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Our flagship business publication has been defining and informing the senior-management agenda since 1964. The annals of business history report that for every successful market entry, about four fail.
Fortunately, some practical steps can help executives control cognitive biases in market entry decisions.
The failure rate of projects is high in industries such as pharmaceuticals, oil and gas, and motion pictures. Companies developing an outside view can benefit from a wide body of statistical research showing that six factors are particularly important predictors of successful market entry (Exhibit 1). In constructing a reference class, the first step is to review which of these factors are most relevant.
Besides developing a reference class, companies should remove any bias from their analysis of the entry decision.
The closer a company stays to its core capabilities and value proposition, the greater its chances of mounting a successful entry.3 3. A memorable example of a company that underestimated the difficulty of developing new skills dates back to the 1970s, when the music producer EMI entered the CAT scanner business on the back of an innovation developed primarily by Godfrey N.
To avoid such mistakes, companies should use the reference class to identify the key determinants of successful entries into similar markets. Estimating a market's potential size typically involves categorizing customers into a number of segments and then using pricing and elasticity assumptions to estimate the percentage of buyers in each category the company might capture. To avoid anchoring estimates on a target market's current growth rate, companies should always try to determine the life cycle stage of the business they wish to enter.
A second useful way of improving estimates of market size is to use the reference class of other entrants as a benchmark. While it is difficult to generate a reference class for potential entrants, in our experience it can be very helpful to brainstorm about them and then to test these hypotheses in a disciplined way. In addition to overlooking potential competitors, companies often fail to factor in the likely responses of current ones. The best way to anticipate competitive responses is to conduct gaming exercises, with executives role-playing competitors to gain insight into their likely behavior. If sufficiently broad, a reference class is a potent tool to counteract the planning fallacy.
February 2006 – Companies are vulnerable to misconceptions, biases, and plain old lies.
May 2003 – Can insights from behavioral economics explain why good executives back bad strategies? Create a profile to get full access to our articles and reports, including those by McKinsey Quarterly and the McKinsey Global Institute, and to subscribe to our newsletters and email alerts. Understanding the market and competition is a crucial business activity to be successful in the global market.
Companies engaged in international business need to comply with multiple regulations for each country which are constantly changing. After careful assessment of weighing the advantages and disadvantages of entering the Japan market, an international marketing plan is essential to be successful. Our network with the business community and especially with regional financial institutions across Japan provides introduction to identify potential partners, including niche players or mid-sized, privately-held companies that are difficult to discover otherwise.
Companies are often contacted from overseas but not sure if it is a viable business opportunity. Trade shows and missions can be an effective way to promote products and services to a mass audience. Having Japanese language material shows professionalism and a long commitment to the market. Describe the different types of product strategies and market entry strategies that companies pursue. ObjectivesobjectivesWhat organizations want to accomplish (the end results) in a given time frame. Objectives help guide and motivate a companya€™s employees and give its managers reference points for evaluating the firma€™s marketing actions. A firma€™s marketing objectives should be consistent with the companya€™s objectives at other levels, such as the corporate level and business level.
Firms often use multiple strategies to accomplish their objectives and capitalize on marketing opportunities. A marketing planmarketing planA document that is designed to communicate the marketing strategy for an offering. The different types of product and market entry strategies a firm can pursue in order to meet their objectives.
Market penetration strategiesmarket penetration strategySelling more of existing products and services to existing customers. Product development strategiesproduct development strategyCreating new products or services for existing markets. Market development strategiesmarket development strategySelling existing products or services to new customers. New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Firms can also licenselicenseSell the right to use some aspect of the production process, trademark, or patent to individuals in foreign markets., or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or firms in foreign markets. The front of a KFC franchise in Asia may be much larger than KFC stores in the United States. FranchisingfranchisingGranting an independent operator the right to use your companya€™s business model, techniques, and trademarks for a fee.
Contract manufacturingcontract manufacturingWhen companies hire manufacturers to produce their products in another country. Joint venturesjoint ventureAn entity that is created when two parties agree to share their profits, losses, and control with one another in an economic activity they jointly undertake. Diversification strategiesdiversification strategyOffering products that are unrelated to other existing products produced by the organization. The strategic planning process includes a companya€™s mission (purpose), objectives (end results desired), and strategies (means). Pharmaceutical companies and companies active in the Consumer Health and OTC industries are seeking to optimize their business strategies in order to increase company growth and revenue. Due to increasing globalization, businesses are committed to adapting corporate goals and strategies to contemporary challenges and opportunities.
To achieve growth through international sales while simultaneously fostering current business, companies’ main focus and investment must shift from mature — frequently home — markets to international and emerging markets.
