Chapter 8. Penetrating New Markets

The Point: Business executives appreciate the daunting challenges associated with entering new markets, whether located in a neighboring town or distant continent. Despite realizing that the rules of the game can be quite different in new markets, sports-minded corporations, teams, leagues, and even athletes occasionally try to simply port their existing business strategies. They have done so with mixed results; results that provide valuable clues as to how best to penetrate desirable markets.

Selling products and services globally, or even to untapped local markets for that matter, can be a tricky proposition. However, successfully penetrating "foreign" markets can also provide greater credibility to your brand name and result in increased shareholder value, provided the intricacies associated with entering new markets are swiftly handled.

For those companies that choose to sell products or services abroad (however you define "abroad"), regulatory and distribution issues are prevalent. When a business moves from city to city or state to state, it must deal with the challenges of target marketing, nuances in buyer behavior, and assessing competitive environments. The dividends paid for successfully taking a business "abroad," however, are enormous and help cement a company's leadership position within its industry.

When Brian (an Olympic marathon runner) and Jennifer (a food science major) Maxwell founded the nutritional bar company Powerbar in 1986, they made the bars in their California kitchen and personally handed them out one at a time at running and other endurance events.

Once they decided to grow the business they recognized that they needed a game plan because it was unfeasible for them to personally attend every demographically appealing event in neighboring regions. Simultaneously, the Maxwells needed a comprehensive strategy and working capital.

With $250,000 in venture capital and a strategy focusing on their niche customer, avid runners, Powerbar set out to gain brand awareness and credibility by sponsoring races and placing free samples into post-race bags. The distribution strategy was predicated on getting the bars into nutritional stores across the country.

Soon, the making of the Powerbars involved line workers in Idaho and packaging people in North Carolina. Offices were eventually opened in Canada and Europe and, in 1999, sales reached more than $135 million, when Nestle, the world's largest food company, bought out the Maxwells.

By systematically expanding their products' distribution based on consumer preferences within specifically targeted markets, Powerbar's penetration into what it identified as new markets paid enormous dividends.

Although not all small business entrepreneurs are intent on expanding their business, many share a common dream to be as big and revered as possible.

Powerbar's success in penetrating new markets was achieved, in part, through methodical planning. The planning that enabled Powerbar to help create a $680 million industry now must be continued by Nestle, which is now being challenged by Clif Bar for the lead in the energy bar market. Other large companies, like Unilever which acquired Slimfast and Kellogg which bought Kashi GoLean bars certainly aren't compromised by lack of global distribution. Despite this competition or perhaps because of it Powerbar continues to reinforce its core identity and brand, most notably through community and grassroots marketing programs. They might be owned by Nestle but the look and feel of the "old" Powerbar remains.

Many small companies that don't thoroughly analyze the prevailing issues and concerns in new markets before setting out to conquer them find themselves facing community and public relations backlashes, as well financial setbacks. If you thought local, regional, and international business indiscretions and oversights were limited to small companies lacking adequate market research staffs, think again.

Even marketing powerhouse McDonald's has committed high-profile marketing gaffes. For example, it offended Muslims by printing the flags of the 24 nations competing in the 1994 World Cup on two million throw-away bags. The Saudi Arabian flag contains an important passage from the Koran and should not be discarded as trash according to the Muslim faith.

Nike, too, has had its setbacks. It shot a TV spot for hiking boots in Kenya using Samburu tribesmen. As one of the men speaks in his native Maa, the slogan "Just Do it" appears as a subtitle on the screen. Unfortunately, the translation wasn't quite correct. The tribesman, it turns out, was saying he didn't want the shoes.

In 1997, Nike faced a backlash when a logo on samples of a new Nike shoe looked like it had the word Allah written on them in Arabic. Nike insisted that the point of the design was to show the AIR logo up in flames, but the Council on American-Islamic Relations wanted an apology for the offensive design. Not only was it sacrilegious, but Muslims consider feet to be a naturally unclean part of the body. Although Nike said the shoes were prototypes, some "Air Allahs" still managed to find their way onto store shelves.

However, this miscue pales in comparison to the world-class blunders made by Reebok and Umbro. In 1996, Reebok actually named a women's running shoe after the mythical character Incubus, a demon who had sex with women while they were sleeping.

Reebok indicated that in-house marketers came up with the name. Its legal department checked to make sure no one else had patented it. Unbelievably, though, no one took the obvious step to check the word's meaning in the dictionary or independently confirm that it was a suitable name given the product's target market.

Webster's defines incubus as a spirit or demon thought in medieval times to lie on sleeping persons, especially on women, for the purpose of sexual intercourse. A second definition of the word is simply "nightmare."

In 1999, Umbro which makes gear for England's national soccer team, as well as many other high-profile teams in Europe named a running shoe Zyklon. But it was not until 2002, when the name actually appeared on the shoe, that people realized Zyklon was too similar to Zyklon B, the namesake of the poison gas that was used by the Nazis to kill Jews in concentration camps during World War II.

Jewish activist groups reacted quickly to Umbro's apparent lack of sensitivity. A company spokesperson called the relationship between the name and the poison gas "purely coincidental." But if Umbro was indeed unaware of the coincidence, all company executives had to do was simply enter the word in an Internet search and consider the first couple of references provided. The name was soon changed to Stealth Blanc.

These sports-oriented examples merely illustrate that attempting to market products and services outside a company's comfort zone can be costly in the event cultural norms and sensitivities are not carefully navigated. Companies need to understand the people to whom they are selling and precisely what the product and its attributes mean to these prospective customers.

In terms of using sports to penetrate untapped markets and build market share, perhaps there is no better company to analyze than Nike, itself constantly facing myriad challenges and threats as it increases its global business. Although Nike is an international conglomerate, its approach to penetrating foreign markets yields valuable insight for businesses of all sizes.