who think that they need or want it than to people who don’t. Your success rate is going to be a lot higher.

I recently spoke at a ski industry event. The ski people were focusing on a strategy to convince nonskiers to ski. This made no sense at all to me. I advised them to change their strategy because it would be a hell of a lot easier to convince those who already ski to ski more first than it would be to try to convince new folks of the value and allure of skiing.

It’s easy to lose sight of this and to get blinded by visible demand. For established products like Coke, for example, entering new markets is an easy way to get short-term growth because there is generally some level of spillover demand from your visibility in other markets. But to really build sustainable demand, entering new markets is very inefficient. You can spend a lot less and sell a lot more in existing markets where the consumer knows about your products and service. You do have to get them to increment and broaden their behavior. You have to convince them to buy more or to use your product to replace something else that they are buying. But that’s a much more productive activity than trying to convert people who just aren‘t interested.

I don’t mean to suggest in any way that incrementing and broadening the behavior of current consumers is easy. It isn‘t. In fact, the more your brand is developed in a market, the harder it is going to be to get that incremental sale. You will have to broaden the definition of what your brand or product is, and you will have to spend money to make sure you reach the people in the market who aren‘t currently buying. And you have to reach the people who are buying more often to give them more reasons to buy. Still, with your brand awareness already developed, you have a better chance of getting greater success than in an entirely new market.

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