|5 Min. Read||Dominic Dithurbide||November 23, 2016|
When companies become MotionPoint customers, they have usually spent time identifying at least one expansion-worthy market to serve online. For instance, many of our U.S.-based customers expand domestically to serve the Spanish-speaking U.S. Hispanic market.
However, we also have extensive experience in helping customers identify additional markets worth serving online, and prioritizing them. We usually recommend smaller markets, far from the GDP-chart-topping ranks of the U.S., Germany and the UK.
At first glance, expanding into nonobvious markets such as Poland or Slovakia makes little sense. After all, with much larger and more lucrative markets on the horizon to enter, why translate the company website into Polish or Slovak? Those markets are wee in comparison.
MotionPoint often advocates this approach because these smaller global markets are generally ignored by global businesses. These countries are also often underserved by local businesses—meaning, a greater selection of better products (and sometimes, lower prices) exist well beyond the country’s borders. This combination of low competition and hungry consumers often creates powerful opportunities for expanding companies.
This is the difference between being a small fish in a big pond, or being a big fish in a small pond. It’s also the difference between swimming in a “red ocean” versus swimming in a “blue ocean.”
MotionPoint advocates an incremental, profits-driven approach to online global expansion that takes inspiration from the “Blue Ocean” business strategy, created in 2005. While some of this strategy’s best practices are decades old, the approach has received wider adoption in recent years. Many global success stories have emerged as a result. (To learn how this strategy turned the video game industry on its head, read on.)
At its simplest, a Blue Ocean strategy flips the script on conventional business competition by finding entirely new consumers to serve, in relatively uncompetitive markets.
“(C)ompanies tend to engage in head-to-head competition in search of sustained profitable growth,” its creators explain. “Yet in today’s overcrowded industries, competing head-on results in nothing but a bloody red ocean of rivals fighting over a shrinking profit pool. Lasting success increasingly comes not from battling competitors, but from creating blue oceans of untapped new market spaces ripe for growth.”
Erdem Tokmakoglu, a Global Online Strategist with our Global Growth team, explains further: “In these less-competitive ‘blue ocean’ markets, demand is created rather than fought over. There is ample opportunity for growth that’s both profitable and rapid. In contrast, ultra-competitive ‘red ocean’ markets, products quickly turn into commodities, and profits plummet.”
A famous example of Blue Ocean strategy in the consumer electronics space was the 2006 debut of the Nintendo Wii video game console. Back then, beloved video-game maker Nintendo was behind the 8-ball: its aged gaming hardware was woefully underpowered compared to its Sony PlayStation and Microsoft Xbox competitors. In fact, Nintendo was experiencing a distressing marginalization in an industry that it had practically saved single-handedly in the late 1980s.
But the Wii console changed all that. While it didn’t feature best-in-class graphics or sound, the device leveraged “motion controls,” or using special game controllers in physically active ways. This was a radically different way of playing video games at the time. The elegance, simplicity and fun nature of this gaming innovation attracted the interest of consumers well beyond the comparatively small “core” of dedicated gamers. The Wii wooed blue-ocean “noncustomers” such as older players, parents, grandparents and very young kids.
Nintendo went on to sell over 101 million Wii consoles; it’s in the Top 5 bestselling consoles of all time.
So what do video games have to do with your company’s global expansion, online? By considering opportunities beyond ultra-competitive markets and identifying underserved consumers, your business may generate more online success that it might otherwise. “Red ocean” markets like the U.S., the UK, Canada, France, Germany, South Korea and Spain can pose challenges due to their high Internet, mobile, e-commerce and electronic payment platform adoption rates. It’s second nature for companies to be attracted to these larger markets—after all, it’s often easier to find and dedicate resources to translation, in-market SEO, and other localized assets. However, profitability and growth in “red ocean” countries generally decline with time.
In contrast, we’ve seen many businesses achieve greater global success when they enter less competitive markets.
“Our customers have leveraged this business strategy to expand internationally in different ways,” Erdem explains. “One of our most successful fashion retailers debuts new products for specific markets. Another deployed an efficient cross-border fulfillment strategy. Yet another identified underserved European markets and became a top-of-mind ‘go to’ e-retailer for those consumers.”
Interestingly, one MotionPoint customer, an e-retailer, sells more products in Slovakia than in Germany. It also generates more revenue in Hungary than in Italy. Why? Consumers in those much smaller markets have fewer buying options from local retailers. They flock to the retailer’s localized websites. The company has clearly found a few “blue oceans” within its vertical, and discovered great success there.
We’ve also seen customers opt to serve one global market over another, based on website traffic and sales data. We recently looked at the performance of an e-retailer’s website, keen to find engagement metrics that might suggest the retailer’s next market to serve.
After examining the data, it came down to Mexico and Canada. Canada seemed to be the ideal choice: Canadian consumers had spent about $600,000 in products from the client’s U.S. website during the past year. In contrast, Mexican e-shoppers had generated about one-third less during the same timeframe. However, the Mexican customers’ Average Order Value was much higher, as were their conversion rates. Based on these factors and others, Mexico emerged as the more interested—and less competitive—market to serve.
“If we look at other data, the picture becomes clear for most industries,” Erdem says. “We recently examined the ‘average daily revenue’ generated on sites we’ve operated since 2012. The analytics reveal that in many cases, the revenue generated in ‘blue ocean’ markets are as good as those seen in ‘red ocean’ markets.”
In some outlier cases, we’ve seen MotionPoint-powered sites serving Russia, Israel and Hong Kong generate nearly 45% higher average revenue than those serving Germany and France.
“We’ve seen similar mileage in Eastern European markets such as Slovakia and Poland,” Erdem says. “These countries generally require less marketing efforts in order to become competitive, and as a result they generate better margins.”
Our data further suggests that conversion rates in smaller EU markets such as Austria, Switzerland and Luxembourg are double those seen in “red ocean” markets such as the U.S., UK and France.
MotionPoint has many more insights into these “blue ocean” markets, and can offer recommendations on how to smartly serve them. Would you like to learn more? Contact us. We can help you identify intriguing emerging markets that might prove more profitable than more competitive mature markets.