This change in business creates great business opportunities (see figure 1), since there are numerous emerging markets that are only beginning to grow and are most suitable for a new market entry.
Can you list the Top 10 international countries that best fit your specific products for international growth? Mature and home markets might still be profitable, but, compared to emerging markets, price regulations are tightening and annual growth rates are not significant.
Emerging markets, on the other hand, have very promising annual growth rates and a great deal of development potential.
Foreign businesses and investors can take advantage of recent institutional transformations within emerging markets and of structural inefficiencies.
It is worth noting that success in emerging markets does not require one particular approach but instead demands the adoption of numerous models and strategies most suitable for the company and the market to which it belongs. An international pharmaceutical strategy enables companies to avoid dependence on single markets in times of globalization! Companies seeking to enter an emerging market will have good chances of success, as the markets in Russia, Ukraine, Turkey, Brazil, Mexico, Indonesia, South Korea, the Philippines, Colombia, India, Poland etc. Establishing or extending global business markets is often associated with a large companies and financial strength.
More and more pharmaceutical companies see value in focusing on international pharma strategies and their processes.
The development of a wide product portfolio as part of your international Pharma Strategy is of high importance, because it creates the opportunity to offer a large range of products across different health care systems.
It is also important to analyze markets individually and to go beyond IMS data, since such data can be quite misleading when not analyzed in depth. At this stage of your international Pharma Strategy, suggested consumer prices for your products will be analyzed based on their competitiveness in potential markets and new niche sectors will be assessed based on your products. The outcome of this first step is the identification of key products which can go international to gain further sales and why these products are suitable. Furthermore, success is not guaranteed for those who simply enter an emerging market; a new market entry often involves as many challenges as opportunities. Rules need to be known in order to establish a business and this knowledge supports the identification and determination of local partners and investors. It is critical that market knowledge and knowledge of specific market drivers is acquired, since quick and correct adaptations to changes in the market are vital. After conducting the selection of countries, it is advisable to work out a market entry plan & strategy in order to understand the real potential of your products in the specific market. This step results in a suitable business plan that fits the plans for the product and market, as well as creating a well-tailored overall market entry plan & strategy. Knowledge and understanding of each country’s regulatory entrance criteria are vital to have when striving to enter a market, as there are notable national differences and the success depends on the local status of your product e.g. Before your product is registered in a new market, the registration criteria that have to be met mostly include a CTD-dossier.
As we have expertise in regulatory affairs in emerging markets, we support you in questions concerning registration (see figure 6).
As with any international market success, more than 70% of success is dependent on finding the right partner. Selecting the wrong partner can result in the company having to change partners within a few years of the launch, meaning that time, money and energy needs to be reinvested, particularly as retail outlets have to be convinced to sign with a product a second time around.

Dynamic and suitable local partners will not necessarily visit international trade shows and exhibitions, and too often the focus of companies seeking to expand internationally lies in how well local companies manage to present themselves externally. A screening of available partners should be conducted to assess which company fits your requirements the best and vice versa. We, Chameleon Pharma Consulting, are OTC & Pharma Experts in Emerging Markets with a team that has more than twenty years of experience. Inexperienced start-ups suffer some of these disappointments, but so do many sophisticated corporations and seasoned entrepreneurs who should know better. Behavioral economists have written extensively about the impact of cognitive biases on financial markets and on a wide range of decisions.
The efforts of Anheuser-Busch to diversify into the snack food business, for example, went awry when the beer giant underestimated Frito-Lay's response to a threat to its Doritos franchise.
Yet they frequently fail to learn from history, because a myopic focus on the market entry decision at hand prevents them from creating a reference class of at least five (and preferably more) similar entry decisions in the past. Companies in these sectors do understand how important it is to play the probabilities and can draw on a rich body of cases in creating a reference class. Even before companies select their reference cases, an explicit review of these factors sometimes shows that the dice are loaded against going forward.
Say a small, technologically adroit company that lacks complementary assets enters a new industry at the same time as large, diversified companies that do have them enter it. During the buildup to the current conflict in Iraq, for example, the two analogies consistently reported in the press were the Vietnam War and the 1991 Gulf War. Start by targeting five core issues: the value proposition and capabilities, the market's size, the competition, market share and revenue, and costs (Exhibit 3). In one recent study, experienced real-estate brokers, who had contended that the listing price4 4. At some point, most industries experience shakeouts, which can be particularly severe in fast-growing sectors. Consider the fate of the Segway, a new type of two-wheeled vehicle unveiled in December 2001. Many decision makers, for example, don't grasp the likelihood that their rivals may enter the same market they have targeted; they suffer from competitive blind spots when thinking about what could go wrong.
