Planning a Market Development Strategy for New Segments

Plan a market development strategy: use market segmentation analysis to pick new segments or regions for an existing product, then plan and test the entry.

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At a Glance

Overview

A market development strategy takes a product you already sell into a market you do not serve yet. It is the existing-product, new-market quadrant of the Ansoff Matrix. The new market can be a new region, a new industry, a new size of customer, or a new use for the same product. Ansoff's original definition describes the company adapting its present product line, "generally with some modification in the product characteristics," to new missions, and his example is an airplane maker that adapts its passenger aircraft for cargo (Ansoff, 1957).

That definition carries two practical warnings. The first is that market development usually involves some product change, such as localization, compliance features, packaging or pricing. Plans that assume the product will sell unchanged tend to underestimate cost. The second is that a new market is defined by what buyers need the product to do, so a new use inside an existing customer can be a new market as well.

Market development is commonly described as "expanding the potential market through new users or new uses," where new users can be new geographic, demographic, institutional or psychographic segments (Wikipedia: Market development). Choosing among those options is a market segmentation problem. This skill runs market segmentation analysis to find candidate segments, compares them on attractiveness and fit, tests the most promising ones cheaply, and builds an entry plan and business case for the winner.

This skill covers market expansion planning across several candidate segments. Once one segment is chosen, its precise target market definition and demand validation are covered in Defining Target Markets for Expansion Strategies.

How It Works

Segmentation divides a market into meaningful sub-groups whose members share needs or characteristics. Marketers usually follow the segmentation, targeting and positioning sequence, and the most common bases for consumer markets are geographic, demographic, psychographic and behavioral, while business markets are often segmented by company type, industry or location (Wikipedia: Market segmentation). For market development, the useful question is which segments you do not serve today have the needs your product already meets.

Start from what your current customers value and why they bought. Those reasons point to segments outside your current market that share the same need. A tool bought by small law firms to track billable hours may suit accounting practices or consultancies with the same problem. A product that sells in one country may suit a neighboring one with similar regulation and buying habits.

Each candidate segment is then compared on a consistent set of criteria. Attractiveness covers the size of the segment, its growth, how much it can pay and how intense the competition is. Fit covers how much the product must change, whether your channels can reach the segment, whether your brand is credible there and whether your team can support it. A standard summary of market development lists the questions a marketer checks before committing: whether the market is profitable, whether it needs new or modified products, and whether the customers and channels are well enough understood (Wikipedia: Market development).

Scores are only a first cut. The top two or three segments are tested with cheap signals before any large commitment: interviews with buyers, a landing page and small ad test, a partner pilot, or search demand checks. Smart Insights suggests looking at search intent for services in different markets with keyword research tools as one input to market development decisions (Smart Insights).

The winning segment gets an entry plan with the product changes, positioning, channels, pricing, first customers and milestones, plus a business case that shows the investment, the expected timeline and the conditions for stopping. Segments change over time, and the segmentation literature notes that segments can be unstable (Wikipedia: Market segmentation), so the plan includes a date to revisit the choice.

Step-by-Step Guide

Step 1: Set the scope and constraints

Write down which product is being taken to new markets, the growth the initiative must deliver, the budget and team available, and any limits such as regions the company will not enter. Record the product changes the company is willing to make. Agree the time horizon for results. These constraints eliminate options early and prevent a long list that nobody can pursue.

Step 2: Understand why current customers buy

Review customer interviews, win-loss notes, reviews and usage data from your current market. Identify the needs the product meets, the job it does, and the characteristics of the customers who get the most value. Write these as a short list of buying reasons. They are the bridge to segments outside your current market.

Step 3: Run the market segmentation analysis

Choose the segmentation bases that fit your market, such as industry, company size and region for a business product, or geography, demographics, lifestyle and behavior for a consumer product. List segments you do not serve today that share one or more of your buying reasons. Include new uses as well as new users. Aim for a long list that covers several bases.

Step 4: Score and shortlist new market segments

Score each segment on attractiveness (size, growth, ability to pay, competition) and fit (product change needed, channel access, brand credibility, support capability). Write the evidence behind each score and flag guesses. Weight the criteria according to your constraints from Step 1. Shortlist the two or three segments with the best combined case.

Step 5: Test the shortlist with low-cost signals

For each shortlisted segment, run quick tests: buyer interviews, a segment-specific landing page with a small ad budget, a pilot with a partner, or a search demand check. Define in advance what response would count as encouraging. Compare results across segments and update the scores. Drop segments whose buyers do not recognize the problem your product solves.

Step 6: Build the entry plan for the chosen segment

For the top segment, define the product changes, positioning, pricing, channels, first target accounts or regions, and the team responsible. Set milestones for the first months, such as first paying customers, a repeatable sales motion or a target cost per customer. Plan what you expect to learn at each milestone as well as what you expect to sell. Hand the precise target market definition to the target market skill.

Step 7: Write the business case and review points

Summarize the investment, the expected timeline to revenue, the main risks and the evidence from testing. State the conditions under which the initiative will be stopped or scaled. Agree review dates with leadership. Record the decision on the Ansoff map so the portfolio view stays current.

Best Practices

• Start from buying reasons. Segments that share the need your product meets are more promising than segments that simply look large.
• Budget for product change. Ansoff's own definition expects some modification, and localization, compliance or integrations often cost more than planned.
• Check channel access early. A segment you cannot reach through your existing or affordable channels is a poor first move, however attractive it looks.
• Test before you commit. A few interviews and a small ad test can remove a weak segment in weeks and save a costly entry.
• Enter one segment at a time where possible. Each new market needs its own learning, and splitting a small team across several usually slows all of them.
• Write down the stop conditions before launch. Market entries are hard to abandon once teams and partners are committed.

Common Mistakes

• Choosing segments by size alone: A large segment with no pressing need for your product will absorb budget without results. Weigh fit as heavily as size.
• Assuming the product sells unchanged: New markets often need new features, language, compliance or pricing. Include these costs in the plan from the start.
• Copying the home-market playbook: Channels, messaging and sales cycles that work at home may not work in a new segment. Test the go-to-market approach as well as demand.
• Skipping validation because the logic seems obvious: Desk research can make a segment look ideal. Talk to buyers before committing a team.
• Entering several markets at once with a small team: Spreading effort thin delays learning everywhere. Sequence entries and move to the next segment when the first shows a repeatable motion.

References

• Examples: Worked examples and scenarios
• FAQ: Frequently asked questions
• Parent Method: Ansoff Matrix

Related Skills

• Mapping Growth Options to the Ansoff Grid
• Evaluating Market Penetration Strategies
• Assessing Diversification Risk and Opportunity
• Defining Target Markets for Expansion Strategies
• Product Development Strategy: Designing Growth Paths
• Digital Marketing Channels for Each Ansoff Quadrant

Sources

• H. Igor Ansoff: Strategies for Diversification, Harvard Business Review, 1957
• Wikipedia: Market development
• Wikipedia: Market segmentation
• Smart Insights: The Ansoff Model

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