When Push Comes to Shove – market entry strategy and its impact on performance
Trust in the strength of your own resources or follow your feelings about the state of the market? In either case, what will be the subsequent chances of high performance and long-term survival? Such is the strategic dilemma faced by all firms trying to find the right time to commercialise their products or services. A multi-firm, multi-cycle simulation software has been devised that may enable firms to answer these vital questions before taking the plunge with greater confidence.
The market pull-versus-resource push debate has been central to the market entry playing field for a long time. Firms must weigh up either the external business landscape and decide the right time to compete for market space and a potential profit share or, conversely, make as accurate an assessment as possible of their own internal capacities in order to time their sales operations right. The former strategy represents an “outside-in” evaluation of a firm’s capabilities, the goal of which is to create value for future customers by outdoing one’s rivals and getting as large a slice of the cake as possible upon market entry. The latter hinges upon an “inside-out” way of thinking, where the focus lies upon a firm’s ability to develop and deploy unique services, products or know-how in order to neutralise the threat from competitors. In both cases, the key question remains: when and on what basis?
Understanding the environment
The relative merits of each approach must always be put in the context of the intended market(s) and the degree of turbulence. After all, even a successfully-applied strategy leading to a smooth and profitable entry into a particular market will inevitably lead to firms having to share the eventual spoils – any realistic firm plans in anticipation of having to convince customers why their product or service is the one to choose above all others.
The notion of the “strategic factor market” accounts precisely for the possible ups and downs that firms may encounter – the value of resources must be estimated and the decision to purchase further ones costed into the overall operation, as must the potential price of entering market x or y in the first place. Such assessments can also be impacted not only by the push or pull strategy adopted but also by the set-up of each firm in question, be they “de novo” (i.e. start-up organisations with fluid structures but relatively few pre-existing resources) or “de alio” firms (i.e. offshoots created out of a parent firm currently operating in different markets and with considerable assets in reserve). Understanding the environment is therefore key.
The Perfect Competition scenario
Recent research and application of the NetLogo version 4.1 software has unearthed a multi-part approach to simulating market conditions that could help firms with differing strategies time as accurately as possible their entry into the chosen market. Luck will always play a certain part in such an operation but a recent exercise incorporating 200 firms and 20 markets has produced highly revealing results.
The exercise is based upon “Perfect Competition” conditions, to ensure that all firms under the microscope were judged on as level a playing field as possible, namely the identical selling price per product, the same product per market, the same size of firm, and complete transparency of market information. Market push and resource pull strategies were assessed, as were “de novo” and “de alio” set-ups, in order to assess performance and survival rate per firm type in a hitherto unprecedented level of simulation detail.
Survival of the fittest… and the best-prepared
On a general scale, firms with a resource push strategy were seen to outperform their market pull counterparts who, on the other hand, lasted longer despite slower initial returns. Amongst those adopting a resource push strategy, newer start-ups displayed the performance benefits of having an overall less onerous structure whilst it was the “de alio” spin-off firms who applied a market pull approach with greater success, aided and abetted by their well-resourced parent firms.
From a practitioners’ perspective, the implications of the study are clear – market pull firm managers should seek more profitable markets whilst remaining sensitive to the time issue and target first-mover benefits. Resource push firm managers, on the other hand, should look to consolidate customer relations but not linger too long over their choice of market in order to avoid incurring the cost of unused resource maintenance. Luck ultimately plays its part in all scenarios. What the multi-echeloned study reveals above all else is the merits of constant testing and re-testing in order for firms to give themselves the best chance of entering the market as well prepared as possible. In these turbulent times, such prior market and resource knowledge is like gold-dust.
This article was inspired by the paper The effect of market-pull vs. resource-push orientation on performance when entering new markets, written by Jean-Philippe Timsit, Annick Castiaux, Yann Truong, Gerard Athaide, and Richard Klink and published in The Journal of Business Research 68 (2015).
Jean-Philippe Timsit is an Assistant Professor of Strategy and Innovation at Rennes School of Business.
Yann Truong is a Professor in marketing and strategy at “lÉcole supérieure de commerce de Dijon”. His research interests include Aspirational Marketing, New Media Advertising, and Innovations Marketing.
Annick Castiaux is a member of the Business Administration Department at University of Namur, Belgium Her research interest is in the field of innovation management, with a focus on ICT and sustainable (eco-friendly) technologies
Gerard Athaide is Professor of Marketing at The Sellinger School of Business, Loyola University Maryland, Baltimore, USA
Richard Klink is Professor of Marketing at The Sellinger School of Business, Loyola University Maryland, Baltimore