The first companies to consider are those in the same industry; after all, if one of them is contemplating plunging into a market, its competitors probably are too. Its Eagle Brand operation initially succeeded by staying small and focusing on supplying airlines and taverns. One telecommunications company that leaned toward using a premium-feature, low-cost strategy to enter a new market assumed that the incumbents would maintain the status quo of premium features and high prices. If the reference class attained only a 3 to 5 percent market share, decision makers should pause when they see higher estimates. Even in fairly routine endeavors (such as launching new consumer products), expenditures often exceed forecasts dramatically. For a new type of polymer-processing plant, say, the reference class should include not only plants built by the company contemplating it but also cutting-edge processing plants in the chemical industry and perhaps new types of processing plants in other industries. Fortunately, companies can boost their odds of success by tackling cognitive biases head on.
Together with our experienced network of professionals, we assess the market and provide optimal solutions for our clients. While information can be gathered using the Internet, there is nothing more valuable than first-hand information that can be obtained in-country from industry experts.
Our clients’ interests come first and our team can provide realistic and independent assessment at all stages while working closely with the Japanese government, industry associations and Embassies.
We assist clients in starting and managing strategic relationships with Japanese companies, organizations, and government agencies. We can carry out an investigation and obtain specific information on a Japanese company through our network of local agencies and financial institutions. It can also require significant investment of money and time without careful preparation and planning. Machine translation tools are still word-for-word and human translation is an important part of doing business in Japan. Although many organizations publish their mission statements, most for-profit companies do not publish their objectives. An example of a marketing objective for PepsiCo might be a€?to increase by 4 percent the market share of Gatorade by the end of the year.a€? The way firms analyze their different divisions or businesses will be discussed later in the chapter. For example, in addition to pursuing a low cost strategy (selling products inexpensively), Walmart has simultaneously pursued a strategy of opening new stores rapidly around the world. The purpose of the plan is to influence executives, suppliers, distributors, and other important stakeholders of the firm so they will invest money, time, and effort to ensure the plan is a success.
Many companies, including PepsiCo and Hyundai, have entereda€”and been successful ina€”rapidly emerging markets such as Russia, China, and India. Licensing is a popular strategy, but firms must figure out how to protect their interests if the licensee decides to open its own business and void the license agreement. Chameleon Pharma Consulting helps many business concerns develop successful international Pharma Strategies and supports new market entries in emerging markets all over the world. Global market dynamics compel healthcare companies to adjust to the demands of globalization, and an international Pharma Strategy is needed to ensure growth and achieve their ambitions. These markets represent 70% of the world’s population and will, by 2020, account for 36% of global OTC, pharma and cosmetic  spending (see figure 2). Current investments have good prospects of turning out to be highly worthwhile and to promise long-term rewards.
The pharma strategy must be individually customized for each company, and there are significant differences depending on which segment you operate in, e.g.
This perception can be misleading, since big companies generally move rather slowly due to time-consuming decision making. One market might show the most rapid growth, but issues regarding trademarks, registration rights and high market entry costs might be present. Factors such as the cost of market entry, competitors within and outside pharmacy and your potential in the new target market will be analyzed and assessed at this point of your global Pharma Strategy (see Figure 5).
The right registration category and strategy will be identified and options for fast-track registrations and product labelling will be sought. Hence, a systematic search for the best-fitting partner will be conducted as part of your global Pharma Strategy. Frequently, the best-fitting local companies do not actively seek to shape their outward appearance to meet the foreign, Western expectations, so finding the best-fitting partner for your brand is more difficult than it at first seems.
Thanks to our experience and network, you save valuable time and money involved in “getting to know meetings” in the partner selection process. We support you in all stages of the process: from the identification and assessment of your international portfolio to finding your most suitable local partner. After all, industrial economists and strategists generally agree about what makes market entrants successful: factors such as timing, scale relative to the competition, and the ability to leverage complementary assets.
Such a reference class promotes systematic learning from the successes and failures of other companies. But companies that place product bets less frequently, and with less apparent risk, have fewer internal reference cases to compare and generally either don't consider looking at the experience of outside companies and industries or, if they do, often conclude that the effort isn't worth the expense.
In this case, the small company should create a reference class of similar entrants in other industries, not this one. These were natural choices, since they were the two most recent large-scale conflicts involving the United States, but they weren't necessarily the most similar ones. Of course, other analyses (of regulatory issues, for example) are occasionally necessary and sometimes of paramount importance. EMI had no experience in the manufacture of medical-diagnostic-imaging equipment or in medical sales and distribution. One is the fact that human beings, when considering potentially positive outcomes, are almost always optimistic.
Although we don't know for sure what the inventor, Dean Kamen, did to estimate the size of the market, we do know how many Segways he thought could be sold after a year: 10,000 a week. If roads were the only alternative, how many potential purchasers would still be willing to use it? That's what happened to British Satellite Broadcasting (BSB) after it outbid Rupert Murdoch's Sky Television, in 1988, to win the contract to broadcast on a new British satellite. If companies in other industries could succeed in the target market, they should be considered as well.
The shift from hard to liquid soap was an incremental innovation that couldn't be protected by a patent; there are too many ways to make the product. Once Anheuser-Busch expanded beyond these markets, however, it was encroaching on Frito-Lay's turf, stimulating a harsh counterattack: deep across-the-board price cuts by Frito-Lay and a concerted effort to drive Eagle out of supermarkets.
But after using game theory, simulations, and competitive analysis to assess the incumbents' likely responses, the prospective entrant realized that it had overestimated its returns by a hefty 800 percent.
One study assessed the accuracy of the estimates that psychology students made of the time they would need to complete their honors theses. A broad reference class gives would-be entrants a realistic range of costs associated with attaining various market share levels. We can assist in identifying the right tradeshow, producing marketing material, arranging business meetings with potential partners at the venue, and following up on leads. In addition to being accomplished within a certain time frame, objectives should be realistic (achievable) and be measurable, if possible. Accomplishments at each level of the organization have helped PepsiCo meet its corporate objectives over the course of the past few years.
Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily.
Many companies develop marketing strategies as part of their general, overall business plans. Companies often offer consumers special promotions or low prices to increase their usage and encourage them to buy products.
A new product can be a totally new innovation, an improved product, or a product with enhanced value, such as one with a new feature.

Exporting, licensing, franchising, joint ventures, and direct investment are methods that companies use to enter international markets. As FigureA 2.12, a€?Product and Market Entry Strategiesa€? shows, there are different ways, or strategies, by which firms can enter international markets.
The French luggage and handbag maker Louis Vuitton faced this problem when it entered China.
Franchisees pay a fee for the franchise and must adhere to certain standards; however, they benefit from the advertising and brand recognition the franchising company provides. The manufacturers are provided specifications for the products, which are then manufactured and sold on behalf of the company that contracted the manufacturing. For example, In Bev, the Dutch maker of Becka€™s beer, was able to capture market share in the United States by purchasing St.
Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies. OTC, Medical Devices, Cosmetics, Pharma Rx., VMS, Consumer Health or in the alternative pharma and healthcare sectors.
This generates many opportunities for mid-sized and family-owned companies, as the first competitors frequently have the best chances of success.
With our longstanding network and knowledge of the industry, we can assist you in the development of your international Pharma strategy, which will save you both time and money. 26–39 for an overview of the relationship between cognitive biases and strategic mistakes, as well as a partial summary of the broader literature on this topic.
Since the tens (if not hundreds) of millions of dollars at stake in a typical big-company market entry far outweigh the costs of forming a reference class, that conclusion is penny wise and pound foolish. Next, companies should look for reference cases involving as many of the most important factors as possible (Exhibit 2). Expanding the reference class to include the troubles in Northern Ireland, Britain's involvement in the Middle East after World War I, and US policy in Europe after World War II might have raised fresh, relevant questions about troop requirements, the policing of occupied populations, and postwar reconstruction.
But companies can be egocentric: they may assume, for example, that since their employees are excited about a product customers will feel the same way, that the resources and assets they already have are the ones needed to meet the needs of the target market, that what they do well is sufficient for success in it, or that they can easily acquire any missing skills. Its senior management decided to build these capabilities rather than partner with other companies to obtain them. A typical approach for arriving at such a figure would have involved combining an analysis of the number of consumers who could both afford the Segway and realistically use it for commuting or recreation, on the one hand, with penetration rates in this demographic for similar products, such as scooters and bicycles, on the other.
Even as BSB prepared to launch its service, Murdoch obtained the rights to broadcast from a Spanish satellite that could reach Great Britain. The businessman who had the idea for Softsoap, Robert Taylor, knew that if it entered the industry without protection, consumer-marketing giants like Dial would crush it. A Rand Corporation study of 44 chemical-processing plants owned by Fortune 500 companies, for example, found that the actual construction costs of these facilities, on average, were more than double the initial estimates.
Cost estimates far below the realized costs of the reference class should make decision makers think again. PepsiCoa€™s business units (divisions) have increased the number of their facilities to grow their brands and enter new markets.
PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including a€?mega brands,a€? which are eighteen individual brands that generate over $1 billion in sales each. When Frito-Lay distributes money-saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is utilizing a penetration strategy.
Cell phones that allow consumers to charge purchases with the phone or take pictures are examples of a product with enhanced value. Competitors started illegally putting the Louis Vuitton logo on different products, which cut into Louis Vuittona€™s profits.
Contract manufacturing may provide tax incentives and may be more profitable than manufacturing the products in the home country. Some countries such as China often require companies to form a joint venture with a domestic firm in order to enter the market.
Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy.
The different product market strategies firms pursue include market penetration, product development, market development, and diversification. For one thing, when confronted with a difficult decision, most executives rely solely on an inside view: they focus excessively on the specific case at hand.
The reference class yields comparative data that are an invaluable reality check on the inside-view analysis.
A broad reference class, in other words, forces analysts to consider more possibilities and new data. It's important to uncover both successful and, even more, failed entries so that the reference class approximates the distribution of actual outcomes. If new capabilities seem to be needed for success, companies should exercise caution and consider contractual approaches, such as joint ventures and licensing, that can help them secure the missing assets.
An optimistic anchor that often infects market estimates is an industry's current growth rate, which rarely endures for long. Each broker received a ten-page booklet on the house and on the prices and characteristics of houses in the area. A broader reference class that included conventional automobiles, fuel cell cars, hydrogen cars, and infrastructure-dependent technologies such as high-definition television and telephones might have shown that securing the right to ride the Segway in cities was of paramount importance.
Although discretion is sometimes the better part of valor, this analysis is meant to help companies react to the competition's moves before they happen, not to scare entrants away from a fight. His solution: signing contracts to obtain all of the existing capacity for the pumps capable of dispensing Softsoap.
One year after start-up, about half of the plants produced less than 75 percent of their design capacity; a quarter produced less than 50 percent.
You have probably set objectives for yourself that you want to achieve in a given time frame. PepsiCoa€™s beverage and snack units have gained market share by developing healthier products and products that are more convenient to use. Wea€™ll overview marketing plans here and discuss them more completely in ChapterA 16, The Marketing Plan.
The marketing plan also helps the firm allocate resources and divvy up the tasks that employees need to do for the company to meet its objectives.
The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using their soup as an ingredient for cooking quick meals.
A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. For example, during the recent economic downturn, manufacturers of high-end coffee makers began targeting customers who go to coffee shops.
Firms can simply exportexportSell products to buyers in foreign markets., or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Examples of products where contract manufacturing is often used include cell phones, computers, and printers. After entering the market in a partnership with a domestic firm and becoming established in the market, some firms may decide to separate from their partner and become their own business. A direct investment strategy involves the most risk and investment but offers the most control.
Warner Music Groupa€™s purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed.
This tendency prevents many of them from developing an outside perspective based on previous market entries and even from evaluating opportunities in the light of common predictors of success.
The greater the overlap with the experience of the industry in question, the more valuable each example will be for the reference class.
Soon thereafter, General Electric, with its world-class manufacturing and sales and distribution networks (and 75 years of experience with X-ray equipment), entered the US market. It's frequently valuable to have people who are not directly involved in making the decision help determine what's needed for a successful entry. After all, it took years to create the roads, power grids, standards, and networks necessary for cars, electric lighting, HDTV, and telephone service to become ubiquitous.
For example, your objectives might be to maintain a certain grade point average and get work experience or an internship before you graduate. The different components of marketing plans will be discussed throughout the book and then discussed together at the end of the book.
The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.
Other companies such as advertising agencies may want to invest and develop their own businesses directly in international markets rather than trying to do so via other companies. Furthermore, when an analysis is conducted, cognitive biases often lead executives to believe that a company's skills are more relevant than they really are, that the potential market is bigger than it actually is, or that rivals won't respond to the entry move. After all, the analysis of managers from different divisions will be less biased by ingrained knowledge of the organization's current value proposition and skills. The agents didn't know that the listing prices they had been given for the house in question were all different and had been randomly manipulated within a range of plus or minus 11 percent of the actual listing price. Today, Softsoap is synonymous with the product category in the same way Coke is with cola drinks.
Next, leta€™s take a look at the different types of basic market strategies firms pursue before they develop their marketing plans. Not surprisingly, GE and Siemens became dominant and EMI exited after sustaining substantial losses. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkina€™ Donuts announced it was adding items to its lunch menu. Yet even when they were told about the results, they maintained that the listing-price anchor had had no effect on them. The venture combined the Japanese company Sonya€™s electronic expertise with the Swedish company Ericssona€™s telecommunication expertise.

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